Healthcare…Fiduciary? What You Need To Know

Ask any employer what their largest line item is for benefits, and the response will be health insurance coverage typically takes up the lion’s share of the overall benefits budget. Employers often spend far more on their healthcare plans than they do on their retirement plans. While this may be obvious, what seems to be overlooked is that both retirement plans and healthcare – surprise! – are covered by the Employee Retirement Income Security Act, requiring fiduciary duty and oversight. Recent legislation has been designed to help fiduciaries oversee their health plans.

Being a healthcare fiduciary comes with a lot of responsibility. I recently chatted with Jessica DuBois of Risk Strategies about fiduciary and healthcare, and how employers can get help with their compliance and fiduciary responsibilities. 

The CAA and Transparency

There has been an increase in lawsuits targeting the 401(k) industry in recent years since the Consolidated Appropriations Act (CAA) required more disclosures about the fees being paid, and now law firms are going after the healthcare industry, too. In fact, if you browse LinkedIn for any length of time, you may be able to see one or more ads telling you that you may have a legal claim if you participated in a company’s healthcare plan. 

There are six basic tenets of ERISA (which also covers healthcare benefits), and Fiduciary Decisions has been monitoring the lawsuits since 2006 to determine the number of allegations against each tenet. Here’s the breakdown:

• Conflicts of Interest: 55

• Failure to Act Prudently: 614

• Failure to Act Solely in the Interest of Plan Participants: 69

• Failure to Comply with the Provisions of the Plan: 2

• Failure to Diversify Plan Assets: 4

• Failure to Pay Only Reasonable Fees: 507

The CAA requires that pricing and compensation disclosures be provided to employers. It’s been in effect since 2021, although several components of it have gone into effect in subsequent years. Disclosure compensation has been required since December of 2022; under this CAA component, employers receive a disclosure compensation form from their broker showing direct and indirect compensation for administering the plan. If your company doesn’t get that form from your broker, you need to ask for it! Also, keep in mind that it;s the employer’s responsibility to review the amount disclosed. 

So how does an employer know if they’re getting a good value for what they’re paying? A little research into what’s standard in the market can go a long way, says Jessica. Reaching out to brokers and asking what they would charge to administer your plan can give you a good idea as to whether you’re paying too much to your current broker. Service agreements between the broker and the employer that highlight what services the broker will provide to the employer are also becoming popular, and let employers know just what they can expect to get for their money. (A service agreement can also provide some protection to ensure that the employer is actually receiving the agreed-upon services.)

Under the CAA, there are also quite a few items that the employer is responsible for. One of these is making sure the plan doesn't have a gate clause in it, another is publicly posting machine readable files with a list of negotiated prices from the employer’s carrier (which according to Jessica doesn't get done often enough). Health plan spending is also required to be submitted to the CMS; this can be done by the carrier or the employer. 

Healthcare Costs and Excessive Fees

With healthcare costs increasing (deductibles have risen by about 53% over the last 10 years, for example), employers need to make sure their healthcare dollars are being spent well, and that they are acting in the best interest of the healthcare plan participants. Jessica recommends that employers perform benchmarking and comprehensive marketing for your healthcare plan on an annual basis. Really tear apart your health plan, look at the data, and make sure you’re not paying excessive fees anywhere. (We do the same thing in the retirement plan industry.) Participants are getting fed up with the rising costs of healthcare, so it's up to you to get the most value for your participants.

One of the things Jessica looks at for employers is the third-party administrator and pharmacy benefit manager - many employers are used to having those roles bundled into a single carrier. If you separate those roles among different providers, however, employers will have more control over the terms and costs, plus it’s a lot more transparent. According to Jessica, this may become more common as we see more lawsuits against employers.

Fortunately there are tools out there like Fiduciary in a Box that can help employers with compliance and fiduciary responsibilities, but as Jessica says, it also takes a team - have that meeting with your advisor, HR, controller, CEO, etc. to go over the plan requirements, determine who’s responsible for what, and figure out how you’re tracking those to-do items. With additional compliance requirements, there may be more work required from employers, but you may be able to pay your broker or a third party a nominal fee to get support for these compliance items. And, hey, even if the broker’s fee is a bit larger than you may like, it’s worth it to make sure you get that support, or even take these compliance items off your plate altogether.

Another item to consider: when you’re putting together the service agreement with your broker, try to make it a per-employee amount. That’s because if you’re paying your broker a percentage of premium, and your premium continues to go up, that’s a conflict of interest, and could be grounds for a lawsuit. 

So what can employers expect moving forward? Jessica believes that we’ll be seeing more laws around healthcare plans and transparency in the future, and that we’ll be seeing higher third-party administrator fees due to more requirements and the resulting increase in their workload.

You can follow and connect with Jessica on LinkedIn if you’d like to learn more about being a healthcare fiduciary, and if you want to know about being a retirement plan fiduciary, you can reach out to us or email us at hello@retirementplanology.com!