Fiduciary Responsibility in Healthcare: Why Employers Must Be Prudent Stewards of Plan Assets

Introduction: Employers as Fiduciaries

As an employer, providing healthcare benefits to your employees is more than just an optional perk—it comes with a serious responsibility. Under the Employee Retirement Income Security Act (ERISA), employers who sponsor health plans are considered fiduciaries, which means they are legally required to act in the best interest of their employees when managing the plan. However, many employers are unaware of just how critical this fiduciary responsibility is when it comes to healthcare plans.

Fiduciaries have a duty to be prudent stewards of plan assets, ensuring that healthcare benefits are administered efficiently, transparently, and cost-effectively. Failure to do so can result in legal consequences, unnecessary financial burdens, and, most importantly, a disservice to the very employees the plan is meant to protect. This article explores what it means to be a fiduciary in the context of healthcare plans and why employers must take this role seriously.

The Legal Landscape: What Is Fiduciary Responsibility?

Under ERISA, a fiduciary is anyone who exercises discretionary control or authority over the management of a health plan or its assets. This includes not only plan sponsors but also third-party administrators and other vendors who help manage the plan. As fiduciaries, employers are required to act with care, skill, and diligence when making decisions that affect the plan and its participants. A fiduciary is someone who manages money or property for someone else. When you’re named a fiduciary and accept the role, you must – by law – manage the person’s money and property for their benefit, not yours.

There are several key duties that come with this fiduciary role:

1. Duty of Prudence: Fiduciaries must act with the same care, skill, and diligence that a prudent person would use when managing someone else’s assets.
2. Duty of Loyalty: Fiduciaries must act solely in the interest of plan participants and beneficiaries, avoiding any conflicts of interest.
3. Duty to Minimize Costs: Fiduciaries are responsible for ensuring that the plan’s expenses are reasonable and do not unnecessarily inflate the cost of benefits.
4. Duty to Follow the Plan Document: Employers must follow the terms of the health plan and ensure that all actions are consistent with its provisions.

These duties are not just theoretical. They come with real-world consequences if violated. Employers can face legal action, fines, and penalties if they are found to have breached their fiduciary responsibilities. Even more, they risk creating an environment where employees are overburdened with healthcare costs, which can lead to dissatisfaction, decreased productivity, and higher turnover.

Hidden Costs: An Employer’s Fiduciary Blind Spot

Many employers don’t realize that they may not be fulfilling their fiduciary responsibilities because they are simply unaware of the inefficiencies built into their current health plans. For example, many companies default to renewing health plans year after year without questioning how the plan’s costs are structured or whether it’s truly serving the best interests of their employees. This can lead to overpayment for healthcare services and inflated administrative costs that erode the value of the benefits provided.

One common oversight is in the selection of third-party administrators (TPAs) and pharmacy benefit managers (PBMs). These vendors often operate with opaque pricing structures that leave employers in the dark about what they’re really paying for. Without full transparency into the actual costs of medical services, employers may be overpaying for both administrative services and healthcare benefits—without even realizing it. This not only violates the duty of prudence but also leaves plan participants vulnerable to excessive out-of-pocket costs.

The Role of Transparency in Fiduciary Responsibility

The key to being a prudent steward of healthcare plan assets is transparency. Employers must ensure that they have full visibility into the pricing structures and performance of the plan. This includes understanding how vendors are compensated, whether any hidden fees or commissions are involved, and how costs compare to market benchmarks.

For example, pharmacy benefit managers (PBMs) are notorious for lacking transparency in their pricing models. PBMs often negotiate rebates and discounts with drug manufacturers but do not always pass the full savings on to employers or employees. Employers have a fiduciary duty to ensure that their PBM is fully transparent and that any savings are being appropriately shared with the plan participants.

Similarly, third-party administrators (TPAs) can charge inflated fees for administrative services without offering clear visibility into how those fees are calculated. Employers must review their TPA agreements carefully and ensure they are paying reasonable costs for the services being provided.

