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ERISA Class Action Settlement Results in Business Reforms (Not Payment)


July 21, 2014
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Horizon Blue Cross Blue Shield of New Jersey Inc. (Horizon) will alter its business practices and pay $2.5 million in attorney’s fees under the terms of a class action settlement approved in federal court last week. The suit alleged the insurance company under-reimbursed health plan subscribers for out-of-network services in violation of the Employee Retirement Income Security Act (ERISA). Lead plaintiff Catherine McDonough first filed the suit in 2009 and was later joined by the New Jersey Psychological Association. While Horizon plan document required reimbursement for out-of-network services at the “usual and customary rate,” the insurer relied on two inaccurate methods of calculation: a database provided by Ingenix Inc. and an in-house schedule known as “Top of Range.” The settlement’s affected class ultimately included 2.7 million insureds and over 181,000 out-of-network health-care providers. The parties reached a proposed settlement in December 2013, which recently received final approval by U.S. District Judge Stanley Chesler. Under the terms of the settlement, Horizon will discontinue using both the Ingenix database and the “Top of Range” reimbursement schedule for such claims. The insurer will also update its plan language, member handbook, website and marketing materials to explain how it calculates reimbursement amounts for covered services provided by out-of-network providers. Objectors to the settlement argued that it provided no real benefit to the class members, whose expert valued their claims at $10 billion. However, Judge Chesler maintained that the business reforms required under the agreement met the criteria of the law: “By requiring Horizon to update and revise plan language, member handbooks and marketing materials, the settlement tangibly addresses a significant problem about which the class complained in this action,” he concluded. The court also rejected arguments against the $2.5 million fee, noting that existing precedent allows for attorneys fees in settlements that call for policy and procedure changes rather than monetary payments. It will be interesting to see whether that aspect of the Judge’s decision is challenged on appeal.