Health and Welfare Benefit Plan Developments
Litigation Involving Voluntary Plans and Need for Health and Welfare Compliance.
In recent years, as we have described in a few of our past E-Alerts (e.g., Current Thinking on Employee Benefit Developments - Smith & Downey, P.A. and Employee Benefit Developments and Year-End Considerations - Smith & Downey, P.A.), regulators and plaintiff lawyers have increasingly targeted health and welfare plans. Recent health and welfare litigation has alleged failures to monitor service providers (like pharmacy benefit managers, among others), excessive fees, and HIPAA “tobacco surcharge” issues.
The latest example of this trend involves four (substantially similar) complaints against four separate employers and their advisors/brokers in various federal courts. The complaints focus on so-called “voluntary benefits” that are fully employee-paid and purportedly not subject to certain provisions of ERISA (including, for example, accident, cancer, critical illness and hospital indemnity insurance). In short, the complaints generally allege that plan sponsors and their benefit brokers/consultants engaged in prohibited self-dealing and various fiduciary breaches related to failures to monitor and administer the plans in accordance with applicable law, with the result that the participants were harmed by overpaying for the benefits.
These lawsuits serve as an important reminder that employers must remain vigilant with respect to their many compliance obligations and governance procedures with respect to all benefit plans – not just retirement plans – and ensure that health and welfare plans receive appropriate fiduciary oversight. Employers that do not already have a fiduciary committee overseeing health and welfare plans should consider establishing one (or expanding the jurisdiction of an existing committee). It is imperative that Plan fiduciaries act solely in the interests of participants, appropriately monitor plan service providers (and investments), and ensure that the applicable plan and participants are only paying reasonable and necessary fees, expenses and premiums, etc. Having a “procedurally prudent” process in place (with a carefully drafted, and followed, committee charter, contemporaneously-drafted and carefully-crafted meeting minutes to document committee actions and decisions, etc.) remains one of the most effective defenses to ERISA fiduciary litigation.
Our firm works closely with several companies that provide a very cost-effective process of benchmarking/evaluating, or finding (through an RFP process) voluntary benefits that are reasonably priced. We oversee this process to ensure the legal fiduciary responsibilities are met and to strengthen defenses against potential litigation.
Please let us know if you have questions regarding voluntary benefits, fiduciary responsibilities or benefit plan governance procedures, and/or if we can assist with your benefit plan compliance efforts.
Reminder: Imminent Deadline to Update HIPAA Privacy Notice
Health plans are required to update their Notice of Privacy Practices by February 16, 2026 to reflect recent changes to the HIPAA rules. (See our prior E-Alert for more information: Current Thinking on Employee Benefit Developments - Smith & Downey, P.A..) As background, HIPAA requires group health plans (among others) to provide notices to participants as to how the health plan, etc. may use and disclose a participant’s protected health information (PHI). While plans have not been required to update their Privacy Notices for many years, updates are now required in most cases (unless such plans do not receive or maintain “Part 2 records”, which are certain substance use disorder treatment records). Under the rules, “Part 2 records” are generally subject to heightened protections compared with other health information. Accordingly, plan sponsors will need to update the HIPAA Privacy Notice for their plans to address the use and disclosure of substance use disorder treatment information and the latest guidance under HIPAA. In addition, corresponding updates to HIPAA privacy policies, procedures, and related documentation will also likely be required to ensure compliance with the new rules.
We can assist with reviewing and updating your HIPAA Notice of Privacy Practices and related HIPAA policies and procedures in a streamlined and cost-effective manner. Please let us know if we can assist with your imminent compliance obligations.