Failing to address these issues not only violates fiduciary responsibilities but also places unnecessary financial strain on both the employer and employees. By prioritizing transparency and demanding clarity from vendors, employers can fulfill their duty of prudence and protect plan assets from being wasted on inefficiencies.

Health Rosetta: A Fiduciary’s Guide to Prudent Stewardship

The Health Rosetta movement is built on the idea of radical transparency and value-based healthcare, both of which align perfectly with an employer’s fiduciary duties. Health Rosetta offers a framework that empowers employers to take control of their health plans, ensuring that every dollar spent is delivering maximum value to both the employer and the employee.

Here’s how Health Rosetta’s approach helps employers fulfill their fiduciary responsibilities:

1. Transparent Pricing: Health Rosetta encourages direct partnerships between employers and healthcare providers, eliminating middlemen and ensuring that pricing is fully transparent. This allows employers to know exactly what they are paying for, making it easier to ensure that plan assets are being spent wisely.
2. Value-Based Care: Health Rosetta’s framework promotes value over volume in healthcare. This means paying for outcomes, not procedures, which helps to reduce unnecessary spending while improving employee health. By focusing on preventive care and early intervention, employers can avoid costly medical treatments down the road, thus protecting plan assets from avoidable expenses.
3. Direct Contracting with Providers: By contracting directly with healthcare providers, employers can negotiate fair, reasonable pricing for services. This ensures that plan participants receive high-quality care at the best possible price, allowing employers to meet their fiduciary obligations while providing robust healthcare benefits.

High Plains Health Plan, aligned with Health Rosetta’s principles, has adopted this approach in the Amarillo area. By prioritizing transparency and working directly with local providers, High Plains Health Plan gives employers a way to ensure they are being prudent stewards of plan assets. This not only reduces overall costs but also improves the quality of care that employees receive.

The Consequences of Failing to Be a Prudent Fiduciary

Employers who neglect their fiduciary duties risk more than just legal consequences. They also risk damaging their business. Rising healthcare costs are a significant source of financial stress for employees, and plans that fail to deliver adequate value can lead to low employee satisfaction, decreased productivity, and even higher turnover rates. Employees who feel that their healthcare needs aren’t being met are more likely to seek employment elsewhere, especially in a competitive labor market.

Moreover, the financial inefficiencies within a poorly managed health plan can add up over time, leading to significant wasted resources that could have been better allocated to other areas of the business. Employers who take a passive approach to managing healthcare plans are, in effect, letting valuable resources slip through their fingers.

Steps Employers Can Take to Fulfill Their Fiduciary Duty

So, how can employers ensure they are fulfilling their fiduciary responsibilities when it comes to healthcare plans?

1. Demand Transparency: Ensure that all vendors, including TPAs and PBMs, offer full transparency into their pricing models and how they are compensated. This will help avoid hidden fees and inflated costs.
2. Regularly Review Plan Costs: Conduct annual audits of the health plan to ensure that costs are reasonable and in line with market rates. Compare your plan’s performance to national benchmarks to identify areas for improvement.
3. Negotiate Direct Contracts with Providers: Work directly with healthcare providers to negotiate fair and transparent pricing for services. This eliminates middlemen and ensures that plan assets are being spent efficiently.
4. Focus on Value-Based Care: Shift from a volume-based healthcare model to one that focuses on outcomes. By prioritizing preventive care and early intervention, employers can reduce the overall cost of care while improving employee health outcomes.

Conclusion: The Fiduciary Role is Critical

Employers need to recognize that managing a healthcare plan isn’t just about offering benefits—it’s about fulfilling a legal and ethical obligation to their employees. As fiduciaries, employers are responsible for being prudent stewards of plan assets and ensuring that healthcare benefits are delivered as cost-effectively and transparently as possible.

By embracing transparency, adopting value-based care, and taking control of healthcare spending, employers can fulfill their fiduciary responsibilities while delivering meaningful benefits to their employees. And as the High Plains Health Plan framework shows, it is possible to create a healthcare plan that is both financially responsible and beneficial for everyone involved.

Josh Butler

Josh is the President of Butler Benefits & Consulting. Passionate about healthcare reform and helping employers save money while improving the quality of employee benefits.

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