An emerging legal battle over workplace health insurance could empower employees to fight back against high costs and put new pressure on their employers.
Why it matters: Workers fed up with rising health care costs, which also eat into their wages, are filing lawsuits aiming to hold employers accountable for cutting what they say are bad deals with firms that manage their health benefits.
- The heightened legal threat is contributing to employers’ efforts to take a harder line with health insurers, pharmaceutical middlemen and other benefits administrators.
The big picture: Roughly 70% of large employers that offer health insurance are self-insured, meaning they collect premiums from enrollees and pay claims themselves, while often hiring a health insurer or pharmacy benefit manager to oversee benefits.
- These self-insured companies have been required to ensure they aren’t wasting workers’ money on overpriced health coverage for a few years, but this year they began facing a new federal mandate to attest as much — potentially raising their legal exposure.
- But employers have said outside firms managing their benefits, known as third party administrators, often aren’t transparent about the inner workings of their plans.
- Employers said that’s made it difficult to know — and formally attest — whether they’re being responsible stewards, or fiduciaries, of their workers’ dollars.
State of play: A Johnson & Johnson employee in February filed a first-of-its-kind class action lawsuit alleging that the pharmaceutical giant mismanaged employee drug benefits.
- And last month, a Mayo Clinic employee in Arizona filed a class action suit against the health system and its insurer Medica, claiming that workers’ medical bills were “systematically underpaid.”
- Mayo and Medica said they were committed to helping employees understand their benefits and access care, but would not comment further on the pending lawsuit.
- Experts say they expect similar lawsuits will follow as law firms seek out more employees willing to take on their companies.
Zoom in: In the J&J suit, plaintiffs say the company agreed to overpay for certain drugs.
- For example, it agreed to pay more than $10,000 for a 90-day supply of a generic drug for multiple sclerosis. They found several national pharmacies charged less than $80 for the same drug.
- “No prudent fiduciary would agree to make its plan and beneficiaries pay a price that is [250] times higher than the price available to any individual who just walks into a pharmacy and pays out of pocket,” according to the plaintiffs, who said a leading drugmaker like J&J should have known better.
- J&J in a motion to dismiss the suit accused plaintiffs of cherry-picking a few dozen drugs out of thousands the company covers. And the company, which did not respond to a request for comment, argued self-funded plans like its own “have every incentive to negotiate the best overall deal.”
What we’re watching: There have been some prominent examples of companies recently pushing back against their benefit managers.
- Kraft Heinz sued Aetna before agreeing to arbitration last year over allegations the insurer approved millions in improper medical and dental claims.
- In January, Tyson Foods dropped CVS Health as its PBM. Foot Locker dropped UnitedHealth Group’s Optum in place of a smaller PBM that it says was more transparent about costs.
The bottom line: More employers will move away from traditional benefit administrators, predicted Elizabeth Mitchell, CEO of the Purchaser Business Group on Health, which helped lead a coalition of large companies in building their own PBM.
- “[Health insurance is] the second largest expense of any company after payroll. It’s obviously critical to employees and their families,” she said. “So I think the change is needed and it’s long overdue.”