By: HUB’s EB Compliance Team

A January 2019 decision by the federal Court of Appeals for the Eighth Circuit highlights a potential fiduciary concern with a practice that self-funded plan sponsors may not even know was happening. The practice, known as cross-plan offsetting, raises potential fiduciary concerns that self-funded employers should consider.

What is Cross-Plan Offsetting?

In basic terms, cross-plan offsetting is when a payment from one plan is reduced to “offset” an overpayment made to the same provider from a different plan. For example, say an Eduardo Employee in ABC Health Plan goes to Dr. Cashe who is out-of-network. The ABC Health Plan is insured with Big Carrier. Big Carrier processes the claim and pays Dr. Cashe $1,000. After reviewing the claim, Big Carrier decides it should have only paid $800 so it asks for the $200 back. Since Dr. Cashe is out-of-network, he doesn’t have a contract with the Big Carrier that requires him to repay, so he refuses.

The next week, Polly Participant in the XYZ Health Plan also goes to Dr. Cashe who is, again, out-of-network. XYZ Health Plan is self-funded, but uses Big Carrier to process claims as a third party administrator. When Dr. Cashe submits Polly’s claim, the Big Carrier determines Polly’s claim is also $800.

This is where the offset comes in. Instead of paying $800 to Dr. Cashe from the XYZ Health Plan, Big Carrier only pays $600. The other $200 is an offset for the overpayment from the ABC Health Plan and Big Carrier keeps that money.

In the eyes of Big Carrier, Dr. Cashe owed it a $200 “debt.” Big Carrier “satisfied” that “debt” by shorting his payment from the XYZ Health Plan. However, Big Carrier doesn’t tell the employer that sponsors XYZ Health Plan that this is going on. As far as XYZ Health Plan or its employer knows, it paid $800 to Dr. Cashe.

However, Dr. Cashe doesn’t like this, so he bills Polly Participant the $200 he wasn’t paid (and probably some other amounts as well – he is out-of-network, after all).

What Does this Mean?

First, it means that an otherwise legitimate claim from XYZ Health Plan is not being fully paid. This puts Polly, in our example, on the hook for the difference.

Second, it’s a potential violation of federal employee benefits law known as ERISA. Big Carrier is using the assets of a self-funded plan for its own benefit, which it is generally not allowed to do. It is also not following the terms of the XYZ Health Plan, which would require a payment of $800 to Dr. Cashe.

For these reasons, the U.S. Department of Labor does not like this practice.

What Should Employers Do?

Employers with self-funded plans should consider taking the following steps:

  1. Talk with your third-party administrator (TPAs). Ask if they engage in cross-plan offsetting.
  2. If they do, ask if you can opt out. Some TPAs allow plans to opt out of this practice.
  3. If they do, and you can’t opt out, consider switching TPAs.
  4. If you’re switching TPAs (or thinking about it), ask the vendors you’re considering if they engage in cross-plan offsetting and if you can opt out.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.