Earlier this week, a Johnson & Johnson employee brought a lawsuit alleging the company breached its fiduciary duties by not adequately managing healthcare costs, resulting in their ERISA plans and plan beneficiaries overpaying for healthcare expenses. The heart of this lawsuit is a question of fiscal responsibility – to what degree must a company manage shared healthcare costs?

The argument is that J&J has an affirmative duty to act in the best interests of the plan and plan participants. This duty was allegedly breached through poor oversight of their pharmacy benefit manager (PBM) vendor, which led to millions of dollars of overspending.

I’m not an attorney and will leave it to the legal experts to dissect the merits of this case, but I am drawn to the broader conversation it sparks: namely, the critical role employers play in handling healthcare expenses. This transcends dollars and cents: it’s about the trust and reliance employees place in their employers to safeguard their interests. Regardless of the outcome of this case, companies must think carefully about how they approach and administer healthcare benefits.

Employers

Employers must be more diligent in exploring ways to monitor and reduce costs. Gone are the days of autopilot renewals and planning only for the next twelve months. I think this will be particularly true for employers that are “fully insured.”

Fully insured employers pay a fixed monthly premium to a health insurer. Once a year, the price is adjusted (almost always upwards) based on various factors. In some ways, a fully insured plan is like hitting “the easy button.” While the simplicity may have its charm, fully insured plans are also fairly opaque. How can you ensure wise spending if you’re in the dark about the details of something as important as your PBM?

I feel for employers. Our healthcare system is complex, and managing costs isn’t always straightforward. Many employers don’t have the resources to do this effectively, yet they are accountable. They must invest time and effort, and they must have competent advisors.

The principles in this case reverberate beyond the courtroom, underscoring the value employees place on their benefits. The caliber of benefits can impact recruiting, job performance, job satisfaction, and employee retention. Given the complexity of benefits, employees expect their employers to advocate for their best interests – in fact, this lawsuit reflects that these expectations have never been higher.

Brokers

This case will also focus a spotlight on insurance brokers. The responsibility for cost management will cascade down, with employers holding their advisors to account. This could be transformative and a great thing.

Too many insurance brokers view their role as delivering a spreadsheet of one-year quotes. The time has come for a more strategic, multi-year approach to combat rising and unpredictable costs.

At ParetoHealth, we’re committed to standing side-by-side with our captive members in the battle to reduce the cost and volatility of health insurance. We are privileged to work with brokers who are truly consultants, and who are committed to their clients’ best interests.

This lawsuit could herald a decisive moment, prompting employers and brokers alike to choose where they stand. At ParetoHealth, we’re ready to welcome a new wave of allies to join us on the ‘right side of the fight.’

Author

Andrew Cavenagh

Chairman & CEO