Breaking News: Court Denies BCBSM’s Motion to Dismiss in Landmark ERISA Case

In a pivotal decision, the United States District Court for the District of Minnesota has denied Blue Cross Blue Shield of Minnesota’s (BCBSM) motion to dismiss a lawsuit brought by the Department of Labor (DOL) under the Employee Retirement Income Security Act (ERISA). This case, which centers on BCBSM’s alleged misuse of plan assets to cover MNCare Tax liabilities owed by healthcare providers, has far-reaching implications for third-party administrators (TPAs) and the broader health benefits industry.

Background of the Lawsuit

Earlier this year, the DOL filed a lawsuit against BCBSM, accusing the company of engaging in prohibited transactions and breaching its fiduciary duties under ERISA. The DOL’s complaint alleges that BCBSM, while acting as a TPA for approximately 370 self-funded employee healthcare plans in Minnesota, improperly used plan assets to pay nearly $67 million in MNCare Tax liabilities without the plans’ consent or knowledge. The MNCare Tax was passed along to the plans by BCBSM as part of the negotiated rates with providers—a practice the DOL claims was unauthorized and violated ERISA’s fiduciary standards.

Key Points from the Court’s Decision

In its motion to dismiss, BCBSM argued that the DOL lacked standing to bring the lawsuit and that BCBSM was not acting as a fiduciary when it included the MNCare Tax in the negotiated rates. However, the court found that the DOL had sufficiently alleged that BCBSM acted as a functional fiduciary by exercising control over plan assets when it decided to reimburse providers for the MNCare Tax. This control, even though indirect—since BCBSM first paid the providers and then sought reimbursement from the plans—was enough to establish fiduciary status under ERISA.

The court also rejected BCBSM’s defense that the provider agreements authorized the inclusion of the MNCare Tax in the negotiated rates. Whether these taxes were a legitimate part of the negotiated rates or were improperly included without the plans’ consent is a factual issue that cannot be resolved at the motion to dismiss stage, the court ruled.

Broader Implications of the Court’s Ruling

This decision is significant not only because it allows the DOL’s claims to proceed but also because of its broader implications for TPAs and employers. The court’s recognition of BCBSM’s functional fiduciary status could pave the way for increased scrutiny of TPAs who manage self-funded plans. If TPAs can be held liable as fiduciaries for how they manage and allocate plan assets—even when their control is indirect—this could lead to more stringent oversight and accountability.

Additionally, the court’s ruling on prohibited transactions under ERISA could have a ripple effect on how plan administrators negotiate and structure their agreements with healthcare providers. The potential for TPAs to engage in self-serving practices, such as passing along unauthorized costs to plans, will likely be a focal point in future litigation.

Industry Reactions and Analysis

Chris Deacon, a well-respected leader in the health benefits industry, shared her insights on LinkedIn regarding the court’s ruling. Deacon underscored the significance of the decision, particularly the court’s stance on BCBSM’s defense based on provider agreements. She noted, “The court’s denial of BCBSM’s motion to dismiss is significant not only because it allows DOL’s claims to proceed in this particular case, but because of its much broader potential implications.” Deacon emphasized that this ruling sets the stage for further factual development, particularly in cases where carriers might “hide behind the secret terms of their provider contracts to pull one over on employers.” Her reaction highlights the importance of this case in promoting greater transparency and accountability in plan management, a critical issue in an industry often criticized for its lack of clarity.

Conclusion

The court’s denial of BCBSM’s motion to dismiss marks a critical moment in the ongoing battle over fiduciary responsibility and transparency in the administration of employee healthcare plans. As this case progresses, it will likely serve as a touchstone for future litigation involving TPAs and their fiduciary duties under ERISA. Employers should take this opportunity to reassess their relationships with TPAs, ensuring that all plan expenses are authorized, transparent, and in the best interests of plan participants.

Fiduciary In A Box?stands ready to support employers and forward thinking brokers, advisors, TPAs, PBMs, CPAs, auditors and others in meeting their fiduciary duties, and documenting efforts to do so.