‘Emerging’ Health Plan Litigation Signals Need for Plan Adviser Diligence

In recent years, retirement plan advisers and ERISA attorneys have often discussed the potential for a rise in litigation related to health care plan fees. At the end of July, a complaint filed against Wells Fargo & Co. regarding its health benefits plan added another data point.

“This is the latest in an emerging series of lawsuits that center around whether employers are doing enough to contain health and pharmacy plan costs,” wrote Jess Hansen of OneDigital in a recent company blog post, noting another recent lawsuit against Johnson & Johnson regarding two of its employer-sponsored health plans.

Hansen, a senior employee benefits attorney in compliance services, says in a separate response to PLANADVISER that the cases are relevant to retirement plan advisers who are already familiar with working in a highly litigated, tightly regulated environment.

“Retirement plan advisers play a crucial role in ensuring plan sponsors are aware that ERISA fiduciary duties extend beyond retirement plans to include health plans as well,” says Hansen via email. “With plaintiff attorneys increasingly shifting their focus toward health plans, particularly in scrutinizing fees and fiduciary responsibilities, it’s essential for sponsors to proactively address these responsibilities before they become targets of litigation.”

As Hansen notes, regulation of the cost of employer-sponsored health care plans was part of the Consolidated Appropriations Act of 2021. Those regulations included making plan fiduciaries responsible for price shopping for the best health plan for employees; requirements to report drug pricing and pharmaceutical information to government regulators; and the monitoring of the direct and indirect compensation received by health industry broker/dealers.

Next Wave

In a recent paper, “Health Plan Fee Litigation: The Next Wave Of ERISA Litigation?,” an insurance claims expert and ERISA attorneys from Groom Law compared the first plaintiffs’ bar forays into health plan lawsuits to the fall of 2006, when the law firm then called Schlichter, Bogard & Denton LLP filed a series of class action lawsuits alleging excessive fees being charged by retirement plans.

“The initial tranche of lawsuits targeted employers sponsoring billion-dollar plans, but the litigation subsequently moved downstream to smaller, public, private and not-for-profit employer plans,” wrote Neil Morrison, assistance vice president of commercial management liability claims at Sompo International; and Groom Law Group’s Lars Golumbic, a principal and litigation co-chair; and Groom’s Kara Petteway Wheatley, a principal and women’s initiative co-chair, in a July paper published by Mealey’s Litigation Report.

The authors went on to argue that there are “clear indications that another, related wave of litigation is now on the way—this time targeting employer plan sponsors of self-funded health plans.”

The recent lawsuit, Navarro v. Wells Fargo & Co., was brought by lead law firms Gustafson Gluek PLLC and Fairmark Partners LLP, while Lewandowski v. Johnson and Johnson, et al., was also led by Fairmark Partners.

The plaintiffs in Navarro allege that Wells Fargo’s plan fiduciaries agreed to pay its pharmacy benefits manager a higher price for generic drugs than what was available on the market. They also claim the result was the plan itself paying higher fees and participants and beneficiaries paying more in the form of increased premiums and out-of-pocket costs. The plaintiffs further allege that Wells Fargo paid too much in administrative fees compared with similar plans.

Wells Fargo did not respond to a request for comment on the lawsuit.

In Lewandowski, the plaintiffs also allege a breach of fiduciary duties due to the price paid to Johnson & Johnson’s health care PBM for generic drugs. That complaint also notes that Johnson & Johnson is a pharmaceutical manufacturer and alleges that its mismanagement led to millions in higher payments, premiums, deductibles, co-insurance and other areas.

Johnson & Johnson did not respond to a request for comment on the lawsuit.

OneDigital’s Hansen says such litigation is “is not just a passing issue—it’s a growing trend.”

Handle with Care

Plan advisers, Hansen says, should be leveraging their experience operating under the Employee Retirement Income Security Act to communicate and educate plan sponsors about treating health plans with the same rigor and care.

“The core responsibilities—acting in the best interest of participants and beneficiaries, exercising prudence, and adhering to plan documents—are consistent across both health and retirement plans,” Hansen says. “As plaintiff attorneys continue to explore health plan-related claims, advisers should use this trend as an opportunity to educate clients, helping them enhance their benefit plans and mitigate potential legal exposure.”

Hansen noted in his blog post that litigation is not always limited to the plan sponsors, but can also point to ERISA fiduciaries as responsible for plan decisions and management.

In the wake of the Wells Fargo lawsuit, Hansen suggested the following next steps for plan fiduciaries:

• Review ERISA’s fiduciary requirements;
• Ensure plan fiduciaries are following the terms of their plan documents; and
• Frequently conduct plan and participant fee reviews.