ERISA Litigation Roundup: Federal District Court Finds ERISA Plan Participants Lack Standing to Challenge Cross-Plan Offsetting

On May 20, 2021, a federal judge in the U.S. District Court for the District of Minnesota dismissed breach of fiduciary duty claims against UnitedHealth Group, holding that participants in ERISA-governed, employer-sponsored health plans lack standing to challenge UnitedHealth Group’s practice of cross-plan offsetting because they have not been denied any benefits and have not been individually injured.

The case focused on the practice of what is known as cross-plan offsetting. Cross-plan offsetting occurs when third-party administrators of health plans such as UnitedHealth Group withhold a payment that is owed to a health care provider on behalf of one health plan to “offset” prior overpayments made to the same provider on behalf of another health plan. UnitedHealth Group administers both self-insured plans (under which UnitedHealth Group administers claims and pays for them using plan assets) and fully insured plans (under which UnitedHealth Group administers claims and insures the plans, and so pays claims using UnitedHealth Group assets). UnitedHealth Group engages in cross-plan offsetting across both categories of plans, which it allows the company to recover billions of dollars in overpayments.

Some plaintiffs disagree with practice, so they brought suit. Specifically, plaintiffs in a putative class action, captioned as Scott v. UnitedHealth Group, No. 20-CV-1570 (D. Minn.), alleged that UnitedHealth Group’s practice of cross-plan offsetting violated ERISA’s fiduciary duty of loyalty and constituted a prohibited transaction. They did not allege, though, that they had been individually injured by cross-plan offsetting, meaning that they did not allege that any of them were denied any benefits to which they were entitled. As an injury, they alleged only that the plans in which they participated had been harmed, and they asked the court to order UnitedHealth Group to repay money to the plans.

Applying the Supreme Court’s recent decision in Thole v. U.S. Bank N.A., 140 S. Ct. 1615 (2020), the judge in the District of Minnesota held that plaintiffs lacked standing to challenge UnitedHealth Group’s cross-plan offsetting practice because they have not been denied any benefits, meaning they had not suffered an “injury in fact” for purposes of Article III of the U.S. Constitution. The court’s analysis was straightforward: it compared the plaintiff’s allegations with those the Supreme Court found were insufficient to confer standing in Thole. That comparison led to the same result: because “participants in a defined-benefit plan have no equitable or property interest in the plan,” that meant that participants cannot sue as representatives of a plan “without showing an injury to themselves.”

The court specifically rejected plaintiffs’ argument that the practice of cross-plan offsetting puts their own payroll contributions at issue. This argument was inconsistent with the governing regulation, 29 C.F.R. § 2510.3-102(a)(1), under which plaintiffs’ contributions became plan assets when they are segregated from employer assets and paid over to the plans.

Faegre Drinker Perspective:

There are two important takeaways from this decision.

First, Scott demonstrates how the Supreme Court’s recent decision in Thole, and its requirement that plaintiffs demonstrate individual injury, may pose an additional obstacle to plaintiffs who wish to challenge cross-plan offsetting down the road.

Second, plan sponsors should continue to think carefully about whether their plan documents allow for cross-plan offsetting before implementing the practice. The Scott decision comes only two-and-a-half years after the Eighth Circuit ruled against UnitedHealth Group in Peterson v. UnitedHealth Group, Inc., 913 F.3d 769 (8th Cir. 2019), holding that UnitedHealth Group had implemented cross-plan offsetting for plans that did not allow for it. Plan sponsors engaging in cross-plan offsetting should ensure that this practice is permitted by the plan documents.