Cross-plan offsetting is a common practice among insurance carriers and third-party administrators (TPAs) that can put employers at risk. Briefly, cross-plan offsetting occurs where the insurer or TPA overpays a healthcare provider on a claim submitted to Plan A. Rather than chasing the overpayment, the insurer or TPA waits until the provider submits a claim to Plan B, and offsets the amount due the provider for that claim by the amount of the overpayment on the claim submitted to Plan A.
Earlier this year a federal court determined that cross-plan offsetting violated the terms of the plans involved in the practice. That decision is worth noting, but also worth noting is the Department of Labor’s (DOL) opinion on the fiduciary duty implications of cross-plan offsetting.
The court case involved a practice by a national insurance carrier. The carrier administered a book of insured and self-funded medical plans. In cases where it overpaid out-of-network providers on claims submitted to the insured plans, it reduced payments to those providers on their future claims even if those future claims were submitted to other plans administered by the carrier. Many of the other plans were self-insured.
The court, not surprisingly to many commentators, held that using assets of one plan to offset the overpayments from another plan was not authorized by the terms of the plan documents for the plans involved, and so overruled the practice on that account.
While the court did not expressly hold that cross-plan offsetting also violated ERISA, it did discuss that possibility. The Department of Labor submitted a brief in the case in which it took the position that cross-plan offsetting is an ERISA violation, at least where it occurs with out-of-network providers, and particularly where an insurer offsets an overpayment by an insured plan with claim payment dollars provided by a self-insured plan, because the insurer essentially pays itself back for its prior overpayment – with dollars a self-insured plan thought were being spent on claims submitted to that plan.
What should employers do?
We believe cross-plan offsetting can violate ERISA for a variety of reasons. First, cross-plan offsetting typically is not permitted by the terms of the relevant plan documents. ERISA requires all fiduciaries and plan administrators to administer a plan according to its terms. Therefore, where a plan does not provide for cross-plan offsetting, the practice violates plan terms and also violates ERISA.
In addition, where the cross-plan offsetting occurs with respect to an out-of-network provider, using Plan B’s money to offset an overpayment on an earlier claim submitted by that provider to Plan A leaves the insured employee or dependent under Plan B exposed to balance billing by the provider. ERISA fiduciaries should not allow that to happen.
Many employers – particularly those with self-funded medical plans maintaining network plans – should ensure their TPAs administer the plan in accordance with its terms and not permit their plan’s assets to be used to reimburse other plans’ overpayments. Plan sponsors might consider amending their administrative service agreements to include language such as:
The parties agree that no assets of the plan will be used to offset any claim overpayments from any other plan administered by _______, nor will any assets of the plan be used or accessed for any purpose other than reimbursing covered claims and administrative expenses incurred under the plan.
There are likely some carriers and TPAs who may not agree to revise existing administrative services agreements, or won’t do so with respect to in-network claims because the insureds (under the plan whose assets are used in the offset) can’t be balance billed. That is likely true and therefore, while cross-plan offsetting only with respect to in-network providers is likely a technical ERISA violation, it is not likely to pose a practical problem. Be on the lookout, however, for administrative service agreements or carrier/TPA practices involving cross-plan offsetting with respect to out-of-network providers.
Lockton comment: And while you’re at it, it’s not a bad idea for employers to identify in their administrative services agreements precisely what liability the claim payer has to identify, report and chase overpayments.
As we were preparing this article for publication we learned that a large Midwestern insurer will no longer apply cross-plan offsetting for non-network providers in their claim adjudication processes for self-insured plans. They also will permit employers to opt out of cross-plan offsetting for network providers. We’ll see if that becomes a trend among carriers and TPAs.
In the interim, Lockton Fiduciary Shield is our proprietary plan fiduciary governance checklist with related collateral such as model policies and procedures. It includes consideration of potential cross-plan offsetting. For more information on Lockton Fiduciary Shield, contact Ethan McWilliams, Senior Compliance Analyst at firstname.lastname@example.org.