Employers Require More Help to Improve Health-Care Affordability

A new kind of labor litigation is making its way through the federal courts, and it’s turning heads in corporate boardrooms. It also underscores the need for Congress to help companies become better health-care purchasers and hold them accountable for their employees’ health-care costs.

So far this year, three large employers—Johnson & Johnson, the Mayo Clinic, and Wells Fargo—have been named defendants in class-action lawsuits because employees claim the companies failed to manage their health insurance benefits in their best interest, as required by the Employee Retirement Income Security Act.

Employees’ claims are simple: They believe they paid too much for their health benefits. These suits are modeled on the hundreds of lawsuits filed over the last two decades accusing employers of violating ERISA by mismanaging 401(k) and other retirement plans—suits that have yielded hundreds of millions of dollars in settlements for plaintiffs.

ERISA is remarkable because for 50 years, it has allowed large employers to offer the same benefit plans to employees in different states. But during that period, employers’ purchasing power has eroded in health-care markets where true competition—among hospitals and insurers—has grown scarce.

Hospital prices have been one of the largest contributors to rising insurance premiums, increasing the cost for employers to offer health insurance. Employers have shifted this cost onto workers and their families via higher monthly premiums, coinsurance, and copayments, forcing some employees to make impossible choices such as whether to pay hospitals bills or pay rent.

Employers are frustrated with the status quo. The high costs of insurance, driven largely by high prices paid to hospitals and other providers, cut into businesses’ competitiveness and limit their ability to pay higher wages. Good health insurance can help employers recruit and retain employees, but that appeal loses its luster when coverage is unaffordable.

Amid the class-action lawsuits and scary hospital bills, recent policy changes have begun to push employers to become smarter purchasers of health care for their employees. The 2021 Consolidated Appropriations Act strengthened ERISA’s requirements that employers should act as fiduciaries in purchasing health-care benefits for their employees. However, employers continue to struggle to access data on how their health-care dollars are being spent.

Although the outcomes of employees’ lawsuits are uncertain, Congress can act now to further empower employers to be prudent purchasers of health care. The House of Representatives already passed the bipartisan Lower Costs, More Transparency Act. Employers and economists are calling on the Senate to advance the Health Care Price Transparency Act 2.0. Both bills would provide employers with better access to their health-care spending data by expanding transparency rules and giving them the force of law.

The Lower Costs, More Transparency Act also clarifies fiduciary obligations of insurers and other parties, such as pharmacy benefit managers, whose commitment to controlling costs and sharing savings is increasingly in doubt. Next year, the 119th Congress and incoming president will have more opportunities to drive accountability from providers and insurers, take up broader reforms to promote competition in health care, and prompt greater transparency.

While Congress contemplates ways to empower employers in the fiduciary role ERISA envisions, more must be done to hold employers accountable to their fiduciary obligations—by requiring them to attest to their compliance with a clearer set of requirements and investing in the administration’s authority to enforce those requirements.

ERISA has long been the cornerstone of employer-sponsored health coverage, governing insurance benefits for nearly half of all Americans. Yet four in 10 American workers today report not being able to afford health care, according to a Commonwealth Fund survey in 2023, and many forego services due to high costs. US companies also face higher health-care costs every year, outstripping economic and wage growth.

It’s time for Congress to act to protect workers and improve health-care access and affordability for the next 50 years.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Caroline Pearson is executive director of the Peterson Center on Healthcare.

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