Eighth Circuit: Cross-Plan Offsetting Not a Reasonable Interpretation of Plan Terms

Several health care providers sued an insurer (which also served as a third-party administrator for self-insured plans), challenging its practice of “cross-plan offsetting” to recover erroneous overpayments. The insurer normally recovered overpayments to an in-network provider by withholding subsequent payments to that provider as an offset, pursuant to its network agreement. However, the insurer also began offsetting overpayments to providers with which it did not have a network agreement, even when the overpayment had been made from one plan and the offset was taken from a payment from a different plan (including a self-insured plan). A group of out-of-network providers sued (on behalf of their patients who participated in the plans), asserting that the relevant plan documents did not permit this practice. The trial court ruled in favor of the providers, concluding that while some of the plan documents at issue allowed offsetting within a plan, others were silent—and none expressly permitted cross-plan offsetting. The insurer appealed, arguing that, because each of the relevant plan documents granted it broad authority to interpret and implement the plan, it was reasonable to interpret the plans as authorizing cross-plan offsetting.

The court agreed with the trial court that the insurer’s interpretation was not reasonable, citing the questionable nature of cross-plan offsetting combined with the lack of plan language authorizing the practice. Explaining that accepting the insurer’s argument would be “akin to adopting a rule that anything not forbidden by the plan is permissible,” the court ruled that such a broad approach to interpretive authority would effectively conflict with ERISA’s requirement that a plan’s terms be set forth in a written document. The court concluded that the relevant plans did not permit cross-plan offsetting, so it did not have to decide the larger question of whether cross-plan offsetting violates ERISA, but it opined that the practice appears to conflict with ERISA’s requirement that fiduciaries discharge their plan duties solely in the interests of participants and for the exclusive purpose of providing plan benefits and defraying reasonable plan administrative expenses. The court explained that each plan is a separate entity, and the fiduciary duty is owed separately to each plan; cross-plan offsetting is in tension with this obligation.

EBIA Comment: Whether cross-plan offsetting violates ERISA is still an open question. The DOL takes the position that it does, as evidenced by its amicus brief arguing that the insurer’s actions violated the exclusive benefit rule and constituted self-dealing. Administrators engaging in this practice should review their procedures and relevant plan documents, and proceed with caution. For more information, see EBIA’s Self-Insured Health Plans manual at Sections XXI.C (“ERISA’s Exclusive Benefit Rule”) and XXIII (“Selecting, Engaging, and Monitoring Service Providers”). See also EBIA’s ERISA Compliance manual at Section XVI (“ERISA’s Trust and Exclusive Benefit Requirements”).

Contributing Editors: EBIA Staff.