Self-funded employers are experiencing unparalleled regulatory and legal scrutiny, with mounting pressure to show they are fiduciarily responsible. From ERISA lawsuits to prescription drug cost management, businesses must now navigate risk-laden waters to avoid running aground with significant financial and legal consequences.
Self-Funded Employers Under Pressure
A combination of legal challenges, regulatory updates, and rising healthcare costs has made fiduciary responsibility a top concern for employers in 2025.
1. Growing Legal Challenges
Enacted in 1974, the Employee Retirement Income Security Act (ERISA) was designed to protect employees from mismanagement of retirement and healthcare benefits. While originally focused on pensions, its scope has expanded to include employer-sponsored health plans, wellness programs, and mental health coverage. Lawsuits claiming fiduciary breaches—such as excessive fees, lack of transparency, and mismanagement—have spiked. Employers’ fiduciary responsibilities under ERISA:
- Ensuring plan expenses are reasonable and in participants’ best interests.
- Monitoring third-party service providers (PBMs, insurers, TPAs).
- Avoiding conflicts of interest and ensuring transparency in healthcare decisions.
Prescription drug pricing, PBM contracts, and healthcare spending decisions are being challenged in court, with plaintiffs arguing that employers are failing to safeguard employee benefits effectively. For example, in February 2024, a class action lawsuit was filed against Johnson & Johnson (J&J) using ERISA alleging the company breached its fiduciary duties. The lawsuit claimed that J&J mismanaged its self-funded health plan’s prescription drug benefits, leading to higher costs for plan participants through increased premiums, deductibles, copayments, and cost-sharing.
2. New Regulatory Requirements
Transparency in Coverage Rule: Plan sponsors must disclose detailed healthcare plan pricing and negotiated rates. Non-compliance risks financial penalties and loss of trust among employees.
Prescription Drug Data Collection Report (RxDC): Self-funded employers are now required to submit information about prescription drugs and health care spending to the RxDC report, adding new layers of administrative burden.
New State Laws Targeting Prescription Pricing: All 50 states have implemented some kind of law trying to increase price transparency, but some states have gone further. Colorado’s Prescription Drug Affordability Review Board statute defines an upper payment limit to cap what can be paid or billed for a prescription drug dispensed or distributed within the state.
3. Always Rising Prescription Drug Costs
With specialty drugs and weight-loss medications like GLP-1s (e.g., Ozempic, Wegovy) surging in demand, employers are struggling to contain costs and keep drugs accessible while remaining fiscally compliant. Lawsuits are popping up across the country, litigating how companies structure benefits, negotiate PBM contracts, and manage formularies.
4. Increased Employee Awareness and Legal Activism
Employees are better informed about their healthcare rights and are more aware of the fiduciary duties owed to them. Consistent media coverage of high drug costs and legal settlements has emboldened plan participants to challenge their employers, leading to more class-action lawsuits.
Why 2025 Will be a Litigious Year
The Employers managing self-funded plans now face an intense legal climate, driven by increased ERISA lawsuits citing opaque PBM contracts with hidden fees, excessive fees for administrative and pharmacy benefits, and high-cost specialty drugs. The litigation often targets mismanagement of specialty drug coverage, arguing that employers allow unnecessary waste or fail to steer employees toward lower-cost alternatives.
Though the U.S. District Court for the District of New Jersey partially dismissed the Johnson & Johnson ERISA suit recently, it is important to point out that the court found that the plaintiff lacked standing. The court did not rule on the merits of the fiduciary breach allegations and the dismissal does not absolve employers of their fiduciary responsibilities under ERISA. Employers should continue to exercise prudent oversight of their health plan vendors, including PBMs, to ensure compliance with fiduciary duties.
For employees, the lawsuits are supposed to give them more transparency and a better bargaining chip with negotiated drug pricing and fee structures. The legal boogeyman may push companies to adopt better compliance strategies, reducing potential fiduciary breaches.
Lawsuits don’t solve some problems. Defending against lawsuits is expensive, and settlements can drive up healthcare costs. Risk-averse employers may adopt more conservative benefit offerings to avoid legal risk, reducing employee choice. As lawsuits move through the courts, the regulatory environment becomes one of shifting sands, ever evolving compliance requirements, which can be time-consuming and costly.
How Employers Can Reduce Legal and Financial Risk
Given the current legal climate, proactive risk management is critical. Employers can take several key steps to protect themselves:
- Enhance transparency by offering web-based solutions to employees to view prescriptions.
- Strengthen fiduciary oversight with technology that proves fiscal responsibility.
- Leverage compliance technology by using data-driven tools to track prescription drug spending and optimize healthcare costs.
RazorMetrics provides self-funded employers with the tools needed to manage fiduciary risk and ensure compliance.
- Cost Containment Solutions – RxEdge and RxAdvocate help employers identify cost-effective prescription drug alternatives, reducing unnecessary spending.
- Transparency and Data Insights – RazorMetrics offers analytics on drug spending and plan performance, ensuring employers make informed fiduciary decisions.
- Improved Employee Outcomes – With features like Biosimilar Interchange, Polypharmacy management, Deprescribe, and High-cost Drug Alerts, plan sponsors ensure employees have affordable access to the medications they need.
- Litigation Protection – Employers using RazorMetrics can demonstrate due diligence in managing pharmacy spending, reducing their exposure to ERISA-related lawsuits.
With fiduciary pressure intensifying in 2025, employers need to show that they are managing their self-funded plans very well. The increase in ERISA lawsuits, regulatory rules, and employee awareness make compliance a critical business priority.
Employers can protect themselves from legal risks while offering excellent benefits to their employees by leveraging technology to implement proven cost-containment strategies. Partnering with RazorMetrics provides the transparency, compliance tools, and cost-saving solutions that employers need to safely navigate the treacherous waters ahead.
