The Consolidated Appropriations Act of 2021 and recent federal healthcare price transparency regulations have emboldened employers to scrutinize payments insurers are making to brokers, consultants and vendors, to compare their own de-identified claims data with publicly available information, and to examine hospital reimbursement rates.
“In the world pre- three or four years ago, where we had much less transparent information, it was hard to assess whether you were actually spending effectively. We now have so much more in terms of transparency to look at and say, ‘OK, now the stakes are higher,’” said Shawn Gremminger, president and CEO of the National Alliance of Healthcare Purchaser Coalitions, which comprises dozens of regional, state and local employer associations.
Employers that self-insure pay for workers' healthcare with their own funds and hire insurance companies as third-party administrators to manage benefits, maintain provider networks and handle claims. Some businesses have found their insurers are making them to pay three times more on hospital services than others or 20 times more than Medicare for a medication, Gremminger said, based on accounts from employers and labor unions.
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“What they're are seeing, and will see, is what has been paid to the provider from the carrier is not always matching what is coming out of their bank account,” said Chris Deacon, principal owner of VerSan Consulting, who previously oversaw New Jersey’s school and state employee health benefits program.
Employers ring alarm bells
More than 153 million workers and dependents — over 45% of the population — are enrolled in job-based health plans, making it the most common source of coverage.
Employers and employees have good reason to be fed up with healthcare costs. The average annual price tag for an employer-sponsored family health plan rose 7% to $23,968 last year, according to a KFF survey. That’s 46.6% more than what family coverage cost a decade before.
“Health plans are often, for an employer, one of their most significant expenditures, so there are a lot of dollars at stake. And there's significant fiduciary responsibility related to monitoring those plans and the vendors they engage to help provide those benefits,” said Sarah Bassler Millar, a partner at the law firm Faegre Drinker Biddle & Reath who counsels employer plan sponsors and vendors.
Food and beverage company Kraft Heinz, food and facilities vendor Aramark Services, industrial supplier W.W. Grainger and chemical manufacturer Huntsman International have taken the most consequential actions, separately filing lawsuits against Aetna alleging it mismanaged worker benefits and violated fiduciary duties under ERISA, which governs employee benefits.
Although Aetna is the target in all these cases, this legal strategy would apply to any insurer operating as a third-party administrator, so lawsuits against other health insurance companies are likely, Deacon said. "They're all playing by the same rules when it comes to these processes and payment models," she said.
In their complaints, Kraft Heinz says it paid Aetna more than $1 billion since 2012 for medical services, Aramark says it paid more than $200 million since 2018 and W.W. Grainger says it paid more than $153 million from 2020 through 2022. Each business contends substantial payments went toward claims Aetna shouldn’t have paid and toward undisclosed fees the insurer pocketed.
For example: "Texas Health Center for Diagnostics billed the plans for a non-covered cosmetic surgery after bariatric surgery, specifically a tummy tuck," W.W. Grainger's complaint says. "Aetna approved the charges for the surgery, resulting in the plans paying more than $30,000 for a non-covered cosmetic surgery.”
W.W. Grainger and Huntsman International said they do not comment on pending litigation. Kraft Heinz, which is pursuing arbitration, and Aramark did not respond to interview requests.
Aetna declined to comment on these cases but offered a general statement. “As a third-party administrator of complex, federally regulated health and welfare plans, Aetna is dedicated to partnering with its commercial plan sponsors to facilitate access to quality, affordable and convenient healthcare for the employees of our plan sponsors,” the company said.
Health insurance trade group AHIP declined a request for comment on the implications of these lawsuits for insurers.
What’s to come
Health benefits experts said they foresee more employers taking legal action in the months ahead to recoup costs and prevent getting sued themselves. Employees have already separately sued drugmaker Johnson & Johnson and bank Wells Fargo, claiming their pharmacy benefit manager contracts had policyholders overpaying for prescription drugs.
“My hope is that it's actually going to drive real change in the way that [third-party administrators] behave, because they've now been put on notice that clients are actually looking at this stuff and they're taking their fiduciary responsibilities seriously,” Gremminger said. If insurers manage claims better, there is potential to slow the increase in healthcare costs for employers and members over time, he said.
The healthcare conglomerates that own major insurance companies are savvy and will find ways to make up for any money they would lose if they concede to employer demands, Deacon said. "No CEO is going to get on an earnings call and say, 'Well, they figured us out. I guess we're just going to have less return on our shareholder value,'" she said.
