Template Language in Health Plan Documents Presents Litigation Risk

Author: Schuyler File

Category: Employee Benefits

Self-funded health plan sponsors can avoid unnecessary litigation by ensuring that template language currently in use by some Third-party Administrators (TPAs) and insurers offering Administrative Services Organization services (ASOs) is updated to adequately address risks that are the subject of recent litigation.

There are two primary issues that should be addressed. The first relates to an assignment of a plan participant’s rights under the plan and the second relates to cross-plan offsetting.

Assignment by Plan Participants – Nationally, there has been an increase in the number of lawsuits brought by out-of-network healthcare providers against health plans. Providers are attempting to gain standing for various lawsuits through the assignment of a plan participant’s rights under the plan documents. Recently, we noticed that template non-assignment language that previously provided protection to the plan sponsor has been revised, or in some cases, excluded by some TPAs and ASOs.  The revised language being proposed by the TPAs and ASOs replaces strong anti-assignment provisions that were previously used. This new language exposes the plan sponsor to more risk than is necessary.

Plan sponsors of self-insured medical plans can protect themselves against this risk by making sure that the summary plan description (SPD) and plan document, if not one in the same, have a robust non-assignment provision. This approach eliminates the possibility of costly litigation on the merits arising from an assignment by a plan participant to an out-of-network provider.

Cross-plan Offsetting – Last year, a Federal Court ruled that the practice of cross-plan offsetting by TPAs and ASOs violates ERISA. Cross-plan offsetting, in a nutshell, is the practice by TPAs or ASOs of offsetting over or underpayments to a provider made by one plan against payments paid to the same provider by a second plan. In reviewing current and past SPDs and plan documents for clients, we noticed that the template language being used by some TPAs and ASOs expressly or implicitly permits the administrator to participate in cross-plan offsetting. If your plan document and/or SPD permits cross plan offsetting, it should be reconsidered. The Federal Court ruling referenced above is on appeal, but the best practice for plan sponsors is to not permit the plan administrator to cross-plan offset.

I would be happy to help address any questions about the assignment of a plan participant's rights under your health plan, cross-plan offsetting, or other topics related to your employee benefit plans. I may be reached by email at

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Schuyler File

Posted in: Employee Benefits

Posted by Schuyler File

Health Care Consultant