By: Andrew Silverio, Esq.
On March 5, 2021, the northern district of California came down with a decision that is causing some justifiable concern among TPAs in California and beyond. The root of the dispute is a self-funded plan’s application of its exclusion for Applied Behavioral Analysis (“ABA”) therapy for treatment of autism, but notably, the lawsuit is brought not against the employer or plan, but against United Behavioral Health and United Healthcare Services, the plan’s claims administrator (collectively “United.”)
The interesting conversation here revolves around the question of whether United, by applying the plain language of the plan in enforcing its ABA exclusion, was performing a fiduciary act. The Court cited the appropriate case law, most notably Aetna Health Inc. v. Davila, 542 U.S. 200, 218-19 (2004), which held that “‘A benefit determination under ERISA . . . is generally a fiduciary act’ and is ‘part and parcel of the ordinary fiduciary responsibilities connected to the administration of a plan.’” In its analysis, however, the court essentially disregards the myriad of case law outlining that a claims administrator is not exercising discretion and therefore not engaging in a fiduciary act when it acts in a purely ministerial nature. Discussion often revolves around whether ambiguous or vague plan terms are being interpreted, drawing the distinction between that distinction and the situation here – when the claims administrator is simply applying the clear written terms of the plan as established by the employer. In essence, the court interpreted a “benefit determination … is generally a fiduciary act” as meaning that a benefit determination is a fiduciary act… period, foreclosing the possibility of all the exceptions that “generally” necessarily invites. It found that by applying this clear ABA exclusion, United exercised discretion and rendered itself a fiduciary. The reason for alarm here is clear – under this standard, essentially any claim determination, no matter how routine or how clearly the plan terms dictate the outcome, could subject a TPA to fiduciary liability.
The silver lining, at least at this point, could be that rather than willingly creating new law, the court seems to have simply applied existing law incorrectly. It would come as a surprise to us if this decision was upheld at the circuit level – but if that happens, TPAs will want to take steps to ensure they are protected from the additional potential liability.
By: Jon Jablon, Esq.
The concept of “discretionary authority” within a plan document can be somewhat esoteric. After all, Plan Administrators have to make decisions sometimes; even if the SPD doesn’t explicitly provide the Plan Administrator with the discretionary authority to interpret the provisions of the SPD (which it always should), practically speaking, the Plan Administrator could not possibly administer the plan without exercising some degree of discretion.
Let’s break down what discretionary authority really is, and what it really isn’t. The easiest way is to give a real-life example of something that our consulting department has worked on extensively; here are the facts: a VIP of the plan was driving while intoxicated after an evening work function. The police report would later provide that despite being intoxicated (as tested at the scene), the driver was obeying all traffic rules and did not cause the accident; instead, the accident was caused when a pickup truck slid on some ice, through a stop sign, and t-boned the intoxicated driver’s car. Again – not the intoxicated driver’s fault. But, the SPD language provides that the plan will not pay any expenses for injuries sustained while a plan member is driving while intoxicated. Not caused by the intoxication – but simply while the driver is intoxicated. This is not uncommon, and of course is designed to disincentivize employees from driving while intoxicated.
Eventually, it came time for the Plan Administrator to review the claims and the circumstances under which they arose. The Plan Administrator cited the Plan’s standard discretionary authority language – giving the Plan Administrator the discretion to interpret the terms of the plan and decide questions of fact – and ultimately determined that the member’s intoxicated driving, while not ideal, did not cause the accident, and the Plan subsequently paid the claims. The issue arose when stop-loss denied the claim down the line; the carrier’s denial noted not that the claim was not payable due to a strict interpretation of the SPD (which should have been the reason), but instead the carrier gave the denial reasoning that the Plan Administrator did not have the discretion to make this determination. That incensed the Plan Administrator, since the Plan Administrator felt that the discretionary authority language in the SPD was proof that it did, in fact, have this discretion. (After all, what is that language for, if not to give discretion to the Plan Administrator?!)
