Fiduciary Responsibility in Health Plans: Key Insights from Our Recent Update
Written by: Michelle Folk, Account Director
Today, our Senior Vice President of Operations, Kyle McLemore, delivered a valuable update on fiduciary responsibilities within the framework of the Consolidated Appropriations Act (CAA) and the Employee Retirement Income Security Act (ERISA). I had the privilege of joining Kyle during the webinar, and I believe this information is essential for employers who make decisions regarding employee health benefits. The session covered a lot of important insights, and I’d like to break down the key points discussed, along with some of the questions we received during the Q&A. Our aim is to help you fully understand your role as a fiduciary and ensure that your decisions are both legally compliant and financially sound.
What Does It Mean to Be a Fiduciary?
In the world of employee benefits, a fiduciary is any person or entity that has authority or control over an employer-sponsored benefit plan or its management. This includes both an employer and the individual employees who assist in facilitating a company’s benefit offerings. Under ERISA, fiduciaries must manage plan assets prudently, avoid conflicts of interest, and always act with the participants’ best interests at heart. The CAA added additional transparency measures and disclosure requirements.
If you’re involved in making decisions for your company’s health plan, you are likely a fiduciary. Whether you’re part of a benefits committee, a CFO, or even a manager making decisions about plan options, you are responsible for ensuring those decisions are well-documented and align with your fiduciary duties.
Why Does the Government Care About Your Decisions?
Healthcare spending constitutes a significant portion of the U.S. GDP, with employer-sponsored health plans accounting for nearly 20% of that total. In recent years, premiums and out-of-pocket costs have risen faster than household income, placing a heavy burden on employees. For example, family health insurance premiums rose by 27% over a seven-year timeframe, while wages stayed relatively flat. This growing disparity has prompted the federal government to take action, ensuring that employer health plans are being managed responsibly and efficiently.
The Johnson & Johnson lawsuit is a prime example of what happens when employees feel their employers are not making sound financial decisions regarding benefits, such as pharmacy plans. In this particular instance, the company faced a class-action lawsuit in which employees alleged that the employer failed to act prudently in managing its healthcare benefits, specifically around its pharmacy benefit management (PBM) arrangements. The plaintiffs claimed that J&J had made decisions that were financially disadvantageous to plan participants, particularly regarding the costs of prescription drugs and the role of the PBM in negotiating drug prices and rebates. The federal government now wants to ensure that employers are being more responsible with the funds spent on employee healthcare, prompting a greater focus on fiduciary duties, especially regarding healthcare transparency.
How Do You Ensure You’re Being a Good Steward of Your Plan?
As a fiduciary, you are legally required to document your decisions and make prudent choices in the best interests of your employees. To help ensure that you are meeting these responsibilities, you need access to high-quality, in-depth data about your healthcare plan. That’s where BSI comes in. Over the past five years, we’ve helped our clients gain access to detailed data that empowers them to make the most informed decisions possible.
This level of detailed information allows you to make informed decisions, mitigate risks, and avoid costly mistakes. The more data you have access to, the better you can ensure your plan is functioning as intended and benefiting your employees.
“I believe the most valuable tool in this phase of the fiduciary process is having a robust data platform, so you can track your claims at a granular level and compare your data against others. This enables a group to take the next step in regards to benchmarking.” – Kyle McLemore, SVP, Operations
Forming a Fiduciary Committee
Forming a fiduciary committee is a critical step in ensuring compliance with ERISA and CAA requirements. The committee’s main duty is to monitor the performance of the company’s employee benefit plans and ensure that decisions are made in the best interests of the participants.
What should a fiduciary committee look like? The committee should include individuals with the knowledge and expertise to make informed decisions regarding employee benefits. Typically, this would include senior executives (such as the CEO or CFO), HR professionals familiar with benefits administration, and individuals with expertise in legal or financial matters.
Can one committee oversee both retirement and benefits plans? It is possible for one committee to oversee both retirement plans and healthcare benefits, especially for smaller companies. However, it’s important to recognize that managing a retirement plan (which involves investment decisions and fiduciary responsibility) is very different from overseeing a healthcare benefits plan (which deals with insurance regulations and cost management). In larger companies or those with complex plans, it may be more efficient to have separate committees to focus on each area, ensuring that the members’ expertise is tailored to each plan’s specific needs.
Documenting Fiduciary Decisions: The Key to Avoiding Legal Risks
One of the most important aspects of being a fiduciary is properly documenting your decisions. Whether you are self-funded or fully insured, having access to comprehensive data is crucial. BSI’s reporting includes monthly claims reports and pharmacy benefit data that give a detailed view of how your plans are performing. It is essential to keep track of this data and use it for future decision-making.
When making decisions regarding healthcare plans, especially in areas like pharmacy benefits or mental health care, it’s essential to document both the decisions and the reasons behind them. This documentation serves as protection in case of an audit or potential legal action. For example, if you are making changes to a pharmacy benefit manager (PBM) contract, ensure you have a clear, documented strategy, and a way to measure its effectiveness over time.
What Should Employers Do Next?
- Access and Review Data: Ensure you have access to the necessary data to monitor and adjust your healthcare plan.
- Document All Decisions: Whether it’s a change in your healthcare plan design, a new contract with a PBM, or any other significant decision, make sure it’s documented thoroughly.
- Focus on Transparency: Ensure that your healthcare providers are adhering to transparency rules, and verify that there are no gag clauses in their contracts.
- Benchmark and Analyze: Use benchmarking tools to compare your plan’s performance against industry standards, making sure your plan remains competitive.
At BSI, we’re committed to helping you navigate these complexities. Whether you need help documenting your fiduciary process, analyzing your data, or understanding CAA requirements, our team is here to support you every step of the way.
Final Thoughts
As a fiduciary, your decisions today will impact your employees’ benefits and your company’s financial health for years to come. By leveraging data, staying informed about fiduciary regulations, and documenting your decisions carefully, you can ensure your company remains compliant and provides valuable benefits to your employees. As an account director at BSI, I can attest that we simplify the process, ensuring it’s not overwhelming, so our clients can make informed decisions with ease.
If you need help understanding your fiduciary responsibilities or want to ensure you are properly documenting your fiduciary process, reach out to us at BSI. Let’s work together to ensure your health plan decisions are sound, transparent, and compliant with all necessary regulations.