By: David Ostrowsky

As if Americans on employer-based health plans didn’t face enough obstacles in trying to obtain reasonably priced healthcare.

The inconvenient truth is that many participants on ERISA self-funded health plans, ones who are often already paying high premiums and deductibles, have unknowingly fallen victim to the ethically questionable – although not technically outlawed -- practice of cross-plan offsetting over the years. In fact, only very recently, as in the past several months, has there been heightened awareness of the adverse effects of cross-plan offsetting on unsuspecting American plan participants.

First, a quick primer on cross-plan offsetting:

There are times when a given health plan erroneously overpays a provider for a service rendered. Perhaps because of a human or AI-induced oversight or timing snafu or minor typo, the plan will pay the full charge when it should have paid the claim based on the (lower) usual and customary or maximum allowable charge, per the plan document. Whatever the source of the erroneous payment might have been, the provider now has the extra funds (this could be thousands of dollars) and, by law, does not have to refund the plan. And they almost never do. It sounds like an inequitable practice, but, as long as the provider did not receive more than the billed charges, it’s entirely legal. Plans have no legal recourse and are often left with no choice but to close the file.  

Naturally, the plan’s respective TPA that administered the claim feels that the provider owes it money. In some cases, said TPA tries to recoup the excess funds by not paying that same provider the full amount due for a plan participant’s claim on another one of its plans. Yes, this is a blatant breach of their fiduciary duties.

But most importantly, the end result is that the participant on this second plan, through no fault of their own, will see their claim denied by reading a cryptically written note on their explanation of benefits; the TPA is trying to exact revenge on the provider, but it is the hard-working, often cash-strapped participant – one with zero knowledge of the overpayment backstory -- who gets shortchanged by either getting balance billed for the erroneously offset claims or having to pay a hefty out-of-pocket amount for services rendered.

Many TPAs have been engaging in cross-plan offsetting for years, but this past fall, one in particular, EmblemHealth Inc., a New York-based insurer and TPA of ERISA group health plans, was caught red-handed and made an example of for all the world to see. On September 29, the Department of Labor (DOL) entered into a settlement agreement with EmblemHealth Inc., resolving claims that the company violated its fiduciary duties under federal law by engaging in cross-plan offsetting to recover alleged overpayments. The DOL’s Employee Benefits Security Administration (EBSA) submitted that Emblem benefitted by wrongfully keeping money from one health plan for a debt owed by another health plan.

So, what were the repercussions for Emblem? Per the terms of the settlement, Emblem pledged to no longer practice cross-plan offsetting and modify its policies, procedures, and practices accordingly no later than January 1, 2024, or as soon as reasonably possible for insured plans prospectively. That the DOL essentially gave Emblem a three-month deadline is noteworthy. Traditionally, the DOL is known for working at a glacial pace in adjudicating matters. But not this time, not when a stern dictum is in order to TPAs across the country: no longer can they get away with committing blatant violations of ERISA by using one plan’s money to take care of another’s debt under the guise of (arbitrarily) denying claims. Meanwhile, regarding retrospective corrective actions dating back to July 16, 2015, Emblem has been mandated to reimburse present and past participants and dependents whose reimbursements were reduced via cross-plan offsetting. Should Emblem not abide by the terms of this agreement, the DOL could very well take the TPA back to court.

To be clear, an untold number of other TPAs have long engaged in this practice, some possibly unaware of the legal issues caused by it. Clearly, the DOL has stepped up enforcement here and it will be interesting to see whether cross-plan offsetting continues to be a fairly commonplace practice now that Emblem has been put on notice.