What is a Fiduciary?

In a corporate health plan, a fiduciary is an individual or entity with discretionary authority over the plan’s management or assets, such as a plan administrator, trustee, or employer. Fiduciaries have a legal duty under ERISA to act solely in the best interest of plan participants and beneficiaries, following a “prudent person” standard by acting with care, skill, and diligence. They are responsible for making decisions about benefits, paying only reasonable plan expenses, and avoiding conflicts of interest.

More of the Same

Our industry-leading approach of serving as a fiduciary doesn’t change how we do our work. It just formalizes who we are and what we do. We’ve always acted as fiduciaries — helping our clients steward their plans and manage them as if they were our own.

This includes our unique policy of never accepting overrides, contingent compensation or other hidden rewards from vendors — unheard of among our competitors. These forms of compensation are explicitly designed to tilt the playing field and to increase sales, persistency and profitability for the insurance companies, PBMs, and other benefits vendors. As such, they are in conflict with a fiduciary’s duty to act solely in the best interest of the plan and its plan members.

Overrides and other forms of incentive compensation are a pervasive problem in our industry. Even more so than costing benefit plans millions of non-value-adding, flow-through expenses to plan costs, this shadow compensation causes plans to spend hundreds of millions more in suboptimal deals with insurance companies, PBMs, and other benefits vendors.

Time for a Change

There’s been a lot of talk over the last year in our industry about the Johnson & Johnson fiduciary lawsuit and how it represents a wake-up call for employers everywhere. It was the first class-action lawsuit against an employer for failing its fiduciary duty in the management of its health plan (specifically, its pharmacy benefits management arrangement). Incidentally, the lawsuit cited work we do for a large client as an example of how an employer could/should fulfill its fiduciary duty in this area.

Ironically, a lot of associated chatter has come from brokers and so-called consultants advising employers on the necessary steps to serve as good health plan fiduciaries while ignoring their own blatant conflicts of interest — a major source of bloat and profiteering within the market.

Chelko is now not just a firm who advises corporate health plan sponsors to meet their fiduciary responsibilities, if an employer is interested, we will contractually serve as a named fiduciary alongside them.

In Whose Interest?

Private equity and public markets are driving tremendous consolidation in our industry. Consolidators know that scale enables them to negotiate even bigger shadow payments. In fact, we are regularly solicited by larger brokers and private equity groups to join them by taking advantage of these payments.

Many of these larger brokers also force benefit vendors to “pay for play,” meaning they won’t even consider a vendor’s proposal unless the vendor pays them a large amount up-front. Some coalitions and collaboratives adopt the same strategy. While not illegal, this does create a conflict of interest as it is not solely in the interest of the plan and its members.

Is this important? Our experience tells us it is. For example, after (an important distinction) recently managing a Request for Proposal (RFP) on behalf of one of our clients, the winning vendor told us it was going to send us $100,000 in incentive compensation.

Of course, we rejected it. Just like we always have and always will. Why? Because it would compromise our independence and undermine the integrity of our industry. Somebody must restore trust and integrity in the health and welfare benefits advisory marketplace, and we’ve never shied away from that responsibility.

If you’re interested in learning more about the obligations of a health plan fiduciary or are ready to work alongside a consultant who will join you in that role, we would love to hear from you.