DOL makes health plan fee disclosure top priority

Health plan providers may face the similar detailed fee disclosure requirements as retirement plan providers under the Department of Labor’s (DOL) 408(b)(2) regulations.  ERISA Diagnostics Inc., a benefits consulting firm, called this prospect to the attention of its clients in a recent ERISA Alert after digging through the fine print of the Obama Administration’s FY 2016 budget proposals.

The firm also pointed to recent litigation that has trained the spotlight on fees charged by health plan administrators that have been deemed to violate their fiduciary duties to the plan.

Back in 2011, the DOL’s Employee Benefit Security Administration had declared its intention to propose regulations subjecting health plans to 408(b)(2) regulations. That plan apparently had lain dormant until very recently. EBSA, in supporting its budget request for more funds to bolster its regulatory initiatives in FY 2016, placed amending the 408(b)(2) regulations at the top its priority list, according to ERISA Diagnostics.

Why might that be so?

“Fee information related to self-insured plans paid out of the general assets of the employer cannot be found on the Form 5500,” noted ERISA Diagnostics. The fact that self-insuring health plans is becoming more prevalent “has caught the DOL’s attention,” the firm stated.

Also see: Government releases Form 5500 changes

The DOL seems to have the same concern it did with retirement plan sponsors: That many may not be fully aware of the various fees they are paying, and thus not be equipped to buy services on a competitive basis, ultimately harming plan participants.

Recent litigation in Michigan may have fueled the DOL’s interest in this topic. In January, the U.S. District Court for the Eastern District ruled in favor of an employer, Dykema Excavators, and against Blue Cross Blue Shield of Michigan, in a case involving accusations of being charged hidden fees.

In particular, Dykema alleged that BCBS Michigan, acting as administrator of Dykema’s self-insured plan, obscured network charges, and fees tied to non-network subsidies and retiree funding, among others. Those fees were either tacked onto hospital charges or simply referred to as “other fees.”

Self-dealing

The court concluded the practice constituted a fiduciary breach and amounted to improper self-dealing. The court’s ruling in Dykema Excavators v. BCBS of Michigan cited an earlier appellate court ruling backing up the district court in a similar case, Hi-Lex Controls v. BCBS of Michigan.

Health plan sponsors today are not entirely in the dark about the fees they are paying, of course. Schedule A of the 5500 form lists broker commissions, but does not require that services provided by the broker be delineated. But the amount of data disclosed on Schedule A of the 5500 pertaining to premiums varies considerably based on whether the plan is experience-rated or not.

Also see: Treasury delays enforcement of standalone HRA ban

According to ERISA Diagnostics, non-experience-rated plans “provides only the amount of premiums paid,” while Schedule A data supplied to experience-rated plans “may also include administrative fees, risk and retention charges.”

ERISA Diagnostics urges plan sponsors to, among other things, “review welfare plan fees with the same scrutiny and diligence as you review 401(k) plan fees,” pointing out that “It’s a fiduciary responsibility.”

The firm also encourages self-insured employers to read the DOL’s amicus brief filed in the Hi-Lex case for an “extensive discussion regarding plan assets,” then discuss the topic with their TPA and brokers.