Regulating Health Care Plan Fiduciaries

Most non-elderly people in the United States receive their health care through employer-sponsored health insurance (ESI) plans selected by fiduciaries. These fiduciaries have legal responsibilities under the Employee Retirement Income Security Act (ERISA) to act prudently to benefit plan participants. The costs of these ESI plans have risen in the last decade, with one 2023 survey reporting that ESI family premiums rose 22 percent in the prior five years.

Amy B. Monahan and Barak D. Richman argue in a forthcoming article that issues such as the rising costs and declining value of ESI plans are partly due to fiduciaries’ inadequate diligence. Monahan and Richman suggest addressing these shortcomings through new U.S. Department of Labor regulations under ERISA.

Monahan and Richman compare health care and retirement plans, claiming that regulations and enforcement actions outlining fiduciary duties after ERISA’s enactment have improved retirement plans but have not been applied meaningfully to the selection of health plans.

Monahan and Richman argue that legally binding regulations and vigorous enforcement of them, as well as less formal, non-binding guidance, have improved retirement benefits by encouraging careful selection of investment options by fiduciaries and driving down administrative fees.

They state that ERISA’s fiduciary obligations apply to both health and retirement plan decisions and characterize the Labor Department’s lack of rulemaking about health plan fiduciary duties as “a critical failure.” Monahan and Richman add that ERISA preemption, which prevents states from regulating employee benefit plans, has created a “regulatory vacuum,” where neither federal nor state actors are meaningfully acting to implement employer health plan reforms.

They criticize the current state of ESI plans, pointing to rising costs, disproportionate financial burden on the lowest income workers, and lack of choice between plan options for employees. The authors explain that these issues occur partially because employers, even if well intended, lack the information and expertise to accurately select quality ESI plans.  Monahan and Richman claim that recent lawsuits over ESI plans, brought by employees and employers, show dissatisfaction with these shortcomings.

The solution, according to Monahan and Richman, is for the Labor Department to engage in rulemaking that specifies what factors an employer must consider in choosing a health care plan administrator. They argue ERISA requires that fiduciaries determine if a health care plan’s reimbursement rates are reasonable, and Labor Department should make that duty explicit through a rulemaking.

Drawing on the obligations of retirement plan fiduciaries, Monahan and Richman urge the adoption of a rule that would require health care plan fiduciaries to consider administrative fees and attempt to reduce them, but not require the selection of the administrator with the lowest administrative fees.  They argue that such a rule would encourage employers to document why they selected a higher administrative fee option, such as for purposes of providing a more expansive network.

Although network adequacy is difficult to determine, the authors argue that the Labor Department should require employers to be aware of the network structure they have purchased. Furthermore, they claim that requirements under federal regulations governing Medicare Advantage Plans, such as maximum appointment wait times, are a helpful source to fiduciaries for assessing network quality.

Monahan and Richman suggest that the Labor Department should require employers to consider clinical quality rather than only administrative quality. They argue that the Labor Department should require employers to consult with the existing HHS Healthcare Data and Information Set when selecting a plan administrator.

Monahan and Richman argue that the Labor Department should require fiduciaries to consider “value.” This “value” metric would weigh the cost of a plan against the quality of the plan. They state that fiduciaries cannot be required to choose the highest value plan, but that value will be a helpful metric for fiduciaries to distinguish between similar quality plans.

The authors call for the Labor Department to adopt a rule that would require fiduciaries to disclose the cost, quality, and value of the plan selected and all bidders. They recognize this proposal as controversial, but argue that it would help both employers and employees by encouraging transparent communication.

As a way of encouraging employers to maximize the value of ESI plans, Monahan and Richman propose a “regulatory safe harbor.” This provision would deem employers to have fulfilled their fiduciary duties if they select a high-value network option. They explain that the safe harbor does not require employers to provide a high-value option, but rather offers employers who do so reduced litigation risk.

Monahan and Richman state that their proposals may improve ESI plans. Because employee benefits are so widespread in the United States and approximate the seventh largest economy in the world, they claim that improvements to ESI plans will benefit the entire nation’s economy.