Despite the carrier’s odd choice of wording, the carrier is technically correct. A Plan Administrator’s discretion is not absolute; it extends to applying the terms of the SPD or making factual determinations. In this case, the SPD was clear, and the Plan Administrator incorrectly used its discretion to override the terms of the SPD, which is not the purpose of that language. By that logic, the Plan Administrator would have the authority to arbitrarily pay or deny any claims, which is certainly not the intent of ERISA. And what about stop-loss?! Just imagine how a plan could ever be underwritten if that were the case. The fact is, the Plan Administrator’s discretion may be broad, but it does not allow the Plan Administrator to choose to cover something that is explicitly excluded.
Instead, the function of the discretionary authority language is for the Plan Administrator to be able to interpret provisions that may be ambiguous or unclear in any way. It’s effectively an extension of plan language, rather than a vehicle for changing plan language; ideally, the SPD language will be drafted as clearly as possible, but it’s just not realistic to expect the language to perfectly account for every conceivable situation. A good way to conceptualize discretionary authority is like a court making decisions about what it felt the drafters of the Constitution actually meant. The courts can’t change the Constitution, but they can decide what they think it means. Same goes for the Plan Administrator.
If you need help interpreting plan language, or if you need help understanding the extent of a Plan Administrator’s discretion, or anything else, please don’t hesitate to get in touch with The Phia Group’s consulting department, at PGCReferral@phiagroup.com.
We hear a lot of chatter in the self-funded industry about “plan mirroring.” The idea is that a stop-loss carrier will adopt the same language as what is in the SPD, in effect “mirroring” the language, and that gets rid of what we at Phia like to call “hard gaps,” where the plan and carrier are working off different language, leading to situations where the plan must pay claims but the carrier may deny them. The point of mirroring the SPD’s language is so the plan never needs to worry about those kinds of gaps.
But there are other kinds of gaps, too. Gaps tend to arise when different entities are interpreting the same language, as well (we call those “soft gaps”) – and it is crucial to keep in mind that a policy that mirrors the plan’s terms is not the same as the carrier adopting the plan’s interpretation of those terms.
Let’s talk about an example. We have mentioned this particular situation numerous times; it’s not because we’re too lazy to think of new examples, but because it keeps on happening! The SPD excludes any benefits paid for services performed by a family member. A plan member has a great uncle who is a surgeon, and elects to have him perform the surgery partially because of the great price he has offered, and partially because he knows and trusts him. As far as the plan member is concerned, this is a win-win. The claim is sent to the health plan, and the Plan Administrator uses its discretion to determine that “family member” does not include someone as attenuated as a great uncle (since the Plan Administrator interprets that term “family member” to refer to the immediate family), so the plan pays the claim, and expects that the carrier will agree, since the policy “mirrors” the plan.
Well, you can guess what happens next.
The claim goes to the stop-loss carrier, and the carrier denies the claim because its interpretation of “family member” is broader than the Plan Administrator’s interpretation, indeed including great uncle within the class of “family members.” The carrier denies the claim. The plan is both confused and angry, and thus begins a protracted fight between the plan/TPA/broker and the stop-loss carrier, caused by the carrier’s overly-salesy and idealistic explanation to the plan, TPA, and broker what mirroring actually entails.
In short, plan mirroring entails using the same language, but it does not necessarily entail thinking the same things. The carrier adopted the same exclusion that the plan uses, but the carrier cannot control how the plan interprets that exclusion, nor can the plan be underwritten based on what interpretations of the plan language the Plan Administrator could conceivably make in the future. The carrier, after all, is not a psychic – and because of that, it is the carrier’s responsibility to make absolutely sure the health plan understands what “mirroring” really entails, and what it doesn’t entail. The concept of plan mirroring in a stop-loss policy is not quite as straightforward and magical as it seems. It is certainly useful to minimize the gaps in the language used, but it’s not a panacea.
