Aon | Financial Services Group
Back to FSG Quick Insights | Subscribe to FSG Quick Insights >>
Earlier this year, Aon cautioned plan sponsors about the potential for a new chapter of excessive fee litigation arising from employee health plans.
By way of background, the Consolidated Appropriations Act of 2021 amended ERISA Section 408(b)(2) to require consultants and brokers to health plans receiving compensation of $1,000 or more to provide detailed fee disclosures to the “responsible plan fiduciary”. Further, the fees of plan consultants and brokers ultimately extends to other services for which they contract such as recordkeeping and administrative services, third-party administrator (TPA) services (processing benefit claims), and pharmacy benefit manager (PBM) services (processing pharmacy claims).1 As a result, plan sponsors and their fiduciaries are required to monitor the “reasonableness” of these fees, similar to how sponsors of retirement plans and their fiduciaries must monitor third-party service provider fees.
That potential for new litigation is now a reality, as a pharmaceutical company has been sued in a purported class action contending that the company and its plan fiduciaries:
“breached their fiduciary duties and mismanaged [the company’s] prescription-drug benefits program, costing their ERISA plans and their employees millions of dollars in the form of higher payments for prescription drugs, higher premiums, higher deductibles, higher coinsurance, [and] higher copays . . .”2
Among other allegations, the plaintiff argues that the company and its plan fiduciaries breached their fiduciary duties in selecting a PBM for the plan, and in failing to “take available steps to rein in its PBM’s profiteering”.3
Fiduciary liability insurers are concerned that this is not an isolated case because: (a) another major plaintiffs’ firm is already trolling for potential plaintiffs to bring “Excessive Healthcare Plan Fee” claims against more than 20 large employers; and (b) the Department of Labor is likely keeping watch for such potential claims.4
To protect against this exposure and reduce the risk of liability, Aon’s Legal Consulting Group advises plan sponsors to review, upgrade and formalize their health and welfare plan fiduciary processes to include the following (among others):
- Establish and train a health and welfare plan fiduciary committee
- Establish a process for selecting TPAs, PBMs, and other service providers (e.g., collect data concerning pricing and quality, and use that data in the selection process)
- Monitor vendors and plan performance
- Conduct regular RFPs (e.g., for insurers, TPAs, PBMs)
- Evaluate contracts with TPAs, PBMs, and other service providers
- Regularly review and update plan documents, summary plan descriptions, and vendor documents
- Protect plan assets including protected health information (PHI) from disclosure or corruption by engaging in HIPAA Security Rule risk analysis
- Secure appropriate levels of fiduciary liability insurance to protect individual plan fiduciaries
Aon will continue to provide updates on this developing litigation. If you have questions about or are interested in obtaining coverage, please contact your Aon broker.
1. Per “Fee Frenzy: Navigating the Expanding World of Excessive Fee Claims” (a webinar co-presented by Morgan, Lewis & Bockius and Chubb Insurance, 11/7/23)
2. Per Class Action Complaint, Lewandowski v. Johnson and Johnson, Case No. 1:24-cv-00671 (D.N.J.), paragraph 3
3. Id. at paragraph 7
4. Schlichter Exclusive: Does a New Wave of Fiduciary Litigation Loom? | National Association of Plan Advisors (napa-net.org)
About Aon
Aon plc (NYSE: AON) exists to shape decisions for the better — to protect and enrich the lives of people around the world. Our colleagues provide our clients in over 120 countries and sovereignties with advice and solutions that give them the clarity and confidence to make better decisions to protect and grow their business.
©2024 Aon plc. All rights reserved.
Aon is not a law firm or accounting firm and does not provide legal, financial or tax advice. Any commentary provided is based solely on Aon’s experience as insurance practitioners. We recommend that you consult with your own legal, financial and/or insurance advisors on any commentary provided herein. All descriptions, summaries or highlights of coverage described herein are for general informational purposes only and do not amend, alter or modify the actual terms and conditions of any relevant policy. Coverage is governed only by the terms and conditions of such policy. Insurance coverage in any particular case will depend upon the type of policy in effect, the terms, conditions and exclusions in any such policy, and the facts of each unique situation. No representation is made that any specific insurance coverage would apply in the circumstances outlined herein. Please refer to the individual policy forms for specific coverage details.
The information contained in this document and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity.
This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.
Insurance products and services offered by Aon Risk Insurance Services West, Inc., Aon Risk Services Central, Inc., Aon Risk Services Northeast, Inc., Aon Risk Services Southwest, Inc., and Aon Risk Services, Inc. of Florida and their licensed affiliates.