Wednesday, April 12, 2023

The Fiduciary Imperative of Reference-Based Pricing: A Legal and Financial Analysis

This is my latest; it can be read in full over at BeneftsPRO

Abstract: This article examines the fiduciary obligation of CFOs, VPs of HR, and other health and welfare plan fiduciaries under the Employee Retirement Income Security Act (ERISA) to evaluate Reference-Based Pricing (RBP) in the context of their health insurance plans. The article argues that, given the federal government's endorsement of RBP and its proven efficacy in reducing employer costs and expanding participant options, it is now virtually impossible for a plan fiduciary to lawfully discharge their duties in accordance with ERISA without at least considering the implementation of RBP.


The landscape of American healthcare has undergone significant transformations in the past decade, with the emergence of numerous innovations and cost-saving measures. The most impactful development is the rise of Reference-Based Pricing (RBP), a pricing model proving to be a game-changer for employer-sponsored health insurance plans. This article argues that, given the demonstrated benefits of RBP, CFOs, VPs of HR, and other plan fiduciaries under ERISA are now under a fiduciary obligation to evaluate the potential incorporation of RBP into their health insurance plans – at least with respect to employers that are large enough to consider particularly self-funding their health plans. 

I. Fiduciary Obligations Under ERISA

ERISA imposes a fiduciary duty on plan administrators to act solely in the interest of plan participants and beneficiaries and for the exclusive purpose of providing benefits and defraying reasonable expenses of administering the plan. To fulfill this duty, fiduciaries must adhere to certain principles, including prudence, diversification, and adherence to plan documents.

The duty of prudence requires fiduciaries to act with the care, skill, prudence, and diligence that a prudent person would use in a similar situation. This duty is not merely a passive obligation; rather, it compels fiduciaries to actively engage in the management and oversight of plan assets, constantly seeking opportunities to enhance the value and cost-effectiveness of the plan.

Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir. 1982) emphasizes the importance of fiduciaries acting with prudence and diligence in managing ERISA plans:

In every case charging breach of ERISA fiduciary duty, ... the central inquiry is whether the fiduciary has acted 'with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.'

... Full story at BenefitsPRO