June 20, 2019

Workers claiming their retirement plans were unlawfully saddled with excessive fees have had some noteworthy successes in recent years, including a $55 million settlement with tech firm ABB Inc. in March. Now, attorneys are wondering if cases claiming health and welfare plans were allowed to overpay will be the next big trend in Employee Retirement Income Security Act litigation.

Two lawsuits echoing the familiar argument that plan fiduciaries violated ERISA by letting worker contributions go toward allegedly excessive fees and expenses — this time health plan costs — have laid the groundwork for what could be a popular new avenue.

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The U.S. Department of Labor may have been the first to sound a warning for health plan fiduciaries when it sued a nonprofit called Chimes D.C. in 2015.

The agency alleged that Chimes violated ERISA by allowing its health and welfare plan to overpay for services provided by its third-party administrator and representative, claims that have frequently been made against retirement plan fiduciaries in the past.

Chimes won that case earlier this year, but the DOL has appealed.

A more recent suit, against Atrium Health, has also raised eyebrows. While the crux of the November suit is that Atrium wrongly claimed that its employee benefit plans were government plans exempt from certain ERISA requirements, the workers also alleged that the organization profited at their expense through its arrangement with its subsidiary and health plan services provider MedCost.

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Karen L. Handorf, a partner at Cohen Milstein Sellers & Toll PLLC and one of the attorneys representing the proposed class in the Atrium Health suit, said she was a little surprised the case seemed to catch people’s attention.

Handorf noted that Atrium was unique in being a health care system that had a subsidiary with its own network of physicians. The case, pending in North Carolina federal court, is more like the proprietary fee suits in the 401(k) space alleging that a company wrongly profited by stocking its retirement plan with its own funds, Handorf said.  

“Atrium was using its own provider to administer the plan and was — we alleged — charging more for its own employees to receive health care than it was charging employees of other employers that got health care through the Atrium network of physicians,” Handorf said.

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Whether more fee and expense cases against health care plans are on the horizon is still uncertain, but it’s certainly possible, attorneys said.

“It’s like anything in ERISA: Once somebody starts bringing a lawsuit in one area, other people pile on,” Handorf said.

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