A new yardstick for brokers emerges in light of recent litigation

Steve Kelly, Co-Founder and Chairman at Imagine360
Woody Waters

A new yardstick for brokers emerges in light of recent litigation

By now you’ve likely heard of two lawsuits alleging breach of fiduciary duties under ERISA. One is from February 2024 and was brought by a plan member against Johnson & Johnson. The other is by Kraft Heinz (acting in its fiduciary capacity) versus Aetna, filed in the summer of 2023.

Less than 24 hours after the J&J lawsuit was filed, major publications like the Wall Street Journal were quick to weigh in, calling this “a new front in a growing battle over transparency and cost in the management of employers’ health and drug benefits.” While not named as a defendant, J&J’s broker is mentioned in the suit highlighting its role in the PBM decision. We don’t know where this case will land but it certainly seems like a wakeup call for plan fiduciaries and their brokers.

How we got here

Over the past 15 years, hundreds of these “excessive fee/poor performance” ERISA class action cases have been filed against employers relating to their 401(k) retirement plans. Employers have collectively paid millions of dollars to resolve such cases. Two of these cases even went to the United States Supreme Court.

In fact, I recently served on a panel with a client who is the chief human resources officer at a publicly traded company. Its retirement plan just went through a similar 401(k) lawsuit. While that matter was amicably resolved, it took a toll on him and the organization in the form of extensive time and resources. When our client asked attendees, “what if this suit had been brought against your health plan?” I could see looks of concern creeping over the faces in the audience.

Challenges in the traditional, status quo healthcare model

Now let’s take a closer look at what this J&J lawsuit really boils down to and what it could signal for employers, brokers and consultants. The core issue, according to the WSJ, was that “J&J didn’t make enough effort to get its workers a good deal.” As a result, plaintiffs say that participants in the plan paid “too much” for the coverage and services offered by the employer’s health plan.

As another example, consider the lawsuit Kraft Heinz Co. brought against Aetna, the administrative services organization (ASO) for its plan. The lawsuit alleges that Aetna refused to provide detailed plan and claim data and that the ASO approved and paid fraudulent or incomplete claims. The suit also alleges that Aetna intentionally “prevents plaintiffs from learning how much Aetna actually pays providers.”

Let’s be real for a second. Although these health plan lawsuits are distinct from each other, I don’t need to squint very hard to see more of them coming down the pike. According to the Wall Street Journal, the J&J lawsuit alleges the company’s mismanagement of the drug benefits resulted in higher payments for prescription drugs, higher premiums, higher deductibles, higher copays, and lower wages or limited wage growth. The focus of similar lawsuits, as in J&J, could include the out-of-pocket expenses paid by health plan members or the fees charged by service providers.

Brokers and Consultants rising to the challenge

Employers need to trust their brokers and consultants, and many do rely on them for their knowledge and expertise in the health plan space. By being mindful of the new yardstick, this moment presents a bona fide opportunity for brokers and consultants to set themselves apart from competitors.

In serving current clients

Under ERISA, fiduciaries must manage plans with “care, skill, prudence and diligence.” Plans must recognize that they are fiduciaries and understand that they are responsible for selecting service providers and monitoring their performance. Their primary responsibilities are to operate the plan solely in the best interest of participants and beneficiaries, follow plan documents, ensure only reasonable expenses are paid, and to avoid conflicts of interest.

In their periodic client reviews, brokers can help position employers to handle their fiduciary functions. They can assist employers with understanding and evaluating the alternatives with a keen eye for reasonableness. For example:

  • Request claim files from ASOs & TPAs that truly indicate the plan’s spend, including claims billed, allowed and paid.
  • Assess plan vendors for the reasonableness of both service fees and claims paid by auditing all service provider contracts associated with a client’s health plan, including compensation and revenue-share arrangements.
  • Benchmark plan costs against industry standards. Potential examples include Medicare for hospital claims Red Book and Medi-Span for prescription drugs.
  • Assist your clients in evaluating alternatives that decrease claims-costs and ultimately the members’ cost-share.

These are next-level measures brokers can take today that will better position their clients to defend against allegations that plan participants paid “too much” for coverage or services offered by the employer’s health plan.

In generating new business

I spent nearly a decade as a producer at a regional firm that has since been acquired by one of the top three national brokerage houses. I’ve been in the room when the production goals were established and when the sales awards were presented to top performers.

“New biz” is the name of the game and getting in the door is the first step. Consider this recent independent research finding for our firm: “fewer than three percent of US brokers have an accurate understanding of RBP.” Even if we presume that most brokers are gaining awareness of the growing potential fiduciary liability exposure as illustrated in the J&J complaint, this statistic tells us that they can do more in presenting alternatives to their clients.

This is why I can say in my 30-year career, that right now is the best opportunity I’ve seen for a broker to be different, open doors, and bring on new clients. Your competition is mainly and unfortunately stuck in the status quo mud.

Legalities aside, American workers pay the price

Why are these lawsuits occurring? Workers who rely on their employer for health benefits are fed up with the increasing cost. Consider these stats from the Kaiser Family Foundation: In 2000, the average annual cost of a family plan was $6,400. By 2023 it had jumped north of $22,000 while the average worker salary increased from $32k to just $42k during the same time. It is clear that hard-working Americans who depend on their health plans need help – and law firms are actively soliciting them to bring about more cases.

Salaries and wages have been vacuumed up by excessive plan costs and unfair healthcare prices. As always, brokers and consultants sit in an ideal position to help clients better navigate this shifting, confusing space and to help in genuinely making life better for American workers.

A new yardstick for measuring success?

Let’s re-think what it means to be a successful health plan broker and consultant, on top of a growing book of business.  Let’s consider the longer-term sustainability of our business model, the continually evolving federal compliance mandates, and most importantly, what is best for low-margin businesses and hard-working American families. There’s a new yardstick in play, and it’s clear how best to measure up.

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