The Collective Fiduciary

• Publication year: 2021

94 Nebraska L. Rev. 511. The Collective Fiduciary

The Collective Fiduciary

Lauren R. Roth(fn*)

TABLE OF CONTENTS

I. Introduction .......................................... 511

II. Individual and Collective Fiduciaries .................. 516
A. Fiduciary Powers .................................. 516
B. Fiduciary Duties .................................. 519
C. The Expanding Fiduciary Role ..................... 523

III. The Failure to Hold the Expanding Fiduciary Accountable Under ERISA ............................ 528
A. Holding Private Actors Accountable: The Role of Congress .......................................... 529
B. Expanding the Definition of "Fiduciary" ............ 532
C. A Failure of Legal Accountability .................. 538

IV. How the ACA Continues to Expand the Fiduciary Role .................................................. 541
A. A Right to Healthcare ............................. 541
B. Fiduciary Gatekeepers for Healthcare .............. 545

V. A Framework for the Collective Fiduciary ............. 548
A. A Proposal for an Enhanced External Review Process ........................................... 550
B. A Proposal to Alter Federal ERISA Common Law .. 553
C. A Proposal for Statistical Limits on Benefit Denials ........................................... 555

VI. Conclusion ............................................ 557

I. INTRODUCTION

The fiduciary developed largely as a legal construct to allow an individual to perform a task for the benefit of one or a small number of individuals. Property was managed. Estates were distributed. Employees were hired.

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But can fiduciaries be made to serve public goals? I introduce the concept of the collective fiduciary to signify the shift taking place in private social welfare benefits towards collective goals and holding fiduciaries accountable for the welfare of many instead of one or a few individuals. A collective fiduciary is an organization that administers a social welfare program funded by the government, in whole or in part, either directly or through tax incentives, on behalf of a large number of beneficiaries and is bound by fiduciary duties imposed under common law or statute. Other scholars have focused on the individual whose fortunes or health is controlled by a fiduciary, making it difficult to collect information about fiduciary actions and obtain consistent, coherent decisions from fiduciaries who control access to private benefits. My argument here is that this is not a problem that can be fixed at the level of the individual fiduciary or individual beneficiary. Instead, by taking a collective approach, we can help individuals by ensuring that fiduciaries meet public targets for benefit distribution.

With the passage of the Patient Protection and Affordable Care Act (ACA),(fn1) millions have or will gain access to health insurance. Due to penalties for employers who do not offer the required coverage, many will enroll in new employer-sponsored health plans subject to the fiduciary regime codified under the Employee Retirement Income Security Act of 1974 (ERISA).(fn2) Private health insurance plans are largely subject to ERISA's mandates. However, ERISA contains few substantive provisions for health plans, which is why any discussion of reforming the fiduciary framework that governs private health plans must focus on ERISA.(fn3) Given that many tests, procedures, and expensive medications require preauthorization by a plan administrator with a fiduciary role, these fiduciaries can restrict access to the very benefits that many individuals think they are purchasing with health insurance.

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Yet few of these fiduciaries-employees for a large health insurance company insuring or administering the plan-will ever meet or speak with the plan beneficiary for whom they are granting or denying coverage.

Consider the example of a participant in a group health plan subject to ERISA. The participant has cancer and seeks approval, through her doctor or hospital, for treatment. Her claim is denied by the insurance company administering her health plan because the treatment is not considered "medically necessary" for her condition. Both she and her doctor disagree with the fiduciary's decision, however, so she takes the time and effort to figure out her plan's appeals process and files a valid appeal of the denial of her benefit claim. The fiduciary denies her appeal. Leaving aside the ACA's new external review procedures-which add another layer of appeals and are discussed further below-the participant then has final option of exerting more time, effort, and money-all while sick with a serious illness-to go to federal court and ask a judge to review the claim. The judge, however, will apply a highly deferential standard of review and ask-on the basis of the administrative record only-whether the fiduciary's decision was arbitrary and capricious.

In the example, there is no collective accountability for the fiduciary. No third party has compared the claims of other, similarly situated participants decided by the same insurance company as a measure of internal validity for the decision. Likewise, no third party has investigated whether the insurance company is applying the same definition of care for the participant that other individuals with the same medical condition receive from competing insurance companies as a measure of external validity.

The movement under the ACA towards universal healthcare (although not all scholars believe that we have made such a movement with the statute(fn4)) requires us to focus on the relationships of trust

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between large organizations providing healthcare or access to healthcare and the populations they serve-abstracting up from the traditional one-on-one relationship between doctor and patient.(fn5) This implies that the fiduciary relationship has become a collective undertaking instead of a direct, personal relationship. I argue that this shift started in the pension context but has grown to greater significance in the healthcare world, because health and well-being are of greater salience than even finances. My concern, however, is first with the expansion of health insurance and the administration of health benefits instead of the direct provision of healthcare services. If patients are denied benefits, then they are effectively denied access to service providers-be they sole practitioners or growing corporations of doctors.

This Article examines the expansion of the role of the fiduciary as a result of growing demand for private welfare benefits in the United States. By failing to recognize the new role of the institutional fiduciary serving a large population of beneficiaries, the courts and Congress have declined to hold fiduciaries accountable for the collective responsibility they take on in a strong system of private welfare benefits. In a space where the government has been, until now, largely absent, both by choice and because of a lack of agreement on policy direction,(fn6) individual decisions by fiduciaries add up to the only large-scale policy existing for private benefits.(fn7)

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Though I explore several possible solutions, my preferred proposal is a system where every fiduciary administering a health plan(fn8) is acknowledged by the fiduciary, the participants and beneficiaries, and those enforcing the applicable fiduciary duties to be a fiduciary for the collective-for a large population of insureds. Further, under this plan each decision on a claim for benefits is acknowledged by those parties to have broad implications for the collective given the power differential and inherent conflict of interest faced by representatives of large health insurers and administrators between funding benefits and retaining money for employers and insurance companies. I argue that fiduciary duties are only meaningful when denials of benefit claims are supervised and capped by government actors.

Part II of this Article provides background information on individual and collective fiduciaries, including the traditional fiduciary role- both the discretion that is at the heart of fiduciary power and the common law duties that seek to ensure that fiduciaries use the power to serve beneficiaries instead of themselves. I discuss the particular risks inherent where a fiduciary serves a large number of beneficiaries, an issue that altered the balance of power within traditional fiduciary relationships and resulted in a need for my collective fiduciary framework.

Part III explores the struggle under ERISA to hold private fiduciaries serving a public role in employees' benefits accountable under the individual fiduciary framework. During the decade-long struggle to pass the legislation, Congress sought to bring within the fiduciary framework all institutional actors involved in administering private pension funds. Yet the absence of sufficient government oversight of benefit decisions made by fiduciaries with conflicts of interest left beneficiaries with little of the trust in fiduciaries that was previously a requirement for these relationships to occur. The application of ERISA to more and more health insurance plans set the stage for fiduciaries to restrict meaningful access to health benefits as well.

I argue in Part IV that the ACA has further expanded the fiduciary role to the point that fiduciaries now act as...