An advisor is well served to evaluate how they can provide support for the unique health plan ecosystem.
I live in Washington, D.C. It’s well known that Washington can be an echo chamber, where one rumor gets repeated over and over—until it almost becomes a fact.
The benefits industry is similar. In the fall of 2022, many kept hearing that “the new fiduciary rule” would be out by the end of the year.
In reality, a new fiduciary rule had never even been submitted to the Office of Management and Budget review process (which you can check online), which meant it was nowhere near being issued. So, what’s the newest rumor? A wave of 401(k)-like fiduciary litigation is coming to health plans.
So, let’s cut to the basics of rumor versus reality, starting with reality:
- ERISA has always applied to health and retirement plans. ERISA’s provisions for health plans are basically the same as those for retirement plans, although there are some differences in the regulations for the two types of plans. Of course, health plans can be subject to other laws—like the Affordable Care Act, COBRA, GINA, HIPAA, and more.
- The distinction between settlor and fiduciary duties applies to health plans just like retirement plans. Importantly, selecting the features of a plan, including coverage items, copays, and premiums, are design, not administration activities.
- Some employers have their retirement plan committees serve in a fiduciary role for their health plans, some employers have separate committees, and some employers take other approaches. There is no one required approach.
- As enacted in late 2020, the Consolidated Appropriations Act does add some transparency requirements for health care coverage, including limiting the use of specific gag clauses. Still, it does not require a complete “open book” of health plan contract provisions and operational activities. In fact, proposed legislation would now further expand the transparency and disclosure rules for health plans and their services, so if it was indeed an “open book” now, this proposed legislation would serve no purpose.
- Lawsuits have already been filed about compensation paid to various providers supporting health care plans. For example, in one case our firm defended, consultant and broker compensation for a health plan was challenged by a well-known 401(k) fee litigation firm, and the courts dismissed the claim both at the trial and appeals levels.
- Large plaintiffs-side 401(k) fee lawsuit law firms continue to consider bringing 401(k)-style lawsuits against health plans. While there are evolving theories on the plaintiff’s side, none have “stuck” with significant success at this point.
- Advisors can play a helpful role in fiduciary matters for health plans while keeping in mind the settlor and fiduciary distinctions so essential in determining what is a fiduciary act—and what is not.
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On the rumor side:
- Just because a plaintiff’s attorney and their firm say they are “investigating” large employers’ health plans does not mean a tsunami of litigation is automatically coming. Once, there was a belief of never-ending lawsuits over cash balance pension plans, church plans, and company stock in 401(k) plans. However, these types of lawsuits have significantly receded in recent years. Could lawsuits proceed? Yes, but we will have to see where things go.
- Health plans are often well supported by their existing brokers and consultants. Like in the retirement space, are there opportunities for new providers? Absolutely. However, it is not the untouched field where a retirement advisor applies the same knowledge. Advisors looking to support the health plans of their clients should look before they leap to make sure they understand the existing landscape with their clients as well as their own knowledge and resources. Also, for those working in consolidated or aggregated firms, you may already have teams focused on this area, and looking at their skills is important.
So where to go from here? Retirement advisors have great insight they can bring to health plans. Still, before we create a reality of waves of health litigation, an advisor is well served to evaluate how they can provide support for the unique health plan ecosystem.
David N. Levine is a principal with Groom Law Group, Chartered, in Washington, DC. This column originally appeared in the Fall issue of NAPA Net the Magazine.
