Poor Management of Health Plans Will Be Employer Legacy
June 21, 2016
Some employers readily provide free health insurance to their employees. Some engage in “tough” negotiations or use innovative financing techniques to gain temporary health insurance savings. However, most employers simply accept annual health insurance cost increases that they then shift to workers. Workers have no control over how their employers manage health insurance costs. Or do they…?
What Could Happen
When the Affordable Care Act (aka Obamacare) became law, its supporters and opponents anticipated the end of workplace health insurance. So far both are wrong... Now there is a new theory cropping up about the impending demise of workplace health insurance. The theory is that employers are doing such a poor job of managing health insurance costs that they are neglecting their fiduciary duty and opening themselves up to potential lawsuits.
This is an intriguing theory and it is not surprising that it is now getting attention. Employees have filed numerous lawsuits over 401(k) retirement plan fees, so suits over high deductible health plans must be the logical next step. Right? Also, the Department of Labor’s new retirement account fiduciary standards requiring brokers to make recommendations that are in the best interest of their clients could easily be extended to health insurance brokers. Right?
It’s not like employees haven’t sued insurers and employers before over health care related issues. Employers have been sued for:
- denying coverage for specific medical care procedures or inadequate health care (e.g., Wal-Mart)
- firing older workers for potentially having higher health insurance costs
- firing workers with high medical expenses
Hi-Lex had an administrative service contract with BCBSM to use the BCBSM network of participating providers and hospitals and for BCBSM to process payment of health care claims. As a self-funded group, Hi-Lex paid the full cost of claims up to a predetermined limit, but BCBSM handled the claim payment transaction. And in handling the transaction, BCBS jacked up the cost of the claim and pocketed the difference between the actual cost of the claim and what it required Hi-Lex to pay—in essence charging Hi-Lex a hidden fee.
Hi-Lex sued BCBSM for fraud and won. Blue Cross Blue Shield of Michigan was ordered by the court to pay over $6 million to Hi-Lex. But the story doesn’t stop there. As expected, BCBSM appealed the court’s decision claiming that Hi-Lex shared some of the responsibility because they should never have let themselves be ripped off in the first place. And because they did not detect BCBSM’s scheme sooner (it took them about 20 years to file suit), they should pay some kind of penalty to lessen the judgment amount. Unbelievable. Right?
BCBSM lost the appeal, but what if the employees of Hi-Lex Controls decided to pick up where BCBSM left off and sued their employer for breach of fiduciary duty? We don’t know how Hi-Lex found out about BCBSM’s scheme nearly 20 years after contracting with them to process their claims. One account just states that they became suspicious and decided to take BCBS to court. What made them suspicious and should they have noticed the fraud sooner?
So the question remains: Can poor management of a health plan that increases the cost of insurance or medical care for employees cause the death of workplace health insurance? I think it can and will. Employers cannot expect employees to succeed where many of them have failed. Employees won’t routinely accept health care costs increases for as long as employers have.
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Denise Perkins
