Tribal Self-funded Member Health Plans Not Subject to ERISA

In this General Memorandum we report on a recent decision by the United States District Court for the East District of Michigan in Saginaw Chippewa Indian Tribe of Michigan v. Blue Cross Blue Shield of Michigan, No. 1:16-cv-10317-TLL-PTM (E.D. Mich. July 14, 2017). This decision is of interest to any tribe that has both an employee health insurance plan and a self-insured health plan for its tribal members.

In this case, the Tribe had purchased a fully insured health care benefits plan for its employees from Blue Cross Blue Shield of Michigan (BCBSM). The Tribe paid a premium to BCBSM for coverage and BCBSM in return assumed sole responsibility for paying claims from the plan’s participants. The Tribe later decided to provide health insurance coverage for all members of the tribe. Rather than purchasing a fully-insured plan, like the plan for tribal employees, the Tribe chose a self-funded plan under which the Tribe directly paid the cost of health care benefits and paid BCBSM a fee for administering the member plan.

This case is one of many brought against BCBSM alleging that BCBSM breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by charging hidden administrative fees to its clients. A Sixth Circuit decision in Hi-Lex Controls, Inc. v. Blue Cross Blue Shield of Michigan, 751 F.3d 740 (6th Cir. 2014) conclusively established BCBSM’s liability as an ERISA fiduciary for charging hidden fees in administering employee health plans subject to ERISA. The issue in the Saginaw Chippewa case was whether the Tribe’s Member Plan was also subject to ERISA. If so, BCBSM would be acting in a fiduciary capacity in administering the Tribe’s member plan, and thus subject to liability under ERISA for charging hidden fees in administering the Member Plan.

The court held that the Tribe’s Member Plan was not subject to ERISA because it was not created by the Tribe to provide health care coverage for tribal employees. The court determined that circumstances surrounding the creation and administration of the Employee Plan and the Member Plan demonstrate that they were not intended to be a single plan, so that the question whether they are subject to ERISA must be conducted separately. The Tribe created its Employee Plan in its capacity as an employer to provide health care coverage for its employees. Thus, the Employee Plan was an ERISA plan. On the other hand, the Tribe created its Member Plan in its capacity as a sovereign to provide health care coverage for its members unrelated to employment by the Tribe. The fact that some tribal member employees had opted for coverage under the Member Plan did not make the Member Plan subject to ERISA because coverage of those member employees was unrelated to their employment relationship with the Tribe.

The court also held that BCBSM did not breach its ERISA fiduciary duty in allocating payments to its physician providers under a Physician Group Incentive Program (PGIP), which allocated a portion of yearly fee increases to physicians in BCBSM’s network based on certain performance measures. The court determined that unlike the hidden access fees at issue in the Hi-Lex decision, BCBSM never received any financial benefit from the PGIP and the Tribe did not establish that it was charged an additional amount because of PGIP.

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