This applies just as clearly, if not more so, in the level-funded arena, where level-funded plans expect to have their expenses capped based on a guarantee that the carrier will cover all their claims above the aggregate deductible. When there is a difference in interpretation that leads to a denial, the plan is left holding the bill, and often has no idea why – especially when level-funded plans are marketed essentially as programs that mimic fully-insured policies. The important difference is that in a fully-insured policy, the plan sponsor pays its monthly premium and there is no possibility of being on the hook for claims – whereas in a level-funded program, the plan sponsor can lose its expected reimbursement if the stop-loss carrier doesn’t agree with the Plan Administrator’s discretionary decision.
Plan mirroring provisions are sometimes marketed to make a stop-loss policy airtight for the plan, but don’t be fooled by the hype: there is always still the potential for a gap somewhere along the way. Make sure you read and understand your contracts and policies before you sign, and if possible, have them reviewed by an expert!
By: Kevin Brady, Esq.
On November 15, 2019, the Department of Health and Human Services, along with the Department of the Treasury, and the Department of Labor, issued proposed rules related to "Transparency in Coverage." These proposed rules come fresh off the heels of the executive order issued by President Trump in June of this year calling for increased transparency in the cost of health care, and the cost of coverage.
As made clear by the title of the proposed rules, the goal of the executive order, and the resulting proposed rules, is to make the cost of health care transparent for patients. Generally speaking, the proposed rules will require group health plans to make certain disclosures to plan members about the possible cost-sharing liability for the member, accumulated amounts (amounts paid by the member toward deductibles and out of pocket max), negotiated rates (payments by the plan to in-network providers for certain services) among other required disclosures.
The proposed rules impose disclosure requirements on group health plans and hopefully, these disclosures will help to avail the potential costs of coverage to its plan members. In practice, these required disclosures should empower self-funded group health plans. Self-funded plans are organized to pay for the health care expenses of their employees; they’re not organized to profit off of the employee premiums and therefore should benefit from increased transparency when it comes to pricing. While the long-term impact of the proposed rules cannot yet be determined, it is possible that network discounts may become more meaningful and group health plans may have more flexibility in terms of steering their plan members to more cost-effective providers. Regardless of the direct impact on group health plans, plan members will be empowered as a result of the rules.
Transparency in health care pricing is long overdue. Imagine going to a new restaurant and ordering an apple pie (an apple pie a day keeps the doctor away… do I have that right?), you don’t see the price on the menu but hey, how expensive can it be right? So you get the pie, you eat the whole thing and the next thing you know, the bill comes. You’re shocked to see that its $100.00. Would you have ordered the pie if you knew the cost? Or would you have gone to the diner across the street that sells an apple pie – that may taste even better - for a fraction of the cost? Without transparency in health care pricing, patients incur claims (eat pies) without regard to the overall (billed charges) or individual (cost of the service after cost-sharing) costs of that service. This is untenable.
In almost every other area of our lives as consumers, we are provided with the cost of a product or service before we purchase or use it; we then have the ability to utilize widely available, and easily accessible, data (thanks google) to compare those prices with other potential vendors or business and eventually ensure that the cost is reasonable, and in-line with our expectations before we make the purchase. This same access to information should be available to consumers of healthcare as well.
It is our hope that the proposed rules for transparency will not only avail the cost of health care to patients, but that a shift in the mindset of those patients to be more responsible consumers will result as well. This shift should not only benefit the patients themselves, but ultimately should help to curb the costs for their health plans as well. Eventually, as the cost of health care becomes more widely available (and just as importantly, digestible) for patients, the days of uninformed and frankly uninterested plan participants may be coming to an end. A great example of the power of information, and specifically, looking at health care through the lens of a consumer can be found right here at Phia.
Here, plan participants are encouraged to be informed consumers when it comes to health care. Transparency (between the Plan and its members) about the costs of coverage, and how active participation by members will ultimately benefit each covered individual, has helped the Phia Group avoid some of the major financial setbacks that commonly befall group health plans who do not otherwise encourage informed decision-making when it comes to health care.
