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A new form of labor litigation is catching the attention of corporate boardrooms across the United States, emphasizing the need for legislative support to help companies manage health-care costs effectively. This year, three major employers—Johnson & Johnson, the Mayo Clinic, and Wells Fargo—have become defendants in class-action lawsuits. Employees allege that these companies failed to manage their health insurance benefits in line with their best interests, as mandated by the Employee Retirement Income Security Act (ERISA) Act.
The employees’ grievances focus on the high cost of their health benefits. These lawsuits are inspired by previous litigation against employers related to the mismanagement of 401(k) and other retirement plans under ERISA, which have led to significant settlements for plaintiffs . For 50 years, ERISA has enabled large employers to provide uniform benefit plans across various states. However, employers’ bargaining power in health-care markets has diminished due to a lack of competition among hospitals and insurers.
Among the primary drivers for escalating insurance premiums is the rising cost of hospital services. These costs have been increasingly passed on to workers through higher premiums, coinsurance, and copayments, putting many employees in the difficult position of choosing between paying medical bills or other essential expenses .
Employers are increasingly frustrated with the current state of health-care affordability . The high costs of health insurance make businesses less competitive and limit their capacity to offer higher wages. While good health insurance is a strong tool for recruitment and retention, its value diminishes when the coverage becomes financially burdensome for employees.
The 2021 Consolidated Appropriations Act reinforced ERISA’s fiduciary requirements for employers in managing health-care benefits. However, employers still face challenges in accessing data to manage their health-care expenditures effectively. The House of Representatives has passed the bipartisan Lower Costs, More Transparency Act, which aims to provide employers with better access to health-care spending data and expand transparency rules. There are calls for the Senate to advance the Health Care Price Transparency Act 2.0 .
Clearer fiduciary obligations for insurers and pharmacy benefit managers are also part of these legislative measures, aiming to ensure that these entities are committed to cost control and savings sharing. As Congress considers further empowering employers as prudent purchasers of health care, a more stringent set of requirements and a stronger enforcement framework will be essential for ensuring compliance.
ERISA has been the cornerstone of employer-sponsored health coverage for nearly half of all Americans . Yet, a 2023 survey by the Commonwealth Fund indicates that four in 10 American workers struggle to afford health care survey. Many forego necessary services due to high costs . U.S. companies continue to experience escalating health-care costs that outpace economic and wage growth.
The moment for Congressional action to protect workers and improve the affordability of health care for the coming decades is now.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
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