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August 5, 2020

Cross Plan Offsetting under Fire Again

Cross plan offsetting is in the hot seat again.  A class action lawsuit (Scott v. UnitedHealth Grp., Inc., D. Minn., No. 0:20-cv-01570) has been brought against UnitedHealth Group in the U. S. District Court for the District of Minnesota on July 14, 2020.

In a nutshell, cross plan offsetting occurs when an insurer believes it has overpaid a provider, and after a failed request for repayment, the insurer unilaterally chooses to reduce a payment to that same provider for services rendered to a participant in a separate and distinct plan.  This matter was challenged in 2019 and resolved by the Eighth Circuit Court of Appeals (see our prior Benefit Beat article, Follow the Plan and Keep it Legal, 3/11/19).   Effectively, the Eight Circuit Court suggested that the practice of cross plan offsetting could be a violation of ERISA, but did not rule on this point.  Rather, the Court said that the plan and contract did not expressly allow the offsetting.  The Department of Labor issued an amicus curiae brief in 2019 case stating its position that this type of practice is, in fact, a violation of ERISA. 

In the current pending class action, the complaint alleges that UnitedHealth Group and its related companies violated ERISA’s fiduciary duties, specifically when it is acting as a fiduciary to the plan.   Further, the complaint alleges that the exclusive benefit rule of ERISA has been violated.  As a reminder, the exclusive benefit rule requires that assets from one plan only be used for the benefit of participants of that plan. 

Further, the complaint alleges that ERISA’s prohibited transaction rules are also being violated in a number of ways.  In particular, UnitedHealth Group and its companies, acting as insurer, are effectively enriching themselves by engaging in cross plan offsetting, the result of which is effectively harming participants, as well as potentially harming plan sponsors of self-funded plans.  One of the negative aspects that can occur to participants with cross plan offsetting is that they can still be bound to pay the provider in situations in which the vendor withholds payment.  Similarly, a self-funded plan may be compelled to pay more to a provider should the vendor withhold payment.

While we don’t know at this point what the outcome of this class action will be, it is prudent for plan sponsors to review all plan documents, including service agreements, to determine whether cross plan offsetting is addressed.  If the plan does engage in cross plan offsetting, the plan sponsor would want to consider opting out of it.  If the insurer, third party administrator, or other vendor will not allow an opt-out, then the plan sponsor might want to ensure that any agreements with the vendor include indemnification language to protect itself, in the event that the vendor engages in cross plan offsetting, and in the event that the plan sponsor would be challenged for this action.

The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.

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