Zuckerman Spaeder and Berger Montague File Suit Against UnitedHealth Claiming Hundreds of Millions Illegally Taken from Health Plans

D. Brian  Hufford
D. Brian Hufford
Jason S. Cowart
Jason S. Cowart

In a class action lawsuit filed today by Zuckerman Spaeder LLP and Berger Montague PC, plaintiff Rebecca Smith alleges that the administrator of her health insurance plan, UnitedHealth Group (United), has illegally taken hundreds of millions annually from employer-sponsored, self-funded health plans like the one that covers Ms. Smith. More specifically, she alleges that in recent years United has doubled-down on a practice called “cross-plan offsetting,” in which United uses self-funded plan benefit payments that are owed to that plan’s members and, instead of paying them, redirects those funds into its own pocket to recover an alleged overpayment it caused one of its fully insured plans to make to the same provider.

The challenged practice has repeatedly been condemned by the Department of Labor (DOL) and criticized by several courts as illegal under the Employee Retirement Income Security Act of 1974 (ERISA). Yet, in the past two years alone, United has increased the number and value of the offsets it takes.

“UnitedHealth Group acts as if the accounts set up and funded by its customers to pay benefits on behalf of the self-funded plans it administers are no different from its own account through which it pays benefits under insurance policies it sells to ERISA health plans, moving money in and out of any of them as it sees fit,” said Karen L. Handorf, Senior Counsel in Berger Montague’s Employee Benefits & ERISA/Healthcare Insurance Litigation groups and co-lead counsel in the suit. “Using plan assets meant to fund the plans it is hired to administer to settle disputes arising under different health plans it administers is incompatible with United’s fiduciary duties to each of its separate plans and ERISA’s rules against self-dealing.”

According to Zuckerman Spaeder partner D. Brian Hufford, “cross-plan offsets are an affront to the entire ERISA regime, which is predicated on the idea that each plan is a separate legal trust and that plan fiduciaries like United cannot use plan assets to finance self-dealing.”

Prior cases challenging United’s cross-plan offset practice have resulted in several adverse rulings for United. In Peterson v. UnitedHealth Group, Inc., U.S. District Judge Patrick Schiltz granted summary judgment to plaintiffs, finding that United’s interpretation of the plans to allow cross-plan offsets was “inherently unreasonable” and “subject to gross conflicts of interest.” Judge Schiltz’s opinion was affirmed by the Eighth Circuit in 2019. Although it did not decide whether cross-plan offsetting violates ERISA, the court noted that the practice was "in some tension with the requirements of ERISA," focusing on the duty of loyalty which requires United to act for the exclusive purpose of providing benefits to participants and their beneficiaries when administering claims under ERISA-covered health plans. Most recently, a federal district court in New Jersey issued a decision, Lutz Surgical Partners PLLC, et al. v. Aetna Inc., et al., in which it held that Aetna’s cross-plan offsetting was a violation of several sections of ERISA.

Mr. Hufford and Jason S. Cowart of Zuckerman Spaeder and Ms. Handorf and Julie S. Selesnick of Berger Montague PC represent Ms. Smith and the proposed class of plaintiffs. They are joined by Karen H. Riebel and Kristen G. Marttila of Lockridge Grindal Nauen, P.L.L.P., and E. Michelle Drake of Berger Montague’s Minnesota office.

Please see a copy of the complaint here.

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Kalie Walrath
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