Pipefitters Local 636 Ins. Fund v. Blue Cross and Blue Shield of Mich.
722 F.3d 861
| 6th Cir. | 2013Background
- Pipefitters Local 636 Insurance Fund (the Fund) is a self-funded ERISA plan that contracted with Blue Cross and Blue Shield of Michigan (BCBSM) under an Administrative Services Contract (ASC) for claims processing and related administration.
- Michigan law requires BCBSM to pay a Medigap cost-transfer equal to 1% of its "earned subscription income" to subsidize Medicare supplemental coverage; the Commissioner set the obligation at 1% but did not prescribe how BCBSM must allocate charges among customers.
- From June 2002 to January 2004 BCBSM collected an "other-than-group" (OTG) fee from the Fund by retaining part of provider discounts it negotiated rather than passing the full discount through; in January 2004 BCBSM stopped charging the Fund the OTG fee for business reasons.
- The ASC did not specify a dollar amount or formula for OTG charges; it only stated that any cost-transfer surcharges ordered by the Commissioner "will be reflected" in billed hospital costs.
- The Fund sued under ERISA, alleging BCBSM breached fiduciary duties by discretionarily imposing and using OTG funds to satisfy BCBSM’s Medigap obligation; summary judgment for the Fund was affirmed by the Sixth Circuit, which held BCBSM acted as an ERISA fiduciary with respect to the OTG charges and breached its duties (including the prohibition on self-dealing).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether BCBSM was an ERISA fiduciary when it charged the OTG fee | BCBSM exercised control over plan assets by deciding to assess and set OTG charges and thus was a fiduciary for that activity | BCBSM was a mere pass-through administrator; the state fixed the 1% obligation so BCBSM had no discretion and thus no fiduciary role | BCBSM was a fiduciary with respect to assessing the OTG fee because the ASC provided no formula and BCBSM exercised discretion (some clients were charged, some not) |
| Whether assessing and using OTG fees to satisfy BCBSM’s Medigap obligation violated ERISA fiduciary duties | Unilateral assessment and retention of OTG fees for BCBSM’s own statutory obligation constituted self-dealing and breached duties of loyalty/prudence and the exclusive-benefit rule | The collection was lawful administrative compensation/ pass-through and not self-dealing because BCBSM owed the state the 1% and was merely covering that obligation | The unilateral setting/use of OTG funds to pay BCBSM’s Medigap obligation violated §1106(b)(1) (self-dealing) and §1104(a) duties; BCBSM breached fiduciary duties |
Key Cases Cited
- Seaway Food Town, Inc. v. Med. Mut. of Ohio, 347 F.3d 610 (6th Cir. 2003) (arm’s-length contract terms that expressly permit retention of discounts do not alone create fiduciary status absent discretionary authority)
- Guyan Int’l, Inc. v. Prof’l Benefits Adm’rs, Inc., 689 F.3d 793 (6th Cir. 2012) (using plan funds for the administrator’s purposes is classic self-dealing and breaches §§1104 and 1106)
- Patelco Credit Union v. Sahni, 262 F.3d 897 (9th Cir. 2001) (administrator’s unilateral markup of premiums where contract did not fix the fee violated the prohibition on self-dealing)
- James v. Pirelli Armstrong Tire Corp., 305 F.3d 439 (6th Cir. 2002) (ERISA fiduciary duties include loyalty, prudence, and exclusive benefit obligations)