Blue Cross of Idaho ran Scentsy’s health plan. Blue Cross of Idaho also sold Scentsy the insurance policy that pays out when an employee’s medical bill gets huge - a policy with an end date. Every week Blue spent processing a huge claim was a week closer to the day it owed Scentsy nothing.
Hmmm.
A $1.4 million claim for a critically ill baby missed the deadline by about ten weeks. Scentsy paid it out of pocket. Then Scentsy sued.
If your carrier runs your plan and also provides your reinsurance policy, you’re sitting in Scentsy’s chair (PS that’s most employers). Read this before your next renewal call. (Or forward it to the person who does. I’ll wait.)
Here’s the 411.
Bottom Line
On September 3, a federal judge ruled that Blue Cross of Idaho broke its fiduciary duty to Scentsy (I know, you’re shocked). A $1.4 million claim for a baby’s care showed up too late for Scentsy’s stop-loss reimbursement, Blue (wearing its reinsurer hat instead of its plan administrator hat) refused to pay it, and Scentsy covered it out of its own pocket. The judge says Blue has to make Scentsy whole.
If your third party administrator (TPA) also sells your stop-loss, you’ve got the same setup Scentsy had.
Definitions, in Plain English
Self-funded plan. The employer hires a plan administrator (like Blue, Aetna, or in my clients’ case, indie vendors), who writes checks to pay employees’ medical bills out of the employer’s own bank account, instead of just paying inflated monthly premiums to the carrier to, well, carry that risk and pay bills out of its own deep pockets. Scentsy (yes, the wax warmer people) runs one.
BUCAH. Blue Cross Blue Shield, UnitedHealthcare, Cigna, Aetna, Humana, aka the big carriers that run most employers’ claims and would love to sell you everything else too.
TPA (third party administrator). The company the employer hires to process the claims and pay the bills with the employer’s money. For big employers (over a couple hundred employees usually), the BUCAH is just a TPA for their plan. Blue was Scentsy’s TPA. The contract calls it the “claims administrator.”
Stop-loss or reinsurance. Insurance the employer buys to cap its risk. Once claims for a plan enrollee pass a set dollar amount, the stop-loss reinsurer reimburses the employer for everything above it. Here the trigger was $200,000 per person, and the contract calls it an “Excess Loss Contract.” This is so that self-funded plans don’t go bankrupt over a particular high claimant.
ERISA. The federal law that governs self-funded plans.
Fiduciary. Someone legally required to put the plan and its participants first. The Ninth Circuit calls the ERISA fiduciary duty “the highest known to the law.”
The window. The reinsurance policy period during which a claim has to be paid to count towards stop-loss reimbursement. It gets its own section below.
What Happened
Scentsy’s plan covered a baby who was born in February 2022 with serious birth defects. She was transferred to a children’s hospital in California and ran up two enormous claims there.
Blue paid the first one, about a million dollars, under the stop-loss policy. It refused the second one, about $1.4 million. Blue said the bill arrived on September 19, 2022, which was after the stop-loss window closed on July 30. So Scentsy paid the second claim itself, then sued.
What the Hell Is the Window?
Like your auto insurance, a stop-loss reinsurance policy has a start date and an ending date, and this one ran from May 1, 2021 to April 30, 2022. You’d think that means any big claim for care during that year gets reimbursed. It doesn’t work that way. The contract only covers care that was provided during the coverage year, but also, crucially, paid during that year plus three months after. That’s the window. Care has to happen inside the contract period, and the claim has to be paid by the cutoff date after it.
Say a patient racks up a million-dollar bill in March. Someone has to get the bill from the hospital, review it, and pay it, and if that takes long enough, the cutoff passes. The care happened on time, but the payment didn’t, so the stop-loss carrier owes nothing and the employer eats the bill. That’s why every employer expects its TPA to pay attention to big claims and to hustle to process and pay them quickly so they land inside the window.
The policy coverage window for when the bill had to be paid by closed July 30, 2022, three months after the contract period ended. The baby’s second claim covered care from March through April 22, 2022, and Blue says it got the bill on September 19 and paid it on October 10. That’s about ten weeks late by Blue’s math.
Why Scentsy Was Mad
Because the company was in charge of running out the clock was the same one that owed the money if the clock didn’t run out. Blue decided how fast Scentsy’s claims got processed, and Blue also had to write the stop-loss check if a big one got processed in time.
You might be asking yourself, “Self, how could Blue have known that the big expensive bill would come in for this baby after the cutoff? Blue isn’t clairvoyant, right?”
But actually, Blue knew about this baby, and it left a paper trail months before the window closed. The court found no evidence that Blue ever told Scentsy it was sitting on the claim, and no evidence that Blue tried to rush the claim or pay it after the fact.
Judge Amanda Brailsford has now granted Scentsy summary judgment on its two ERISA fiduciary counts. Regular readers know how I feel about Blue (the B in my BUCAHs), so you can guess whose side I’m on.
Below the paywall: how the judge found that Blue was wearing two hats (oops) and how Blue gets hoisted by its own email. (And its own underwriting director. And its own contract.) Paid subscribers get the to-do list about how to not end up like Scentsy. Everyone else, forward this to your CFO.
