A growing number of self-funded employers are being named in lawsuits by their own employees, and the root cause is a cost-control strategy that promised to slash hospital bills: reference-based pricing. The plans pay hospitals a fixed multiple of Medicare rates, often 140% to 200%, then leave employees to fend off the balance. When the collection notices arrive, the lawsuit names the employer, not the provider, and the claim is a breach of ERISA’s fiduciary duties.
Reference-based pricing made sense on a spreadsheet. An estimated 20-25% of healthcare spending is wasted on inflated facility charges and administrative friction. Employers watched premiums climb at twice the rate of wages and looked for a direct way to bypass negotiated PPO rates that were still multiples of what Medicare pays. The solution: pay Medicare-plus rates, treat the remainder as a provider problem, and let a third-party administrator handle the disputes. The problem is what happens when the disputes fail and the employee gets sued. That scenario now has a body of case law behind it, and employers are the defendants.
The Three Fronts of RBP Litigation
ERISA Fiduciary Breach Over Balance Bills
ERISA holds the sponsoring employer to a fiduciary standard. Courts have ruled that plan design decisions, including the choice to reimburse at rates that routinely produce balance bills, are fiduciary acts. When a participant faces a $50,000 bill after an emergency surgery, and the plan paid $8,000, the participant can argue that the employer selected a plan that made a mockery of the promise of “quality, affordable care.” Several class actions have cleared motions to dismiss on exactly that theory. The employer is not protected because a TPA promised to negotiate. The employer chose the reimbursement model and retained the TPA. That chain of responsibility lands at the plan sponsor’s feet.
No Surprises Act Friction
The 2022 law banned balance billing in emergencies and at in-network facilities, and it gave providers and plans an arbitration process to settle payment disputes. RBP plans often lean on the Act to tell members they cannot be billed. But the patient is protected only if the plan correctly identifies the service as covered by the Act, meets all the independent dispute resolution deadlines, and doesn’t misclassify the claim. When any of those steps fail, the patient gets stuck with collection notices and a damaged credit record. Federal regulators have fielded a surge of complaints under the Act, a meaningful share of them tied to non-traditional reimbursement models like RBP. Each complaint opens a door to a potential fiduciary claim.
Network Adequacy and Mental Health Parity
RBP plans rarely have a contracted provider network. Without one, participants can run into longer wait times and higher costs for behavioral health care compared to physical care. The Mental Health Parity and Addiction Equity Act requires comparable access. If a plan cannot show that, it may violate parity rules. The Department of Labor has signaled more aggressive enforcement here, and the first lawsuits framing an RBP plan’s lack of a network as a parity violation are already being filed.
The TPA Won’t Absorb the Liability
A common assumption among employers was that hiring a third-party administrator to fight balance bills would shield the plan sponsor. ERISA’s fiduciary duties are non-delegable. The employer chose the plan design that set the reimbursement benchmark and created the balance-bill risk. If the TPA misses a negotiation deadline or fails to resolve a bill, the participant’s harm traces back to the employer’s design choice. Courts are not accepting the defense that the TPA was supposed to handle it.
A Structural Alternative That Doesn’t Depend on Repricing Claims
Reference-based pricing tries to lower costs by shrinking what providers are paid and hoping the employee doesn’t get caught in the middle. That approach carries a permanent liability risk because the employer’s savings depend on a fight someone else might lose.
WellthCare™ takes a different path. It works alongside the existing health plan and gets used first, providing $0-co-pay care without reducing any provider’s reimbursement. Employees earn reward dollars at the WellthCare Store through verified preventive health actions, and they build retirement savings automatically. Because WellthCare never reprices a hospital claim or reduces a provider’s payment, it creates no balance bills, no network adequacy questions, and no fiduciary exposure from cost-shifting. Employers still see lower claims over time, because first-dollar care happens inside WellthCare, shrinking the volume and severity of claims that reach the primary plan.
An RBP plan fights over the price of a bill after care is delivered. A benefit system that layers coverage on top of the existing plan, rather than repricing underneath it, avoids that legal war entirely while making preventive care something employees actually use.
See what a WellthCare Plan would look like for your team.
This article is for general information only and is not legal, tax, or medical advice. Employers should consult their own advisors.