Employers may soon find themselves reviewing and revising health plan master documents and summary plan descriptions (SPDs) and administrative service agreements with respect to an obscure claims administration practice known as “cross-plan offsetting”—following a recent federal appeals court ruling.
When a third-party administrator over pays a health care provider (such as in coordination of benefits, in subrogation cases, or where there has simply been a mistake), that administrator may later withhold a payment owed to that same provider from the same plan to recoup the overpayment. Many plans documents recognize an administrator’s right to offset in such circumstances. Cross-plan offsetting occurs when a third-party administrator with multiple employer clients acts to recover an overpayment made to a provider by one health plan or policy, by offsetting that amount from the payment it makes to that provider on behalf of a different unrelated health plan or policy. This practice becomes problematic when applied to out-of-network providers that do not have contractual arrangements with administrators permitting such practices.
This practice was challenged in Peterson, D.C. v. UnitedHealth Group Inc., No. 17-1744 (January 15, 2019, Eighth Circuit Court of Appeals). The plaintiffs were out-of-network healthcare providers, representing participants in various plans. United withheld payments from the plaintiffs in order to offset overpayments to the same providers from other plans that United administered. United argued that the relevant plan language, which granted it broad administrative authority, gave it the power to engage in cross-plan offsetting. The Eighth Circuit, however, ruled that nothing in the plan documents permitted this practice.
Though the court did not rule on the legality of cross-plan offsetting generally, it noted that the practice “is in some tension” with the requirements of the Employee Retirement Income Security Act of 1974 (ERISA). A plan fiduciary owes a separate fiduciary duty to each plan it administers. Although one plan may benefit from cross-plan offsetting, another plan or its participants might be harmed by the practice. The court noted that the practice may constitute a transfer of money from one plan to another in violation of ERISA’s “exclusive purpose” requirement.
According to the court, cross-plan offsetting’s questionable legality further underscores the need for clear plan language permitting this practice. Based on this ruling, employers may want to reconsider using the practice or at least review their plan documents and SPDs to determine whether any cross-plan offsetting used by the plan’s third-party administrator is adequately described in the documents that govern the plan.
Notably, in an amicus brief, the U.S. Department of Labor argued that cross-plan offsetting, as it was done in this case, constitutes a breach of fiduciary duty and a prohibited transaction under ERISA.