Year after year, our personal costs (premiums and cost-sharing) remain incredibly low, while our benefit offerings continue to improve. This would not be possible if we (the members) did not approach health care as consumers. By encouraging participants to be informed- when it comes to the treatment options, proactive- when considering providers and their associated costs, diligent- when reviewing personal medical bills for errors and erroneous charges, and engaged- when it comes to our overall health, Phia has been able to effectively contain health care costs despite the lack of total transparency.
While the long-term impact of the proposed rules is yet to be seen, any change to the current system that increases transparency and encourages individuals to be responsible consumers of health care should help curb the rising costs in our health care system and the way in which we all participate in it.
By: Philip Qualo, J.D.
For employers who sponsor calendar year self-funded group health plans, the Fall season can be a very hectic time of year. This is usually the time of year that many employer plan sponsors begin reviewing their benefits in the context of the evolving needs of their workforce, and of course, plan costs. Based on my own experience in preparing The Phia Group health plan for the 2020 plan year, I have compiled several helpful tips for employer plan sponsors to keep in mind as they review their group health plans for the new plan year.
Know Your Workforce
Although U.S. job growth has been consistently strong in recent years, a low unemployment rate indicates there are more jobs than there are job seekers. Because of the limited pool of job seekers, and increasingly high quit rates, employers are reviewing their compensation packages, and more importantly, their benefit offerings, to assess what advantage they may have or need to attract and retain top talent. As such, employer plan sponsors should take the time to survey their workforce demographics and consider whether current benefit options are consistent with the needs of their current employees as well as future ones they seek to attract. For example, an aging or younger workforce may mean certain benefits are more or less important today than then they were a few years ago.
Employer plan sponsors should take the time to identify and analyze claim expenditures and benefit utilization for the current, and even prior, plan years. This allows employer plan sponsors to assess the financial health of their group health plans and identify benefits that are particularly costly or heavily utilized. By being proactive and identifying costly patterns, employer plan sponsors are empowered with the tools necessary to explore permissible cost-effective plan design options and cost-containment incentives to address high cost plan expenditures in the upcoming plan year.
Federal rules applicable to group health plans are constantly changing, whether it is due to new legislation or Court decisions establishing new precedent. Thus, employer plan sponsors should take the time to review their benefit offerings, Plan Documents, and/or Summary Plan Descriptions to ensure their group health plans are still compliant with the most current regulatory landscape. Failure to maintain or update benefits, Plan Documents and/or Summary Plan Descriptions in compliance with federal laws may result in costly penalties.
Internal Revenue Code (IRC) Section 105(h) prohibits self-funded group health plans from discriminating in favor of “highly compensated individuals” (HCIs) and against non-HCIs as to eligibility to participate and benefits available under the plan. If an employer’s group health plan treats all of its employees the same for purposes of health plan coverage (i.e., eligibility, contributions, and benefits are the same for all employees), the risk of violating Section 105(h) nondiscrimination rules is low.
For employer sponsored group health plans that vary eligibility and benefits among distinct classes of employees, Section 105(h) nondiscrimination testing should be conducted at least annually, preferably before the start of each plan year. A self-funded health plan cannot correct a failed discrimination test by making corrective distributions after the end of a plan year. If a self-funded health plan fails nondiscrimination testing, HCIs will be taxed on any excess reimbursements from the plan. Thus, depending on the plan’s design, an employer may wish to monitor group health plan compliance with Section 105(h) rules throughout the plan year to avoid adverse tax consequences for HCIs.
Employer plan sponsors that decide to make changes to their group health plan for a new plan year should make sure any relevant changes to the Plan Document are clearly communicated to the applicable stop-loss carrier. It is also advisable for all plan sponsors to review the content of their Plan Documents against the applicable stop-loss policy to identify and resolve potential gaps in coverage. Failure to communicate relevant health plan changes to the carrier or identify potential gaps between the Plan Document and the stop-loss policy may result in significant issues with stop-loss reimbursement in the new plan year.