No Breach of Fiduciary Duty for Health Plan TPA That Overpaid Claims for Participant Eligible for ESRD-Based Medicare

A union’s health trust fund sued its TPA, claiming that the TPA breached its fiduciary duties under ERISA and its contractual duties under an administrative services agreement (ASA) by continuing to pay benefits for a participant after he became eligible for Medicare based on end stage renal disease (ESRD). Explaining that it should have become the secondary payer under the Medicare Secondary Payer (MSP) rules after acting as the primary payer for 30 months of the participant’s ESRD treatment, the fund claimed that the TPA knew of the participant’s ESRD diagnosis and that the required 30 months had elapsed. Furthermore, the TPA was allegedly aware that the participant was employed and not enrolled in Medicare, and knew or should have known that he was eligible for Medicare. The TPA countered that it was not a fiduciary for purposes of Medicare eligibility determinations, responsibility for which was allocated in the ASA to the union/employer.

The court dismissed the claims against the TPA, concluding that it was not the TPA’s duty to track participants’ Medicare eligibility or applicability of the MSP requirements. To the contrary, the ASA expressly made the employer responsible for investigating participants’ Medicare eligibility status. The ASA also provided that the employer would submit eligibility information satisfying the requirements of the MSP rules to the TPA and that the TPA could rely on such information. And it unambiguously stated that the TPA’s fiduciary duty with respect to administering claims was limited by the eligibility information the employer provided. The court held that there could be no claim that the TPA failed to act in accordance with the plan documents or breached its fiduciary duty when it relied on eligibility information from the employer.

EBIA Comment: Employers should make sure that they understand their obligations when determining how the MSP rules apply to participants with ESRD-based Medicare. In any event, the ASA will be instrumental in resolving any disputes that arise between a health plan sponsor and its TPA and should be reviewed carefully to make certain it identifies the parties and addresses their respective responsibilities. Other key issues to address in the ASA include the term of the agreement, any dispute resolution procedures, and what happens when the parties’ relationship ends. For more information, see EBIA’s ERISA Compliance manual at Sections XXVIII.B (“Who Is a Fiduciary?”) and XXX.D (“Overview of the TPA Agreement”). See also EBIA’s Group Health Plan Mandates manual at Section XXIV.H (“MSP Requirements: ESRD-Based Medicare Eligibility and Entitlement”) and EBIA’s Self-Insured Health Plans manual at Section XXV.C (“Coordination of Benefits with Medicare, TRICARE, and Medicaid”).

Contributing Editors: EBIA Staff.