Allowing Employees To Overpay For Health Benefits Is Risky

More than 60% of American employees are overinsuring their health.

You might think, “Wait! I recently read that a large number of people are underinsured, not vice versa.” That is certainly a concern, but it’s not the only one. Being over-insured means when employees are presented with the health insurance options their employers offer, most of will choose the “wrong” plan, and pay more in premiums than they should for coverage they don’t really need.

Why does that matter? Because it has cost employers and employees billions of dollars annually, it has turned health benefits into the second largest item on a company’s profit-and-loss, and it has directly undermined employee financial wellness. Now it could lead to enforcement actions, penalties and class-action lawsuits. Studies that highlight the volume of underinsured Americans do not incorporate two important factors: premiums and plan design. Any analysis of insurance coverage absolutely must take these factors into account. Although low deductibles or “first dollar” coverage sound great, if that coverage is unaffordable there is no benefit to be had, and employers now have a clear fiduciary responsibility to ensure their health plans provide a benefit to participants.

The Law That Changed The Game

On Dec. 27, 2020, the Consolidated Appropriations Act of 2021 was signed into law. This was a massive piece of legislation, containing thousands of pages on general government spending, COVID-19 relief spending, and (tucked inside, under the radar) about 90 pages that have sent shockwaves through the employer-sponsored health insurance industry. Here is the key point all employers and benefits professionals should be aware of:

• Employers are fiduciaries on the health, vision and dental plans they sponsor.

That means employers have a legal responsibility to (among other things) provide participants with the information necessary to make well-informed health insurance decisions. To clarify, the Department of Labor issued a field bulletin stating they “would view it as a good faith and reasonable step for a group health plan service provider to take into account the Department’s guidance on its regulation for pension plans.”

Fiduciary Duties For Retirement Plan Sponsors

In a company sponsored 401(k), the employer (plan sponsor), with the help of a qualified investment advisor, selects the available investment options on behalf of employees. As a result, the employer has a fiduciary duty to review the selected funds to determine if they are appropriate options for the employees. Offering employees the ability to invest in inappropriate funds (funds with high fees and/or underperforming funds) is an avoidable trap for both employees and employer. The employer could be found to be in breach of their fiduciary duties if either:

• The employer fails to do the due diligence to identify the fund as a bad choice, or
• The employer determines that the fund is a bad choice, and then chooses to do nothing.

So, the employer must do the research, and if they identify an inappropriate fund, they must remove it. Otherwise, they risk the possibility of DOL enforcement actions, fines and class-action lawsuits.

Fiduciary Duties For Health Plan Sponsors

In health plans, with the help of an insurance broker or advisor, the employer (plan sponsor) selects a carrier or network and crafts a plan design (premiums, deductibles, copays, out-of-pocket maximums, cost share, etc.). An employee chooses a health plan and health care providers. All of these choices have a direct impact on costs and potential health outcomes for employees and their dependents. Choosing a low-deductible plan means higher employer/employee premiums. Choosing a high-cost provider means higher claims costs (to be borne by both employer and employee). Choosing a low-quality facility could mean improper diagnosis and follow-up treatments, and higher claims costs.

So the employer has a responsibility to analyze the plan design and provide proper information so that each employee can make a well-informed decision. No employer can guarantee all employees will make purely logical decisions, but the employer must do their best to remove inappropriate plans or provider options, just as they would remove underperforming funds from the investment options available in a 401(k).

Furthermore, employers must encourage employees to identify and select high-quality low-cost providers. In-network pricing variation is a reality. As new transparency regulations take effect, it will become more obvious that the same service at two different in-network providers (in the same city or even in the same hospital) can have a huge price difference! So arm your employees with tools to easily cut through the chatter and see pricing and quality ratings. Empower them to balance cost and quality. After all, getting the right diagnosis and the right treatment will lead to getting better more quickly, result in better health outcomes, drive claims costs down and benefit everyone.

Jed Cohen is cofounder and chief operating officer of OneVision. He may be contacted at [email protected].

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