A recently filed putative class action lawsuit, Barbich et al v. Northwestern University et al, raises concerns that a new wave of ERISA fiduciary breach claims may be on the horizon. In Barbich, the plaintiffs allege that Northwestern University, as the group health plan sponsor, breached its fiduciary duties by failing to prudently select and monitor their medical plan options and by not disclosing material plan information to participants. The case, which was filed in the federal district court in the Northern District of Illinois, is still in its early stages, and the plaintiffs face many hurdles; however, it is a development worth monitoring.
Background
Defendant Northwestern University sponsors an ERISA self-insured group health and welfare benefit plan. Under the plan, the major medical options offered to employees include a preferred provider organization (PPO) with three different tiers: 1) Premier, the low-deductible option; 2) Select, the mid-deductible option; and 3) Value, the high-deductible option. All three tiers provide the same healthcare coverage and network, but differ with respect to the financial terms, including participant premium amounts, coinsurance rates, copayments, maximum out-of-pocket expenses, and eligibility for HSA or FSA accounts.
Lead plaintiffs Natalie Barbich and Bruce Lindvall are former plan participants who were enrolled in the Premier PPO option for several years. They allege the defendants breached their ERISA fiduciary duty of prudence by assembling the PPO options such that the low-deductible Premier option cost more (in terms of the premium) but provided no additional benefit than (i.e., was “dominated” by) the other two higher deductible options. That is, the other two options resulted in lower total out-of-pocket expenses for participants, inclusive of premiums and regardless of the amount of medical care received. Furthermore, the plaintiffs assert that the defendants were aware that the Premier PPO option provided insufficient value actuarially compared to the other options but failed to disclose this information to participants, in breach of their ERISA fiduciary duty of loyalty. Finally, the plaintiffs claim Northwestern University failed to monitor other fiduciaries (including the HR director appointed to manage the plan), who were also named as defendants. On behalf of themselves and the class of current and former Premier PPO plan participants, the plaintiffs seek recovery of “millions of dollars” in purported financial losses, among other forms of relief.
The Complaint
As highlighted above, the complaint generally alleges that Northwestern University breached its ERISA fiduciary duties by mismanaging its group health and welfare plan. However, the specific allegations raise new questions regarding the scope of ERISA fiduciary obligations in the group health plan context.
To illustrate, the complaint asserts that the defendants breached fiduciary duties by failing to prudently structure their medical plan options to prevent any option from being financially dominated by another. Yet, matters of plan design have traditionally been viewed as settlor (i.e., business) decisions, rather than fiduciary decisions, and therefore are not subject to ERISA’s fiduciary duties. Accordingly, it remains to be seen whether the plaintiffs’ efforts to frame the assembly of plan options as a fiduciary function (i.e., the implementation of a plan design decision) will be successful.
Additionally, the plaintiffs’ arguments largely attempt to apply recognized fiduciary standards of conduct in the retirement plan realm to the group health plan context. For example, by reference to various court decisions, the plaintiffs attempt to equate the group health plan fiduciary’s obligations to those of a retirement plan fiduciary charged with managing plan assets, monitoring investment options and removing imprudent options. But whether and how these decisions can be applied to the group health plan context is uncertain, particularly since there is a lack of established guidance on determining whether a group health plan option is prudent, and any such criteria may not be limited to financial benchmarks.
The plaintiffs also claim that the defendants breached their fiduciary duties by failing to disclose to participants that the Premier PPO was dominated by the other options and erroneously suggesting it was the most financially advantageous option. Plan fiduciaries do have an obligation to provide material information to participants regarding plan benefits, including when they know silence would be harmful or participants may materially misunderstand the benefits. However, it is unclear if this obligation requires a fiduciary to disclose whether a plan option actuarially provides sufficient value as compared to another option.
Employer Takeaway
Employers should be aware of and monitor developments in this unique case. However, it’s early in the litigation process, and the defendants have yet to respond to the allegations. So, it would be premature to try to draw any meaningful conclusions at this time.
That said, while this case proceeds in court, employers, as ERISA plan sponsors, should be mindful of their fiduciary obligations, including with respect to the duties of prudence and loyalty. As enrollment season approaches, employers should carefully review and evaluate their medical plan options. Moreover, employers should ensure they provide employees with adequate and accurate information, in an understandable format, so they can make informed and cost-conscious decisions regarding their plan benefits. Employers that offer multiple medical plan options may determine that charts and other comparison tools should be provided to employees so they can effectively assess their choices and select the most appropriate option.
NFP will continue to monitor this case and report any relevant updates in Compliance Corner.
Read the complaint: Barbich et al v. Northwestern University et al Complaint.