Lawsuit Draws Attention to Fiduciary Responsibilities

A class action lawsuit recently filed against Johnson & Johnson (J&J) is causing many employers that sponsor a group health plan – especially self-insured plans – to evaluate whether they are meeting their fiduciary responsibilities. Generally, the lawsuit alleges that J&J mismanaged its self-insured health plan’s prescription drug benefits, resulting in unnecessarily high costs to employees to the tune of millions of dollars.

In this blog, we’ll discuss fiduciary duties and identify ways employers can meet the requirements that apply to them. Next month, Director of Pharmacy Benefits Tracy Johnson will discuss how The Miller Group helps our clients avoid the mistakes alleged to have been made by J&J.

Background

The Employee Retirement Income Security Act (ERISA) has long imposed certain standards – called fiduciary duties – on employers that sponsor a group health plan and the individuals responsible for managing it. The primary fiduciary duties are to:

• Act solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them (in other words, avoid conflicts of interest)
• Pay only reasonable plan expenses (this is the main duty J&J is alleged to have violated)
• Carry out their duties prudently (such as by making sure you have the necessary expertise to make decisions and document the basis for those decisions)
• Follow the plan documents (unless inconsistent with ERISA)
• And more duties that are not applicable to most of our clients

Who is responsible for exercising fiduciary duties?

“Fiduciaries” are responsible for exercising fiduciary duties. A fiduciary is someone who occupies a position of trust with regard to the money or property of others, including a group health plan. This could include designated fiduciaries as well as others who manage the plan or assets of the plan.  

For a fully insured plan, the carrier usually has primary fiduciary responsibilities. However, there should also be at least one designated fiduciary who works for the employer.

For self-insured plans, it’s up to the employer to decide who to designate as fiduciaries. Employers should know that: 1) TPAs will not usually act as a fiduciary to the plan (make sure you know whether they will and to what extent when you retain their services), and 2) benefits brokers are not fiduciaries to their clients’ group health plans. 

What do fiduciaries have to do?

From a very broad perspective, fiduciaries must operate the group health plan with a high degree of responsibility and care. This may include a wide range of activities, such as:

• Designating, in writing, who the fiduciaries for the group health plan are
• Making sure the plan pays reasonable fees for services
• Reviewing and negotiating all agreements/contracts relating to the plan
• Monitoring the performance of carriers, TPAs, vendors and other service providers to the plan
• Processing claims appropriately
• Responding to participant requests for plan documents and providing other legally required information
• Having a fiduciary committee and fiduciary process
• And a variety of other activities, such as compliance with the many requirements of the Consolidated Appropriations Act of 2021. (Take a look into our two-part blog series, Part 1; Part 2)

Keep in mind that this is a vast and complicated topic, and we can only touch the surface of it in a blog.

In the coming months, The Miller Group will send out additional information and compliance tools. In the meantime, this guide from the U.S. Department of Labor provides a more extensive discussion of employers’ fiduciary responsibilities under a group health plan.