Michigan Court awards over $5 million in damages to employer who was the victim of fraud by its third party administrator. 

A federal district court in Michigan has just ruled that the sponsor of a self-funded health insurance plan may recover over $5 million against Blue Cross/Blue Shield of Michigan for hidden fees. In Hi-Lex v. BCBSM, Judge Victoria A. Roberts held that the third party administrator violated ERISA by devising a scheme to obtain additional compensation without the sponsor of the self-funded health insurance plan knowing about it. BCBSM was found to have engaged in self-dealing, which is prohibited by ERISA. BCBSM “violated its fiduciary duty… to disclose information to the plaintiffs about its compensation …” As a result, BCBSM was ordered to repay all of these fees, over $5 million, prejudgment interest and attorney fees.

Judge Roberts also held that BCBSM acted in bad faith by issuing false reports for more than a decade.  Monthly claim reports, quarterly and annual statements and Form 5500 certifications never disclosed that the 3^rd party administrator was charging an additional amount.  In fact, the Court held that BCBSM was misrepresenting the fees that it was charging.

If your company is the sponsor of a self-funded health insurance plan, a cafeteria 125 plan or a dental or vision plan, you should conduct an audit of the plan expenses.  ERISA Section 103 (a)(3)(A) require sponsors of self-funded insurance plans to perform an audit.  The attorneys at Benesch have established a relationship with a reputable auditing company.  In fact, those auditors are assisting the plaintiff in the above-referenced case, as well as other cases around the country.  Moreover, public companies are required to audit all of their ERISA benefit plans, which would include their self-funded health insurance plans.

We strongly suggest that you have such an audit performed to make sure that your self-funded plan has been properly charged.  Such an audit may reveal that there are funds due and owing back to your self-funded health insurance plan.