Courts Address Participant Standing to Challenge Fees and Payments Received by Group Health Plan Service Providers
As we recently suggested, ERISA disputes over the fees and expenses charged to employer or union sponsored group health plans may well become the next wave in ERISA litigation. At minimum, the Consolidated Appropriations Act of 2021 creates new disclosure obligations on service providers of group health plans, and we know that some of the largest plaintiff-side firms in the country are investigating these sorts of claims.
Should plan participants file such claims, one of the key legal issues will be whether the participants have “standing” to raise such claims. A constitutional requirement for any federal lawsuit, this doctrine requires that a plaintiff suffer an “injury in fact” caused by the allegedly illegal action identified in a complaint, and that the court has the ability to redress such injury. In Thole v. U.S. Bank, the Supreme Court confirmed that an ERISA plan participant must demonstrate personal standing—it is not enough to rely on a purported injury to the plan.
Two recent cases have suggested that plan participants will have a difficult time establishing standing in suits alleging that service providers to group health plans charged excessive fees or otherwise improperly received excessive compensation. For example, in Winsor v. Sequoia Benefits & Ins. Servs., LLC, 62 F.4th 517 (9th Cir. 2023), the Ninth Circuit Court of Appeals concluded that plan participants did not have standing to raise claims that a group health plan’s service provider received purported “kickbacks” (and other allegedly improper fees). The Ninth Circuit rejected the plaintiff’s attempt to establish standing by arguing that, but for these allegedly improper kickbacks, the employer would have decided to charge participants lower premiums. The link between the alleged wrongdoing and the participant’s premiums was simply too ephemeral. Likewise, relying on Thole, the court concluded that the employees did not have an equitable interest in the assets of the group health plan that would give them standing to raise claims on behalf of the plan.
The United States District Court for the District of New Jersey reached a similar result in Knudsen v. MetLife Grp., Inc., 2023 U.S. Dist. LEXIS 123293 (D.N.J. July 18, 2023). In Kuudsen, the plaintiffs raised claims that MetLife wrongfully retained drug rebates that should have been refunded to the group health plan at issue, resulting in excessive out-of-pocket costs for plan participants. The court dismissed this claim for lack of standing, again relying on Thole to hold that participants did not have an interest in the group health plan’s assets generally, and that the plaintiff’s assertion that their premiums were affected by the allegedly wrongful behavior were too speculative to credit.
This is very likely not the last we have seen of these sorts of cases and these sorts of arguments. As they have in the past, no doubt plaintiff’s counsel will adapt their strategies and pleadings to account for these decisions. Time will tell whether these efforts will ultimately be successful.