Potential ERISA Fiduciary Duty Issues with BCBSA $2.67 Billion Settlement
Employers that sponsor fully insured group health plans by an independent licensee of the Blue Cross Blue Shield Association (“BCBSA”) from the period of February 7, 2008 through October 16, 2020, or self-funded group health plans administered by a BCBSA licensee from the period of September 1, 2015 through October 16, 2020 may soon be eligible to participate in a settlement with respect to a recent antitrust class action lawsuit against BCBSA. Employers have until November 5, 2021 to file a settlement claim to participate in the settlement.
Employers 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. Given the size of the settlement, we are hopeful that the Department of Labor (“DOL”) will issue guidance on these fiduciary duty issues. In the meantime, employers will need to make decisions based on existing DOL guidance.
Background
The lawsuit against BCBSA alleges violations of antitrust laws. While BCBSA did not admit fault, it agreed to a settlement to end the litigation. More information about the settlement is available here. As part of the settlement, BCBSA agreed to make operational changes and to provide payment to the class members involved in the case. The total settlement amount is $2.67 billion. After attorneys’ fees and administrative expenses, a net settlement amount of $1.9 billion will be available for distribution to authorized claimants within the settlement’s “damages class,” which includes employers that sponsor group health plans insured or administered by BCBSA licensees during the timeframes described above.
Claim Process
The $1.9 billion settlement amount will be split into two funds, with $1.78 billion allocated to individual and insured group health plans, and $120 million allocated to self-funded group health plans.
When filing a claim, an employer or an individual employee may select a “default option.” Otherwise, an employer or an individual employee may select an “alternative option” if they believe that they paid a greater percentage of the total premiums or administrative fees than under the default percentages.
Under the default option, total premiums (for fully insured group health plans) or administrative fees (for self-funded group health plans) will be allocated based on the following percentages:
For fully insured group health plans:
- Single coverage: 85% allocated to the employer and 15% to the employee
- Family coverage: 66% allocated to the employer and 34% to the employee
For self-funded group health plans:
- Single coverage: 82% allocated to the employer and 18% to the employee
- Family coverage: 75% allocated to the employer and 25% to the employee
Under the default option, an employer or employee is generally only required to submit a claim form. But under the alternative option, an employer or employee may be required to submit documentation that supports the alternative percentage.
If an employee doesn’t submit a claim to the settlement fund, but the employee’s employer (or former employer) submits a claim, the employee’s portion of the settlement fund may be sent to the employer (or former employer). Similarly, if an employee paid more of the premium or administrative fee under a group health plan than determined by the uniform percentage under the default option, but neither the employer nor the employee submit their claim using the alternative option, a portion of the settlement fund that should have been attributed to the employee may be sent to the employer (or former employer). Potential plan asset issues under ERISA may arise when the employer receives settlement funds that may be attributable to an employee.
Plan Assets
The DOL has not addressed the proper treatment of settlement proceeds with respect to this lawsuit against BCBSA. However, the DOL has previously addressed the proper treatment of medical loss ratio (“MLR”) rebates that may be received by sponsors of fully insured group health plans under the Affordable Care Act. For purposes of ERISA, the MLR rebates appear comparable to the settlement proceeds received from BCBSA (at least in the situations where the employer receives a portion of the settlement that may have been attributable to an employee). As a result, the DOL guidance regarding MLR rebates may be helpful in determining the proper treatment of the settlement proceeds that include plan assets.
With MLR rebates, DOL guidance generally requires two steps: (1) determining what portion of the MLR rebate is considered to be a plan asset; and (2) determining how to use the portion of the MLR rebate that is a plan asset in a way that is exclusively for the benefit of the plan participants and their beneficiaries.
Step one. There is no precise calculation for determining what portion of the MLR rebate is considered a plan asset. However, a common method that appears to be accepted by the DOL is to use a pro-rata method based on the employer’s and employee’s contribution toward the premium. For example, if the employer paid 80% of the premium and the employee paid 20% of the premium, the portion of the MLR rebate that is a plan asset is 20%.
Step two. The DOL appears to accept a few methods of using the portion of the MLR rebate that is a plan asset exclusively for the benefit of the plan participants and their beneficiaries. For example, permissible options appear to include: (1) taxable refunds through the form of compensation to the employee; (2) premium holidays offsetting future employee premiums; or (3) enhancing plan benefits. An employer must generally use the plan asset portion of the MLR rebate within 3 months of the date that the employer receives the MLR rebate. Otherwise, it must be held in a trust for participants and beneficiaries.
Former Participants
Since the settlement class period extends back to 2008 for fully insured group health plans and 2015 for self-funded group health plans, it is possible that a portion of the settlement has to be shared with former participants in the plan (e.g., those employees who were enrolled in a fully insured group health plan during any portion of the period from February 7, 2008 to October 16, 2020 but are no longer enrolled in the plan as of the date that the employer receives the settlement). But under the DOL’s MLR rebate guidance, if an employer determines that the cost of including former participants in the distribution is as much as (or more) than the amount of the distribution, the employer may re-allocate the distribution to only current participants. Until employers know the amount of settlement proceeds that they will receive and if they will receive information about employees who did not make an individual settlement claim, it will be difficult to make this determination.
Conclusion
Employers that file a claim and receive settlement proceeds may need to determine what portion of the settlement proceeds are considered plan assets under ERISA, especially since we anticipate that only a minority of employees will make an individual claim. With a settlement fund of $2.67 billon, some employers may receive a significant amount from the settlement fund. As a result, we are hopeful that the DOL will provide guidance on the proper use of the settlement funds received by employers under ERISA in this specific lawsuit. To that end, attorneys at Miller Johnson are in the process of requesting that the DOL provide guidance.
If you have any questions, please contact one of the authors or another one of the Miller Johnson employee benefits attorneys. Additionally, Miller Johnson is hosting a free webinar on these issues on May 21, 2021 at 12:00 pm (EDT). If you are interested in joining this webinar, you can sign up at http://bit.ly/May21-Webinar.