Blindsided - Are Supplemental Health Plans the Next Class Action Risk?

Just like 401(k) plans came under siege from a wave of class action lawsuits over fees and breaches of fiduciary duties, a new, and far more dangerous front is opening: supplemental health plans. Employers’ fiduciary activities are being questioned, given the lack of transparency into the true compensation structures behind these voluntary benefit plans.

Many employers have added supplemental health plans, such as critical illness insurance, accident insurance, or hospital indemnity plans to meet emerging needs of the evolving employee populations. A primary objective is to help employees offset rising out-of-pocket medical costs – but employers may not be fully aware of the proportion of dollars that are feeding profits to a benefits ecosystem – instead of contributing to the value of the benefits to their employees.

Recent Supreme Court decisions significantly lowered the bar for plaintiffs to pursue fiduciary breach claims, and aggressive plaintiff firms are already mobilizing. Supplemental health plans are quietly becoming the “easy button” for class action litigation: easier to target, harder to defend, and far more costly to ignore.

This is the next fiduciary frontier – and it’s already in motion.

Update (September 2026): The lawsuits predicted in this article have begun. Read Blindsided 2.0: The First Supplemental Health Plan Lawsuits to see what's unfolded.

Executive Summary: The New Fiduciary Frontier for Supplemental Health Plans

401(k) fee litigation re defined fiduciary risk in the 2010s. A similar playbook is now aimed at employee pay-all supplemental health plans, and the target is profoundly easier to hit.
The April 17, 2025 Supreme Court ruling in Cunningham v. Cornell significantly shifted the burden of proof, which had previously been a key defense at the motion to dismiss stage, effectively lighting the fuse for large scale health plan suits.
Advisors or brokers often sit on both sides of the table, masking hidden conflicts of interest and profit.
The proportional risk for employers is orders of magnitude greater with supplemental health plans, when compared to exposure of risk for 401(k) plans – yet most plan sponsors don’t realize the gravity of their exposure.
A data driven audit can quantify liability and provide options to meet the new frontier of fiduciary standards, reducing employers’ risk and liability.

1 | A Class Action Wave You Didn't See Coming: The New Face of ERISA Fiduciary Risk

Remember the shockwave when 401(k) plaintiffs uncovered “just a few basis points” of excessive fees? Supplemental health plans hide excess fees that are measured in thousands of basis points – often invisible to HR and Finance.

Employers understand that they are fiduciaries, but what they don’t understand is the game being played behind the curtain. They trust their brokers or advisors, which is warranted in many situations. But the voluntary benefits industry is different, and the unprecedented profit margins have very tangibly eroded the foundation for trusted-advisory relationships. The money is just too compelling. What employers often fail to recognize is that the brokers themselves are not fiduciaries. Therefore, they do not owe a fiduciary duty to the employer, the plan or the participants that they purport to represent. As a result, employers often assume the premiums negotiated by their brokers are fair, and that their broker’s compensation is reasonable. What employers don’t realize is:

Carriers often embed “heaped” commissions, as required by the broker. That means, commissions can be as high as 60% to 80% of the total premium in the first year.
Middlemen and profit centers within the benefits ecosystem are layered into the structure, and the employer may not ever see a complete breakdown of where the money goes.
Brokers receive undisclosed categories of payments, often without disclosing the total amount of a compensation they take home.

A real-life example of employers’ proportional risk

The truth? Many employers have no idea how much money their brokers are making. And no one is telling them. It’s not just opaque, it’s concealed and confidential by design.

Employers who have gone through the supplemental health plan audit process have been genuinely shocked by what was happening beneath the surface – commissions they never approved, compensation they never knew existed, loss ratios that are below 20%, and hidden party-in-interest conflicts. Supplemental health plans have operated in the dark for too long.

Now the spotlight is shifting—and plaintiff firms are watching.

2 | The Wave Isn't Coming — Supplemental Health Plan Lawsuits Are Already Here

This isn’t speculation. Plaintiff firms are already mobilizing.

Schlichter Bogard – the same firm that led the 401(k)-litigation revolution is advertising on LinkedIn to find participants in employer-sponsored health benefit plans, citing companies like Target, State Farm, Nordstrom, and PetSmart. While these ads reference health plans broadly, they include examples of supplemental health plans such as accident and critical illness coverage, signaling a strategic focus on an overlooked space.
Legal analysts are warning that group health plans, including supplemental health plans, are the next frontier for fiduciary litigation, especially in light of new disclosure rules under the Consolidated Appropriations Act of 2021.
Cases like Lewandowski v. Johnson & Johnson and the 2024 suit against Wells Fargo over inflated prescription drug costs show how litigation is already expanding beyond core medical into other employer-sponsored group health benefits – the same terrain where supplemental health plans live.

The legal strategy that generated over $1 billion in 401(k) settlements is being retooled, and this time the spotlight is on supplemental health plans, where hidden margins are larger, actual dollar exposure is similar, conflicts are deeper, and employer visibility is oftentimes near zero.

