A New Era of Health and Welfare Fiduciary Litigation
Health and welfare plan fiduciaries are entering a period of increased legal scrutiny. For many years, fiduciary litigation under the Employee Retirement Income Security Act of 1974 (ERISA) focused primarily on retirement plans, and particularly on allegations of excessive fees involving 401(k) plans. More recently, however, plaintiffs and regulators have shifted attention toward employer-sponsored health and welfare plans.
This growing wave of litigation is being driven by rising healthcare costs, expanded transparency requirements, increased access to plan pricing data, and evolving expectations surrounding fiduciary oversight. In particular, employers sponsoring self-funded health plans are now facing questions about whether they are adequately monitoring plan expenses, vendor compensation, pharmacy benefit arrangements, and participant costs.
As a result, health and welfare plan fiduciaries should expect heightened scrutiny of the way they select and oversee vendors, negotiate service agreements, and document fiduciary decision-making.
Why Litigation Is Increasing
Historically, health plan fiduciary claims were relatively uncommon compared to retirement plan litigation. That trend has changed significantly in recent years. Several developments have contributed to the increase.
Healthcare transparency requirements.
Federal transparency rules have expanded access to health plan pricing information, making health plan cost structures more visible than ever before.
These include:
- Transparency in Coverage (TiC) machine-readable files
- Prescription drug reporting under the Consolidated Appropriations Act (CAA)
- Hospital price transparency rules
- Gag clause attestation requirements
Plaintiffs’ attorneys are now using publicly available pricing data and plan disclosures to compare employer health plans and identify potential claims involving excessive costs or imprudent vendor arrangements.
Rising healthcare and prescription drug costs.
Escalating healthcare expenses continue to place pressure on employers and employees. Plaintiffs increasingly argue that fiduciaries failed to:
- Prudently manage and monitor plan costs, administration fees, and plan expenses
- Evaluate pharmacy benefit manager (PBM) compensation structures
- Negotiate favorable provider contracts
Many lawsuits focus on allegations that plans paid substantially higher prices than comparable plans for the same services or medications.
Increased focus on pharmacy benefit managers (PBMs).
PBM arrangements have become a central target in fiduciary litigation. Common allegations include:
- Lack of oversight over spread pricing
- Failure to monitor rebate arrangements
- Conflicts of interest
- Excessive prescription drug costs
- Opaque compensation structures
Because prescription drug spending represents a significant portion of many employer health plans’ costs, PBM oversight has become a major fiduciary concern.
Expansion of ERISA fiduciary theories.
Plaintiffs are increasingly applying traditional retirement plan fiduciary theories to health plans. Failure to act prudently in monitoring service providers, ensure reasonable compensation, and failure to act solely in participants’ interests all expose health plans to claims of fiduciary duty.
Common Allegations in Recent Health Plan Fiduciary Lawsuits
- Excessive administrative fees. Plaintiffs may allege that employers failed to monitor or negotiate TPA fees, network access fees, or consulting expenses. Claims often assert that plans paid unreasonable amounts compared to similarly situated employers.
- Imprudent prescription drug spending. Lawsuits allege overpaying for medications and failure to adequately evaluate rebate pass-through arrangements that resulted in higher participant cost-sharing.
- Failure to monitor vendors. ERISA fiduciaries generally retain responsibility for monitoring service providers, even when operational functions are delegated. Litigation increasingly focuses on vendor performance, vendor selection, fee reasonableness, and documentation oversight.
- Inadequate fiduciary governance. Plaintiffs may scrutinize whether employers maintained formal fiduciary procedures, such as fiduciary committee structures, meeting documentation, and plan governance policies. Poor documentation can make it difficult to demonstrate prudent decision-making.
Self-Funded Plans Face Greater Exposure
Although all ERISA-covered group health plans may face fiduciary risks, self-funded plans generally face the greatest litigation exposure. As transparency data becomes more accessible, plaintiffs can more easily compare plan costs and identify perceived pricing disparities among self-funded plans. This is largely because self-funded employers directly bear plan costs and exercise greater control over:
- Vendor selection
- Claims administration
- PBM arrangements
- Stop-loss and plan design
- Network contracting strategies
Fully insured plans may still face fiduciary scrutiny, but insurers typically assume more responsibility for claims payment and network pricing.
Fiduciary Duties Under ERISA
ERISA imposes several core fiduciary duties on plan fiduciaries including acting:
- Solely in participants’ interests. Fiduciaries must act exclusively for the benefit of plan participants and beneficiaries
- Prudently. Decisions must reflect a careful, informed, and reasoned process.
- In accordance with plan documents. Fiduciaries must follow governing plan documents unless they are inconsistent with ERISA.
- With reasonable plan expenses. Plan costs and vendor compensation should be reasonable relative to services provided.
ERISA focuses heavily on process. Courts often evaluate whether fiduciaries followed a prudent decision-making process rather than whether every outcome produced the lowest possible cost.
The Growing Importance of Documentation
One of the most important risk management tools for fiduciaries is documentation. Without documentation, even well-intentioned fiduciary actions may be difficult to defend.
Best practices often include maintaining:
- Committee meeting minutes
- Vendor evaluation summaries
- Fee benchmarking materials
- Consultant reports
- Request For Proposal documentation
- Fiduciary training records
Emerging Areas of Concern
Several additional areas may receive increased scrutiny in future litigation.
Mental Health Parity Compliance
The Mental Health Parity and Addiction Equity Act (MHPAEA) continues to be a significant enforcement priority. Fiduciaries may face questions regarding network adequacy and access, nonquantitative treatment limitations (NQTLs), comparative analyses, and claims administration protocols.
Artificial Intelligence and Claims Administration
As insurers and TPAs increasingly use artificial intelligence and automated tools in claims processing and utilization management, fiduciaries may face additional oversight obligations regarding claims accuracy and appeal processes.
Data Privacy and Cybersecurity
Health plans maintain large volumes of sensitive participant data. Fiduciaries may face increasing expectations surrounding HIPAA compliance coordination, breach response planning, and vendor data protection practices.
Employer Action Items
- Periodically review agreements with TPAs, PBMs, brokers and consultants, stop-loss carriers, and wellness vendors.
- Review fiduciary governance structures.
- Evaluate vendor compensation arrangements.
- Monitor PBM and TPA performance.
- Benchmark plan expenses against similar plans in your industry and state.
- Conduct periodic requests for proposals.
- Enhance documentation of fiduciary practices and decision-making.
- Provide fiduciary training where appropriate.
Although no fiduciary process can eliminate litigation risk entirely, organizations that establish prudent governance procedures and maintain clear documentation may be better positioned to demonstrate compliance with ERISA fiduciary obligations.
This information is general in nature and provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.
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