Employers Urge Stronger Health Transparency as ERISA Turns 50

Employers contending with heightened scrutiny on fiduciary duties to their health plans are calling for more transparency from insurance companies and other third-party vendors as a landmark health benefits law turns 50.

The Employee Retirement Income Security Act was enacted on Sept. 2, 1974, when self-insured plans that fall under the law covered around 6% of people in group health plans. Today they make up 57% of private employer plans, and increasing scrutiny on their role has sparked calls for more transparency and oversight of other plan service providers that control data and prices. States have moved to regulate the space in the absence of federal action, leading to legal battles over whether ERISA preempts state laws.

“That is something that I think ERISA, when it was first put into play, did not necessarily imagine—this whole cast of characters that was going to be involved and how it would all work,” said Lisa Gomez, assistant secretary of the Employee Benefits Security Administration under the Department of Labor.

The law has been amended in small ways over the years. Most recently, the Consolidated Appropriations Act of 2021 strengthened plan sponsors’ fiduciary duties by prohibiting them from paying third-party administrators fees that aren’t considered “reasonable.” The law also prohibited “gag clauses” in contracts that block plans from accessing claims data, but companies still say they struggle to get the information.

A major issue for employers is that the statute is “largely silent” on industry partners, said Shawn Gremminger, president and CEO of the National Alliance of Healthcare Purchaser Coalitions. ERISA instead puts the onus on employers to enforce their fiduciary obligations against third-party contractors like insurance companies and pharmacy benefit managers, and to ensure contracts don’t contain anti-competitive clauses.

“We are being held responsible for the bad practices of others, and if those folks engage in bad practices, it isn’t them that gets punished,” he said. “It’s us.”

The group supports extending more fiduciary duties to third-party service providers, though Gremminger said that is still a debate among the broader employer community.

“If you’re a contractor of a self-funded plan, you are a fiduciary to the people who are paying you, and we think it would make sense to make that explicit in federal law,” he said.

Gomez said the agency is sympathetic to employers’ complaints and has pointed the problems out to legislators to make it clear that EBSA is doing what it can.

“I do know that it has a lot of attention of folks on the Hill,” she said.

PBMs in Spotlight

The issue has gained increased focus in no small part due to PBMs, which manage the prescription drug benefit of insurance plans. The big three companies that control 80% of the market—Express Scripts, CVS Caremark, and Optum Inc.—are all integrated with insurance companies and retail pharmacies.

House Committee on Education and the Workforce Chairwoman Virginia Foxx (R-N.C.) in January released a request for stakeholder feedback that included questions about how Congress could “clarify” fiduciary duties for third parties, including PBMs. In response, the Blue Cross Blue Shield Association argued that a stricter definition of a fiduciary could have “unintended negative impacts” with spillover effects into non-fiduciary business roles.

“This would create significant new burdens for basic business operations and a disincentive for TPAs and PBMs to innovate and develop cost-saving programs and products,” the group wrote.

Companies are demanding more transparency in the meantime. Several employers are suing insurance companies for access to their data and for allegedly failing to keep health-care costs low, as they increasingly face lawsuits from their workers over prices revealed through transparency rules finalized by the Trump administration in 2020. Former employees of both Johnson & Johnson and Wells Fargo & Co. have filed lawsuits against the companies this year, claiming they breached their fiduciary duties by paying inflated prices for drugs.

More transparency would help companies lower costs for themselves and workers, but pricing data like the kind that has appeared in lawsuits more broadly don’t always tell the full story, benefits lawyers say.

“That may not always mean it’s the absolute lowest dollar, right?” said Eric Mathisen, a shareholder with Ogletree Deakins. “Sometimes there’s trade-offs between the quality of the services and cost.”

The transparency employers are seeking would come at the expense of insurance companies, consultants, and others that work in the insurance space. Fees that insurance companies pay to consultants, PBMs, and others are often not visible to employers.

A spokesperson for America’s Health Insurance Plans said the group is not advocating for any additional transparency requirement beyond the patient protections included in the No Surprises Act, which shields patients from certain kinds of unexpected out-of-network bills.

Several big consulting firms, including McKinsey & Co., and Deloitte, did not respond to a request for comment.

State Action

States are also taking action on their own, most recently against PBMs. The US Supreme Court’s 2020 decision in Rutledge v. Pharmaceutical Care Management Association opened the door for more state regulation of PBMs by confirming ERISA did not preempt an Arkansas law imposing certain requirements on PBMs related to pharmacy payments.

Oklahoma is now petitioning the high court to review a similar law after the state lost a challenge from PCMA at the US Court of Appeals for the Tenth Circuit.

The state laws underscore the issue of ERISA preemption, which employers argue is critical to their ability to offer lower-cost, uniform health insurance plans across multiple states with varying regulations. Foxx called the wave of state PBM laws “the camel’s nose under the tent” at a subcommittee hearing in April.

But Erin Fuse Brown, a professor at the Brown University School of Public Health, said the issue of state preemption is overblown, pointing to how different the market looked when ERISA was enacted.

“It’s become the argument, but I think it belies the actual history, which is that that’s not how health insurance looked when ERISA was passed,” she said. “It wasn’t passed with this large swath of self-funded payers that insisted that they needed uniformity across state lines in order to be able to offer plans.”

But Congress’ decision not to change that standard over the past 50 years demonstrates how important it turned out to be, ERISA Industry Committee Senior Vice President of Health Policy Melissa Bartlett said.

“It shows the real staying power and the importance of the preemption standard and how it has led to an increase in this market,” she said. “It has encouraged and afforded employers the ability to see value in offering self-funded insurance.”