Why choose ARC?


Why should a Company do a Health Plan ERISA Audit through ARC?


Companies regularly conduct, or bring in outside audits, of their health plan benefits. If they have done this for years, and always reported a “clean bill of health”, why should they now expend effort and cost to have an external audit by ARC ERISA experts?


Top-3 Reasons:


  1. If an insurance intermediary has intentionally made effort to hide overpayments and/or improper adverse medical claims, it is highly unlikely that a company using normal audit practices will find this. Blue Cross Blue Shield (“BCBS”) of Michigan successfully hid overpayments for two decades and was found to have breached its “Fiduciary Duty” and engaged in “Prohibited Transactions” under ERISA.
  2. Complexity and non-repeatability of medical insurance reimbursements remains commonplace. Not surprisingly, only two companies in the US, one of which is ARC, have proven capability to mine this information and identify ERISA breaches in a manner accepted by US Federal courts of law.
  3. Amongst the published court cases that involve insurance intermediaries as the defendant, there is evidence, that malicious billing practices have been used by Blue Cross Blue Shield and other health insurance intermediaries (see below).


Relevant Published Court Statements


  • BCBS made their new fees invisible to the customer. “In 1993, Blue Cross decided to hide the Disputed Fees by merging them with hospital claims on billing statements. A 1993 document… explains the plan… <and> reads, in relevant part: “Changes to these costs will be inherent in the system and no longer visible to the customer”.[1] Setting its own administrative fees and directly collecting them from plan assets was prohibited self-dealing. (It is noted that there are many other possible breach types, including unwarranted adverse medical claims).
  • BCBS took actions to conceal fraud.   “As the district court found, BCBS of Michigan breached its fiduciary duty by committing fraud and then acting to conceal that fraud”.[2]
  • Practices of some insurance intermediaries were done intentionally without regard to requirements under ERISA law. For example, in the case involving BCBS (specifically Independence Blue Cross or “IBC”) versus the Pennsylvania Chiropractic Association, court documents state: “… it is undisputed that IBC does not take ERISA into account when adopting, implementing … relating to recoupment”.[3] The US District Court concluded that “IBC’s practices come nowhere near substantial compliance with ERISA’s notice and appeal requirements”.[4]
  • Appeals of ERISA breaches are not time-barred. This enables companies to ‘turn back the clock’ and seek recovery for breaches that occurred well into the past. For example, in awarding $5,111,431 in damages and prejudgment interest in the amount of $914,241 to Hi-Lex, a company with 662 employees, the district court ruled that Hi-Lex’s claims were not time-barred.[5]
  • A Government Accounting Office (GAO) survey concluded in 2011 that if federal law was applied, that between 39% and 59% of denied healthcare claims would be reversed.[6] This is as opposed to the status quo of approximately 1 in 200 (0.5%) of denied medical claims that are reversed.
  • Regardless of the reason (whether criminal intent or incompetence), it appears that insurance intermediaries have a general tendency to overcharge healthcare fees from self-insured corporations. Using proprietary data (unpublished) of an ARC affiliate company that has a national track record in repeatably accurate ERISA audits of company healthcare payments to insurance intermediaries, “error rates” in payments ranged from 5% to 12%. Given that companies pay a lot to subsidize employee healthcare, these “errors” are, themselves, financially significant.
  • Department of Labor regulations issued on January 1, 2014 for auditing employer health plans lifted auditing requirements. Most employers do not yet employ audit methods that fully comply with these new regulations (overview of ERISA audits [7]). About one-third of all healthplan audits identify significant ERISA breaches.[8] Nearly 15% of these enforcement actions involved Form 5500 violations. [9] ERISA’s reporting and disclosure requirements, for instance, carry a fine of $110 per day, per person, per violation for every plan participant who was covered under a single contract.[10]
  • While the most visibly egregious ERISA breaches began in the 1990s by BCBS, other insurance intermediaries have also lost court cases. For example, the US Court of Appeals upheld certain judgments against United Healthcare of Tennessee against an individual whose healthcare benefits were denied.[11]



In essence, there is only one reason that a self-funded company should hire specialists to audit their healthcare benefits and that is to confirm that their employees are obtaining all the healthcare benefits legally owed them under federal law. There is sufficient evidence that only such specialist audits are sufficient to meet the employer’s fiduciary obligations as a Plan Sponsor. Fortunately the cost of such an audit, if done by ARC, is minimal (about $2500).

As noted earlier herein, there are a wide variety of reasons why companies should expect a thorough (and repeatable) audit to identify a range of ERISA breaches. If this incidence and severity is low, it may be possible for the employer to rapidly negotiate a simple settlement with the insurance intermediary. If the severity and total cost of breaches is significant, as has always been the case to date, then the employer has an obligation to pursue recovery.



[1] Accessible through: http://www.gpo.gov/fdsys/granule/USCOURTS-mied-2_11-cv-12565/USCOURTS-mied-2_11-cv-12565-9. Document filed 09/07/12 (24 pages total); page 4.

[2] http://www.ca6.uscourts.gov/opinions.pdf/14a0100p-06.pdf, page 10.

[3] http://www.gpo.gov/fdsys/pkg/USCOURTS-ilnd-1_09-cv-05619/pdf/USCOURTS-ilnd-1_09-cv-05619-16.pdf, page 15.

[4] http://www.gpo.gov/fdsys/pkg/USCOURTS-ilnd-1_09-cv-05619/pdf/USCOURTS-ilnd-1_09-cv-05619-16.pdf, page 36.

[5] http://www.ca6.uscourts.gov/opinions.pdf/14a0100p-06.pdf, page 3.

[6] http://www.gao.gov/new.items/d11268.pdf, page 2.

[7] http://www.dol.gov/ebsa/erisa_enforcement.html

[8] http://learn.compliancebug.com/learn/erisa-dol-fines-are-common/

[9] ibid.

[10] http://eba.benefitnews.com/blog/beadvised/fear-the-dol-health-plan-audit-2739837-1.html

[11] http://www.ca6.uscourts.gov/opinions.pdf/14a0200p-06.pdf