Subject to Scrutiny: Cross-Plan Offsetting Practices and Fiduciary Concerns

A recent News Release published by the Department of Labor (“DOL”) announcing a settlement agreement with Emblem Health, Inc., a third-party administrator, is a reminder that the DOL clearly finds cross-plan offsetting to be problematic and subject to scrutiny.

Cross-plan offsetting is a practice where an entity, like the TPA here, attempts to recoup alleged overpayments made to health providers by withholding payments owed to those providers based on expenses incurred by participants of another plan.  The DOL’s News Release provides that the practice of cross-plan offsetting here was an alleged ERISA fiduciary violation because the TPA “benefitted at the expense of the … health plans and their participants by wrongfully retaining assets from one health plan for a debt allegedly owed by a different health plan.”   The DOL also alleged that this practice puts “participants at risk of being balance billed for wrongfully offset claims” and that in some instances, the TPA may have wrongfully withheld payments that were “owed directly to participants for health care costs that should have been covered” by the TPA.

Pursuant to the settlement agreement, the TPA will stop its cross-plan offsetting practices and make whole all participants and beneficiaries that were harmed by this practice.  A considerable amount of time, effort and expense will be required on behalf of the TPA to comply with the settlement agreement’s terms and ensure that those participants or beneficiaries which might have been affected by the TPA’s practices are aware of their rights and the TPA’s obligation to make them whole. 

While ERISA may not directly address cross-plan offsetting and the federal courts are split regarding the practice, the DOL clearly finds the practice worthy of scrutiny.  With greater emphasis being placed on the need for transparency regarding medical costs and provider fees due to the No Surprises Act and Transparency in Coverage Rule, its likely that the DOL will continue call into question the practice of cross-plan offsetting and the risks it poses to participants.