Mass Workers’ Health and Welfare Fund. v. Blue Cross Blue Shield of Mass., 2023 WL 3069637 (1st Cir. 2023)
The First Circuit upheld a trial court’s finding that a third-party administrator (TPA) for a self-insured multi-employer health plan was not an ERISA trustee 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 by trying itself in recovering overpayments from the plan. Like the trial court, the appellate court considered whether the TPA was a trustee because it exercised discretionary authority or control over the administration of the plan, or because it exercised authority or control over the administration or disposition of plan assets.
The court concluded that the TPA’s actions may have constituted a breach of contract but were not ERISA’s fiduciary actions. It noted 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. The pricing errors arose not from TPA’s exercise of medical judgment, but from clerical errors and breaches of contractual obligations. And decisions about reprocessing or settlement of erroneous claims were not plan management, but non-fiduciary business decisions. Therefore, the TPA lacked discretionary authority over the management of the plan. With respect to control over plan assets, the court declined to decide whether the amounts the plan transferred weekly to the TPA 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 exercised no authority or control over their management or disposition in repricing the claims and merely acted as a conduit performing a ministerial act in paying the claims. Unlike other cases where 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 as long as the plan is responsible for adjudicating claims.
EBIA Comment: Addressing the broad implications of its analysis, the tribunal explained that attributing trustee status to TPAs in situations such as this could ultimately harm participants by interfering with typical TPA business models. For example, to avoid functional trustee status, a TPA could be required to play the role of an unsecured lender to the plan by paying claims up front and repaying themselves later. In any case, self-insured plans and their TPAs must 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 (“Payment of benefits other than general assets raises questions”) . Also refer to EBIA’s Self-Insured Health Plans manual in Section XXIII.C.5.c (“Service Provider Obligations”).
Contributing editors: EBIA staff.