On May 20, 2021, the U.S. District Court for the District of Minnesota dismissed a breach of fiduciary duty class action against UnitedHealth Group over an overpayment recovery process known as cross-plan offsetting that the plaintiffs claimed is a prohibited transaction under ERISA. The court found that the plaintiffs lacked standing to challenge the practice since none of them had been denied benefits or suffered any injury due to defendant’s use of cross-plan offsetting.
Cross-plan offsetting is a common practice that has been used for years by insurers and third-party administrators (TPAs) to recover overpayments made to health service providers. To make themselves whole, insurers and TPAs “recover” the overpayment by withholding another health plan’s payment to the same provider.
The case — Scott et al. v. UnitedHealth Group Inc. — claimed that UnitedHealth breached its fiduciary duties under ERISA when it used assets from the plaintiffs’ plans to recoup financial losses from other separate plans, effectively using plaintiffs’ plan assets for its own benefit.
In dismissing the claim, the court noted, “The most glaring problem with this claim is that plaintiffs do not allege any facts suggesting that any of their own benefit claims have been subject to cross‐plan offsetting. Indeed, none of the plaintiffs even alleges that he personally saw a doctor or otherwise incurred a healthcare expense, much less that he saw an out‐of‐network doctor or incurred an out‐of‐network healthcare expense—the only type of expense that could possibly be the subject of a disputed cross‐plan offset.”
The two plaintiffs spearheading the Scott class action were also involved in a prior suit – Peterson v. UnitedHealth Group – where the U.S. Court of Appeals for the Eighth Circuit upheld a district court ruling that UnitedHealth was not authorized to engage in cross-plan offsetting.
The Eighth Circuit stopped short of holding that cross-plan offsetting was prohibited by ERISA, finding only that UnitedHealth’s actions were in “tension” with ERISA. However, in a brief supporting the health care provider in Peterson, the Department of Labor stated its belief that cross-plan offsetting is a violation of ERISA’s fiduciary duties.
The practice of cross-plan offsetting may also be considered a violation of ERISA’s exclusive benefit rule where fiduciaries are required to act solely in the best interest of plan participants. For example, when Plan A assets are used to offset an overpayment by Plan B, then Plan A participants may suffer harm by being “balance billed” by the provider for non-payment.
Considering this recent litigation and DOL’s position that cross-plan offsetting is a violation of ERISA, plan sponsors should review their agreements with insurers and TPAs to determine if they engage in the practice of cross-plan offsetting. If they do, plan sponsors should, guided by ERISA counsel, work with their service providers to find an equitable solution to overpayments that does not involve cross-plan offsets.
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