The Employee Benefits Security Administration (EBSA) of the U.S. Department of Labor (DOL) has increased enforcement activities concerning health plan fiduciary duties under the Employee Retirement Income Security Act (ERISA). This shift in enforcement priorities demonstrates heightened accountability for plan sponsors to prudently manage plans for the benefit of plan participants, including holding down healthcare costs.
EBSA is the federal agency primarily responsible for administering and enforcing ERISA. The purpose of ERISA is to protect the retirement, health, and other employment-related benefits of American workers by overseeing millions of retirement, health, and welfare benefits plans. ERISA establishes fiduciary duties for plan sponsors that require them to act solely in the best interests of plan participants and their beneficiaries and to defray reasonable plan administration expenses. They also must use the “care, skill, prudence, and diligence that a prudent person would use” in managing the plans.
Historically, EBSA has focused on overseeing pension plans more than health plans. However, in recent months, EBSA has emphasized that plan sponsors cannot delegate their fiduciary duties to third-party administrators, pharmacy benefit managers (PBMs), or other service providers, a common misconception in the past. While plan sponsors can delegate some administrative functions, they retain fiduciary responsibilities for tasks such as selecting service providers, setting fees, and monitoring performance. As a result, close oversight of third-party vendors is required.
MHPAEA Enforcement
EBSA has also increasingly focused its enforcement efforts on the Mental Health Parity and Addiction Equity Act (MHPAEA). The MHPAEA requires that plans placing limits on mental health and substance use disorder benefits ensure that those limits are no more restrictive than limits on medical and surgical benefits. Plans also must perform, document, and make available their analyses of comparative nonquantitative treatment limitations (NQTLs) on mental health and substance use disorder and medical and surgical benefits.
Recent federal court decisions have highlighted enforcement actions against plans that fail to maintain adequate documentation of these comparative analyses and that establish disparate limitations across the different types of benefits. For instance, courts have found MHPAEA violations in cases involving facility-type restrictions, medical necessity criteria, or other more restrictive limits on mental health benefits when compared to medical benefits.
PBM Oversight
EBSA has also ramped up its scrutiny of PBM arrangements, recognizing their impact on prescription drug costs. Issues that have arisen with respect to PBMs include compensation disclosure, conflicts of interest, fiduciary responsibilities, and pass-through of savings from manufacturer rebates or other savings.
Adequacy of Provider Networks
Another area in which EBSA has increased enforcement is network adequacy, especially in terms of providers for mental health and substance use disorders. Common complaints include health plans maintaining inadequate provider networks, forcing plan participants to seek out-of-network care at higher costs, or to forego care. Plans can only meet parity requirements by having sufficient mental health providers and up-to-date, accurate directories.
The No Surprises Act Enforcement
EBSA has also spent increasing time implementing and enforcing the No Surprises Act, which is designed to protect participants from unexpected medical bills for certain types of emergency care. EBSA’s role in enforcing the No Surprises Act is to ensure that plans follow its requirements, process IDR disputes as needed, and avoid improper claim denials or cost-shifting to plan participants.
Under the Act, plans and out-of-network providers must use independent dispute resolution (IDR) processes to resolve payment disputes. The rate of disputes has increased by 119% over the prior year, as employer losses in these disputes often result in charges far higher than in-network rates.
Management of Healthcare Costs
EBSA has increasingly focused on the fiduciary duty of plan sponsors to prudently manage healthcare costs, including premiums, deductibles, and out-of-pocket expenses. As affordability becomes more challenging, Americans have increasingly taken on debt (even when they have health insurance), delayed care, skipped medication doses, or failed to fill prescriptions to save on healthcare costs. Plan fiduciaries play a role in this crisis by failing to contain costs.
As a result, EBSA has increasingly scrutinized whether plan sponsors have negotiated favorable contract terms with service providers that protect plan participants’ interests, especially regarding costs. EBSA is also examining whether plan fiduciaries have monitored vendor performance, evaluated alternative vendors, challenged excessive charges, and engaged in other cost-containment measures.
Health Plan Fee Arrangements
EBSA has shifted its enforcement priorities to health plan fee and compensation arrangements, as it has for similar arrangements in retirement plans. Among the issues that EBSA has focused on are the reasonableness of compensation paid to third-party service providers, the lack of transparency in fee structures, conflicts of interest, and adequate fee benchmarking.
Data Security and Privacy
EBSA has taken an increased interest in the fiduciary obligations of plan fiduciaries to protect the privacy of plan participants and their data from unauthorized access or disclosure. Health plans collect sensitive information about participants, including medical conditions and treatments. Enforcement efforts focus on the adequacy of cybersecurity measures, proper vetting of vendors’ security measures, and the propriety of responses to data breaches.
Procedures for Claims and Appeals Procedures
EBSA has continued to enforce ERISA-required claims and appeals procedures. Recent enforcement efforts have focused on the adequacy of claim denials, the timeliness of the claims and appeals process, the independence of individuals making appeal decisions, the sufficiency of external review rights notice and procedures, and compliance with mental health parity requirements.
Takeaways for Health Plan Fiduciaries
EBSA’s heightened enforcement efforts send a clear signal that health plan sponsors must take their fiduciary responsibilities seriously. Plan sponsors may not delegate these duties to third parties. They must conduct regular oversight of all vendors and service providers to ensure cost-effectiveness, strong performance, and benefits for plan participants.
Failure to meet fiduciary duties can lead to significant financial liability. Fines, reimbursement to plans and plan participants, and criminal violations are all potential adverse consequences of fiduciary violations. Those fiduciary breaches are also generally harmful to plan participants and create higher costs and barriers to necessary healthcare.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.
