Mass. Laborers’ Health and Welfare Fund v. Blue Cross Blue Shield of Mass., 2023 WL 3069637 (1st Cir. 2023)
The First Circuit has upheld a trial court’s conclusion that a third-party administrator (TPA) for a self-insured multiemployer health plan was not an ERISA fiduciary based on its administrative activities (see our Checkpoint article). The plan argued, among other things, that the TPA breached its fiduciary duties by failing to reprice provider claims accurately and self-dealing when recovering plan overpayments. Like the trial court, the appellate court analyzed whether the TPA was a fiduciary either because it exercised discretionary authority or control over plan management, or because it exercised authority or control over management or disposition of plan assets.
The court concluded that the TPA’s actions may have constituted a contractual breach but were not ERISA fiduciary actions. It pointed out that the TPA had no authority to deviate from its negotiated rates when pricing claims, and the plan retained full authority to determine benefit eligibility and adjudicate claims. Pricing errors stemmed not from the TPA’s exercise of medical judgment but from clerical errors and failure to follow contractual obligations. And decisions about reprocessing or settling erroneous claims did not constitute plan management, but rather nonfiduciary business decisions. Thus, the TPA lacked discretionary authority over plan management. With respect to control over plan assets, the court declined to decide whether amounts the plan transferred to the TPA weekly to cover administrative fees and benefit payments (subject to monthly reconciliation) constituted plan assets. Even if the amounts were plan assets, the court concluded, the TPA did not exercise authority or control over their management or disposition when repricing claims and acted merely as a conduit performing a ministerial act when paying claims. Unlike other cases in which TPAs were found to have breached their fiduciary duties by misusing plan assets, the plan did not argue that the TPA used the amounts for its own benefit (see our Checkpoint article) or billed the plan for other fees (see our Checkpoint article). The court emphasized that its holding was limited and fact-specific and did not mean, for example, that a TPA lacks fiduciary status whenever the plan is responsible for claims adjudication.
EBIA Comment: Addressing the broad implications of its analysis, the court explained that attributing fiduciary status to TPAs in situations like this could ultimately harm participants by interfering with typical TPA business models. For example, to avoid functional fiduciary status, a TPA could be required to play the role of an unsecured lender to the plan by paying claims in advance and being reimbursed later. In any event, self-insured plans and their TPAs should continue to take care in structuring their administrative service arrangements. For more information, see EBIA’s ERISA Compliance manual at Sections XXVIII.B (“Who Is a Fiduciary?”) and XIV.D.2 (“Paying Benefits From Other Than General Assets Raises Questions”). See also EBIA’s Self-Insured Health Plans manual at Section XXIII.C.5.c (“Obligations of Service Provider”).
Contributing Editors: EBIA Staff.