11th Circuit upholds $2.7 billion Blue Cross antitrust settlement

ATLANTA (CN) — An 11th Circuit panel on Wednesday upheld a federal judge’s approval of a nearly $2.7 billion subscriber class action settlement in an antitrust action against the Blue Cross Blue Shield association.

The 11th Circuit ruling allows for the settlement to move forward and for benefits to be distributed, over a decade after subscribers who bought health insurance sued Blue Cross. They argued the health insurance giant violated the Sherman Antitrust Act by restricting competition between its 36 insurer companies, creating a hike in prices for customers.

The actions against Blue Cross were consolidated in multidistrict litigation in the Northern District of Alabama and split into two tracks: one for subscribers and another for health care providers.

U.S. District Court Judge R. David Proctor approved the $2.67 billion compensation settlement last year, awarding $627 million to the plaintiffs’ attorneys and imposing injunctive terms that alter the ways Blue plans operate, as to boost competition among insurers.

However, not all 100 million class members were happy with the settlement. Four separate appeals to the 11th Circuit followed, and last month, a three-judge panel heard each of the different arguments on how the lower court abused its discretion in granting the approval.

Among the appellants is Home Depot, which raised concerns the agreement violates public policy because it includes a release of future antitrust class claims arising from Blue Cross continuing the very pre-settlement conduct that was the center of the litigation.

But the panel disagreed, finding that releases of future claims are a common aspect of settlement agreements in class actions. The judges also found that the release provision of the settlement only bars future claims that were already challenged in the underlying lawsuit.

It also does not affect public enforcement of the antitrust laws or prohibit the government from pursuing civil claims or criminal charges against Blue Cross, the panel ruled.

In an appeal from Topographic Inc. and Employee Services Inc., the consulting firms challenged the lower court’s “plan of distribution” which allocated the settlement fund between fully insured subscriber class members and self-funded subclass members. Attorney Scott Smith argued the allocation is “inequitable” because the larger, self-funded subclass gets only 6.5% of the money.

The 11th Circuit panel rejected this argument, ruling the lower court fully considered the differences between the self-funded claimants and the fully insured claimants by negotiating differing litigation risks, incurred costs and claim strengths, before concluding that the two groups were treated equitably.

“Although the settlement agreement’s allocation is facially unequal, it is not facially unfair,” Chief U.S. Circuit Judge William Pryor wrote in Wednesday’s ruling.

Topographic’s claims that the lower court approved the settlement allocation based on inadequate evidence and erroneous factual findings was shot down by the panel, which found that the court cited extensive evidence to show that the allocation was reasonable based on the comparative strengths of each class’ antitrust claims and relative competitiveness of the fully insured market.

The consulting firm further argued that the lower court created a “fundamental intra-class conflict” by creating two subclasses and instead of dividing the claimants into classes and allocating the settlement fund between them, the settlement should have been distributed to all subscribers on the same basis.

According to Wednesday’s ruling, if the self-funded claimants and the fully insured claimants were not divided into two subclasses, there would have been a “conflict of interest” because they incurred different costs during the litigation, and their respective antitrust claims involved different markets.

In amici curiae filings, several state insurance departments echoed Topgraphic’s concerns that the lower court’s ruling could affect the state’s authority to regulate stop-loss insurance products that provide employers with protection against unpredictable losses.

“Nothing in the record suggests that the district court’s analysis would have changed even if it had defined self-funded accounts as those that purchased administrative services, stop-loss insurance, dental insurance, vision insurance, and other unbundled products,” Pryor, a George W. Bush appointee, wrote.

“What matters is whether there is a difference between the markets in which the fully insured claimants and self-funded claimants participated. Because the fully insured claimants purchased full-service health insurance from Blue Cross, they paid premiums and other charges that the self-funded claimants did not.”

Individual class members also raised objections to the settlement. While David Behenna, an individual class member, argued in his appeal that the lower court incorrectly calculated the proposed attorneys’ fees, the panel forfeited his claim because the issue was not raised before the lower court. They added that even if it was, the court did not abuse its discretion in determining the reasonableness of the attorneys’ fees award.

Jennifer Cochran and Aaron Craker objected to the plan of distribution allocating unclaimed employee funds to their employer, arguing it is inherently “inequitable” and suggests inadequate representation for the employees of fully insured employers, such as themselves.

The two employees “conflate the terms ’equitably’ and ’equally,” Judge Pryor wrote in the ruling. He added that the plan of distribution was “fair and reasonable” because fully insured employers “bore a heavier monetary burden” than their employees by paying a portion of their employees’ premiums, while some of their employees did not pay any portion of the premiums for their health insurance coverage.

“The plan of distribution might be unequal, but it is not inequitable,” he wrote.

In response to concerns from the Department of Labor that the settlement may affect the duties that employers and plan fiduciaries have under the Employee Retirement Income Security Act, which sets minimum standards for most voluntarily established retirement and health plans in private industries, the ruling declared that nothing in the agreement changes those rights.

U.S. Circuit Judge Nancy Abudu, who was recently appointed by President Joe Biden, and U.S. District Judge Thomas Barber, a Trump appointee by designation from the Middle District Court of Florida, rounded out the panel.

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