Goodwin Insights July 15, 2021

Motion to Dismiss Granted in Case Challenging Cross-Plan Offsetting

Key Takeaway: The defendant successfully moved to dismiss a lawsuit challenging its use of cross-plan offsetting where the District of Minnesota extended the Supreme Court’s 2020 Thole v. U.S. Bank N.A. decision regarding pension plans to the health plan context.

On May 20, 2021, the District of Minnesota granted, with leave to amend, United Health’s motion to dismiss a complaint challenging its use, as a third-party administrator of self-insured health plans, of cross-plan offsetting to recover alleged overpayments to healthcare providers. Cross-plan offsetting is a practice whereby health plan administrators recoup past overpayments to a provider by deducting the amount of such overpayments from future bills the provider submits, even if those future bills are in connection with services provided to a participant in a different plan. The plaintiffs alleged that cross-plan offsetting violates ERISA’s duty of loyalty and constitutes prohibited transactions because, by using the practice, United Health was able to use the overpayment—which plaintiffs asserted was a plan asset—to recoup its own losses and relieve itself from any penalties for making overpayments.

The court found, however, that the plaintiffs could not establish standing under Thole because they had not alleged that they had been denied any benefits to which they were entitled. Thole held that defined benefit pension plan participants who cannot allege injury to themselves, but rather only to the plan, lack standing to sue regarding management of their pension plans. The plaintiffs suing United Health similarly alleged that the practice caused harm to the plans in which they participated, but not to themselves. The court found that Thole was analogous and held as Thole did that plaintiffs who allege only injury to a plan lack standing. In doing so, it rejected the plaintiffs’ argument that it should follow cases regarding 401(k) plans that declined to extend Thole to that context, explaining that health plans are more like defined benefit pension plans than defined contribution 401(k) plans because, like pension plans, health plan participants are only entitled to their defined benefits regardless of the value of the plan’s underlying assets.

The case is Scott v. UnitedHealth Group, Inc., No. 20-1570, in the District of Minnesota. The decision is available here