A Wells Fargo health plan lawsuit is a reminder for ERISA plan advisers and sponsors to carefully consider and document their health plan decision-making process.
Although rising plan fees have led to litigation, one variation of this trend is to question whether employers are doing enough to contain health and pharmacy plan costs. Observers note that it is essential for sponsors to proactively address these responsibilities before they become targets of litigation.
ERISA was amended to include the regulation of the cost of employer-sponsored healthcare plans as part of the Consolidated Appropriations Act of 2021. Those regulations included making plan fiduciaries responsible for price shopping for the best health plan for employees; requirements to report drug pricing and pharmaceutical information to government regulators; and the monitoring of the direct and indirect compensation received by health industry broker/dealer.
The recent lawsuit, Navarro v. Wells Fargo & Co., alleges that Wells Fargo's plan fiduciaries agreed to pay its pharmacy benefits manager a higher price for generic drugs than what was available on the market. They also claim the result was the plan itself paying higher fees and participants and beneficiaries paying more in the form of increased premiums and out-of-pocket costs. The plaintiffs further allege that Wells Fargo paid too much in administrative fees compared with similar plans.
This suit is similar to one filed against Johnson & Johnson's health care plan costs for generic drugs. That complaint also notes that Johnson & Johnson is a pharmaceutical manufacturer and alleges that its mismanagement led to millions in higher payments, premiums, deductibles, co-insurance, and other areas. "'Emerging' Health Plan Litigation Signals Need for Plan Adviser Diligence" www.planadvisor.com (Aug. 27, 2024).
Commentary
The trends reflected in the Wells Fargo and Johnson and Johnson health care plan lawsuits, i.e., did the plan sponsors adequately consider the offered options, suggest the importance of plan fiduciaries carefully reviewing ERISA's fiduciary requirements and then ensure plan fiduciaries are following the terms of their plan documents. Frequent plan and fee reviews should be conducted to ensure continued compliance.
This trend of questioning the decision-process is consistent with other courts' rulings which have, for example, held that "when evaluating whether a fiduciary has acted prudently, the court must focus on the process by which the fiduciary makes its decisions rather than the results of those decisions," and that "fiduciaries breach the continuing duty to monitor when they fail to investigate whether an investment is imprudent after changed financial circumstances increase the risk of holding stock."
Although these decisions may give some legal and practical protection to plan fiduciaries, it remains imperative that the plan administrator conduct a regular review of competing plans and determine which ones provide services and options that most closely carry out the plan's written investment goals or objectives.
Moreover, documenting the process of selection and rejection of plan choices could be the difference between the success or failure of a class action challenging those selections.