Medical plan sponsors are fiduciaries under ERISA, a stance that was strengthened by the Consolidated Appropriations Act (CAA) in 2021. Fiduciary status mandates that plan sponsors act solely in the best interest of plan participants. Since the CAA, lawsuits accusing employers of not fulfilling their fiduciary duty have followed.
The lawsuits we have seen so far could very well end up being only the tip of the iceberg.
The first headline-grabbing breach of fiduciary responsibility lawsuit was Lewandowski vs. Johnson & Johnson, outlined below, along with a newer trend of fiduciary lawsuits related to voluntary life and disability offerings.
What makes these lawsuits just the tip of the iceberg? Life and disability insurance accounts for approximately 0.3% of total benefit spend (U.S. Bureau of Labor Statistics), while prescription drugs account for 9.2% of total health benefits spend (U.S. GAO). That means that these lawsuits have yet to approach the largest portion of annual benefits spend: medical claims. And when those lawsuits do begin, chances are the damages they seek will be proportionate.
Plan Fiduciary Status: The Johnson & Johnson Lawsuit
To date, Lewandowski v. Johnson & Johnson remains the most newsworthy lawsuit regarding the fiduciary duties of a benefit plan sponsor. Employees noticed that uninsured, cash prices, and GoodRx coupons for certain prescriptions had significantly lower out-of-pocket costs than the negotiated rates through the employer-sponsored plan.
At its simplest level, the plaintiffs argued: why should an uninsured person pay less for the same brand medication than an employee paying premiums to participate in the company plan? The claim alleged that the employer failed its fiduciary duty by allowing higher out-of-pocket costs. ”
Ultimately, the lawsuit was dismissed because the plaintiff lacked material damage. More importantly, however, the claim did not shut the door on future claims where material damages are present.
If plan participants were able to demonstrate meaningful financial harm across multiple individuals, the outcome could have been very different. Attorneys specializing in fiduciary litigation are actively looking for such cases.
Now, insert TrumpRx, a highly visible cash-pay prescription pricing initiative, into the equation. There will now be another prominent avenue for members to compare cash prices to the out-of-pocket costs through their own Pharmacy Benefit Manager (PBM). And with attention-grabbing headlines such as “GLP-1s for only $150”, pricing disparities may become increasingly apparent to participants.
Plan Fiduciary Status: Voluntary Life & Disability
On the ancillary side of benefit offerings, multiple class action lawsuits were recently filed by Schlicter Bogard LLC. These suits claim that employers failed to ensure reasonable costs for voluntary life and disability premiums. The suit also claims brokers have a fiduciary responsibility. Some of these suits specifically target broker commission as “unreasonable.”
These cases are in the early stage of litigation, and their resolution will help set a precedent. One of the biggest hurdles to overcome is whether voluntary life and disability offerings constitute ERISA-covered employee benefit welfare plans. It is worth monitoring the ultimate resolution of these lawsuits.
What Employers Should Do
Ultimately, these fiduciary lawsuits are not going to slow down anytime soon. If anything, we expect these to increase, especially as precedent is established through more court rulings.
I find it interesting that the Schlicter Bogard lawsuit specifically uses the term “brokers”, because this is something an employer should consider. Now, more than ever, companies need to partner with consultants over agents and brokers.
Consultants evaluate the market, are transparent, and advise based on data (which they are willing to provide). They understand the fiduciary rulings and provide resources to help clients protect themselves and mitigate risks. If you aren’t currently with a consultant, it may be time to evaluate your broker.
When evaluating business partners, it is critical to choose a consultant who understands the details of fiduciary responsibility, provides you with the necessary data to make informed decisions, and can guide you through decision-making. The days of “our advisor says this is the best for employees” are likely ending, to be replaced by “we reviewed these PBMs/TPAs/Carriers options on a defined cadence, analyzed the data, and elected this approach based on documented outcomes.
That process will increasingly define fiduciary protection.