BCBS Settlement – Distribution of Settlement Proceeds
Employers are now beginning to receive settlement proceeds from the $2.67 billion class action settlement reached by the Blue Cross Blue Shield Association (BCBSA) and the class plaintiffs. This client alert provides an overview of the settlement, discusses important ERISA fiduciary duty considerations for employers receiving settlement proceeds, and outlines recommended next steps.
Background
On October 25, 2023, the U.S. Court of Appeals for the 11th Circuit affirmed a district court’s approval of the $2.67 billion class action settlement reached by the BCBSA and the class plaintiffs. In the decision, the 11th Circuit affirmed the earlier approval by a district court of both the $2.67 billion settlement and the injunctive relief measures included in the agreement. (See our previous client alert discussing the proposed settlement here, our webinar discussing the proposed settlement here, and our client alert discussing the district court’s approval here.)
ERISA Fiduciary Duties
Under the terms of the settlement, BCBSA agreed to pay $2.67 billion in damages—minus attorneys’ fees—and agreed to various reforms to resolve alleged anti-competitive business practices. The settlement was approved by a federal district court in the Northern District of Alabama on August 9, 2022. Objectors to the settlement appealed to the 11th Circuit and made multiple arguments against the settlement. One argument was that the settlement should not be approved because the plan of distribution fails to address the employers’ disbursement obligations under ERISA, and thus, could lead to violations of ERISA by employers and plan fiduciaries.
However, the 11th Circuit rejected this argument. Specifically, the 11th Circuit held that the fear of speculative ERISA violations is no reason to reject the settlement. Nothing in the settlement agreement changes ERISA rights. All ERISA duties still apply, and all ERISA fiduciaries must comply with those duties. Further, the 11th Circuit noted that plans and employees retain their right to sue under ERISA. Ultimately, the 11th Circuit held that the district court did not abuse its discretion and affirmed the district court’s approval of the $2.67 billion settlement.
Next Steps
Employers that are now receiving settlement proceeds should be aware that they may have fiduciary duties under ERISA with respect to the use of any proceeds from the settlement fund. Under ERISA, any portion of the settlement proceeds that are considered to be “plan assets” must be used for the exclusive benefit of participants in the plan (and their beneficiaries), or to defray the reasonable administrative expenses of the plan.
To date, the DOL has not issued any guidance regarding the proper treatment of claim proceeds from this particular lawsuit. However, the DOL has previously issued guidance related to the treatment of medical loss ratio (MLR) rebates received under the Affordable Care Act. Unless specific guidance is issued related to the BCBSA settlement, employers may want to use the MLR guidance as a reference when determining how to calculate what portion of the BCBSA settlement proceeds should be considered “plan assets,” and how those funds can be used.
If you have received a settlement check from the BCBSA settlement, or if you have questions about your ERISA fiduciary obligations with respect to these proceeds, please contact the authors or any member of the Miller Johnson Employee Benefits & Executive Compensation practice group. We are available to assist employers in determining how the existing MLR guidance or any applicable DOL guidance may apply to their specific situations, and to help ensure that settlement proceeds are handled in compliance with ERISA’s fiduciary duty requirements.