Legal battle over health costs could change workplace benefits

• The heightened legal threat is contributing to employers' efforts to take a harder line with health insurers, pharmaceutical middlemen and other benefits administrators.

The big picture: Roughly 70% of large employers that offer health insurance are self-insured, meaning they collect premiums from enrollees and pay claims themselves, while often hiring a health insurer or pharmacy benefit manager to oversee benefits.

• These self-insured companies have been required to ensure they aren't wasting workers' money on overpriced health coverage for a few years, but this year they began facing a new federal mandate to attest as much — potentially raising their legal exposure.
• But employers have said outside firms managing their benefits, known as third party administrators, often aren't transparent about the inner workings of their plans.
• Employers said that's made it difficult to know — and formally attest — whether they're being responsible stewards, or fiduciaries, of their workers' dollars.

State of play: A Johnson & Johnson employee in February filed a first-of-its-kind class action lawsuit alleging that the pharmaceutical giant mismanaged employee drug benefits.

• And last month, a Mayo Clinic employee in Arizona filed a class action suit against the health system and its insurer Medica, claiming that workers' medical bills were "systematically underpaid."
• Mayo and Medica said they were committed to helping employees understand their benefits and access care, but would not comment further on the pending lawsuit.
• Experts say they expect similar lawsuits will follow as law firms seek out more employees willing to take on their companies.

Zoom in: In the J&J suit, plaintiffs say the company agreed to overpay for certain drugs.

• For example, it agreed to pay more than $10,000 for a 90-day supply of a generic drug for multiple sclerosis. They found several national pharmacies charged less than $80 for the same drug.
• "No prudent fiduciary would agree to make its plan and beneficiaries pay a price that is [250] times higher than the price available to any individual who just walks into a pharmacy and pays out of pocket," according to the plaintiffs, who said a leading drugmaker like J&J should have known better.

• J&J in a motion to dismiss the suit accused plaintiffs of cherry-picking a few dozen drugs out of thousands the company covers. And the company, which did not respond to a request for comment, argued self-funded plans like its own "have every incentive to negotiate the best overall deal."

What we're watching: There have been some prominent examples of companies recently pushing back against their benefit managers.

• Kraft Heinz sued Aetna before agreeing to arbitration last year over allegations the insurer approved millions in improper medical and dental claims.
• In January, Tyson Foods dropped CVS Health as its PBM. Foot Locker dropped UnitedHealth Group's Optum in place of a smaller PBM that it says was more transparent about costs.

The bottom line: More employers will move away from traditional benefit administrators, predicted Elizabeth Mitchell, CEO of the Purchaser Business Group on Health, which helped lead a coalition of large companies in building their own PBM.

• "[Health insurance is] the second largest expense of any company after payroll. It's obviously critical to employees and their families," she said. "So I think the change is needed and it's long overdue."