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Recoupment or Embezzlement? Cross-plan Offsets in the Crosshairs

By Andrew Silverio

When a self funded employee benefit plan, or indeed any payer of health benefits, overpays a benefit claim to a medical provider, it is often a tall task to later secure refunds.  This is especially true when the payment, even if clearly an “overpayment” pursuant to the terms of the plan document or policy, is still less than the amount of the provider’s billed charges.  From the provider’s prospective, they have received less than the amount of their bill, and from the payer’s perspective, the beneficiary and/or provider have been paid more in benefits than they are entitled to.  It is no surprise, then, that payers have developed various methods to facilitate overpayment recoveries beyond simply asking for refunds.  One of the most common such methods is “offsetting”, reducing the amount of future benefit claims to “cancel out” a previous overpayment.


The practice of offsetting claims as a method of overpayment recovery has been the subject of much conflict, and more than handful of lawsuits in the past months and years, and the practice does indeed appear more objectionable the farther removed the claims being offset are from the original overpayment.  For example, reducing a later benefit claim from the same plan participant for treatment at the same facility may seem perfectly reasonable.  However, reducing a benefit claim from another, unrelated participant may seem unjust, as the plan participant whose benefit payments are being reduced will be subject to additional exposure from the provider, despite having no connection to the original overpayment.

A major step beyond this practice of cross-participant offset is the primary conduct in question in Red oak Hospital, LLC v. AT&T Inc., AT&T Savings and Security Plan, and Larry Ruzicka, case 4:16-cv-01542 (S.Dist. TX, June 01, 2016).  In this case, it is alleged that United HealthCare, acting as claims administrator for AT&T’s self funded benefit plan under an ASO arrangement, violated ERISA by recouping claims overpaid by the plan from future claims submitted to a different payer, even, as is alleged, a fully-insured plan insured by United.  If true, this would mean that self-funded plan assets are essentially being converted into United HealthCare assets under the guise of overpayment recoupment. The Plaintiff’s complaint goes so far as to describe the practice as:

. . . an elaborate scheme to abstract, withhold, embezzle and convert self-insured Plan Assets that were approved and allegedly paid to Plaintiff for Plaintiff’s claim, to purportedly, but impermissibly, satisfy a falsely alleged ‘overpayment’ for another stranger claim, especially when the stranger is a plan beneficiary of a fully-insured plan that is insured by the Plan’s co-fiduciary, United Healthcare . . . Defendants knew or should have known . . . that converting the Plan Assets by a fiduciary or co-fiduciary of the Plan, in this case United, to the use of another and ultimately its own use, to pay to its own account is absolutely prohibited under ERISA statutes.

The complaint continues:

Defendants and United continued to conceal this kind of unlawful embezzlement and conversion of Plan Assets, camouflaged as overpayment recoupment or offset, even after becoming fully aware of   this self-dealing and embezzlement through investigation by the Department of Labor and repeated appeals, notices, and alerts from Plaintiff.  Defendants failed to remedy the verified embezzlement even after investigation by the Department of Labor and at least three (3) levels of administrative appeals, notices, and alerts by Plaintiff.

This complaint is not the first against UnitedHealth, and similar complaints have been filed against other large carriers acting as ASO claim administrators in the self-funded realm, such as Cigna. Interestingly, United HealthCare, the alleged perpetrator of the conduct in question, is not a party to the action.  The benefit plan itself, AT&T (as Plan Sponsor), and the plan’s individual Plan Administrator are collectively named as Defendants.  Employers and advocates of self funding everywhere should be cognizant of this fact – as plan fiduciaries, any of these parties can be found liable, and there is no better reason to seek out trustworthy and transparent partners.