3 | Four Fiduciary Oversight Risks That Should Jolt Every Board

Financial liability — a bigger target, an easier shot

A single jumbo employer could face statutory penalties, disgorgement of hidden compensation, and personal fiduciary liability — numbers that are comparable to 401(k) settlements, despite the relatively small size of these offerings. A program risk that that dwarfs the 401(k) exposure.

Employee trust
Millennials and Gen Z scrutinize benefits value. Lawsuit headlines erode confidence faster than you can say “Glassdoor.”

Reputational blowback
Plaintiffs win the public relations battle long before the courtroom. Think: “Employer not paying attention – has employees paying too much for benefits.”

Operational distraction

Discovery requests chew up benefits, finance, and legal bandwidth for months – while competitors focus on growth.

4 | The Hidden Conflict of "Advice": How Broker Compensation Fuels Fiduciary Risk

As service providers, brokers or advisors that are recommending supplemental health plans are earning a slice of the very premium they recommend. Most brokers, including the global consulting houses, require that the carriers embed disproportionately high compensation as a ‘pay to play’ strategy, magnifying employers’ risk.

And some brokers are doubling down – “re-heaping” commissions – oftentimes without even telling their clients. This means that instead of moving the plan to a new carrier to get another large, first year commission payment, the broker is requiring the incumbent carrier to pay heaped commissions a second time. The carriers will pay, just to keep the business. Many employers don’t know that this is even occurring. And it’s the employer who is at risk, in this scenario.

5 | Why This Time Is Different: Cunningham v. Cornell Raises ERISA Fiduciary Risk

On April 17, 2025, the U.S. Supreme Court issued a landmark decision in Cunningham v. Cornell University, significantly lowering the bar for plaintiffs to pursue ERISA fiduciary breach claims under Section 406(a).

Before Cunningham, plaintiffs had to anticipate and refute the applicability of any and all potential exemptions (under Section 408) in their initial complaint – often a high legal hurdle that resulted in early dismissals.

The Supreme Court changed that. In a unanimous ruling, the justices decided that:

A plaintiff only needs to plausibly allege that a fiduciary caused the plan to engage in a transaction with a party in interest.
They do not need to negate every possible exemption up front.
Exemptions like “reasonable compensation” are now treated as affirmative defenses – meaning the burden shifts to the employer later in the litigation process. Instead of a plaintiff needing to establish that the compensation was unreasonable, the employer must now convince the court that it was reasonable.

Why this case matters

More lawsuits will survive early dismissal.
More employers will face costly discovery.
Employer decisions will be subject to second-guessing by the courts.
With supplemental health plans, employers are especially vulnerable to prohibited transaction claims where employees pay 100% of premiums, while transactions with brokers and carriers involve opaque compensation structures, if not concealed confidential arrangements.

As Ropes & Gray warned:

“Plan sponsors should be prepared for an uptick in litigation asserting ERISA fiduciary breach claims under Section 406(a).”

And the Groom Law Group adds:

“Cunningham significantly increases the likelihood that such claims will proceed into discovery, and settlement leverage will shift.”

The bottom line: Plaintiffs no longer need to prove that party-in-interest compensation is unreasonable. They only need to allege that a transaction with a party-in-interest occurred to survive summary judgement. In any case, most supplemental health plans have unreasonably high compensation baked into the design.

6 | What Should Employers Be Doing Now to Reduce Fiduciary Risk?

To protect themselves from becoming a target of a class action lawsuit:

Employers need to conduct the due diligence that is necessary to understand where their employees’ supplemental health plan dollars are going. Ignorance is not a defense.
Once armed with information, employers can assess whether plan dollars are in fact being spent in the best interest of their employees.
If not, they can make the necessary adjustments to the plan, which may include adopting a transparent supplemental health plan model.

Employees First is offering a turnkey supplemental health plan audit service that uses proprietary software to trace every dollar. Employers only need to forward an email. Within two weeks, employers (or if they prefer, their legal counsel) receive:

A fiduciary grade map of hidden fees, overrides, and commissions
The actual plan loss ratio – which is usually much lower than what the carrier reports
Benchmark comparisons to peer plans
Actionable steps to eliminate or redirect excess cost

This isn’t just a spreadsheet exercise, it’s a full transparency reveal employers didn’t know they needed.

About the Authors

Heath Miller
Lawyer, Entrepreneur & Co-Founder of Access Retirement Solutions

Heath Miller has extensive experience in all aspects of the employee benefits law, with a particular focus on qualified and non-qualified plans and equity compensation. His specialty areas include tax and ERISA issues associated with retirement and deferred compensation arrangements.

Amy Hollis
Founder and CEO of Employees First

Amy Hollis is the founder and CEO of Employees First, a women-owned benefits firm that pioneered the “Benefits Captive as a Service” model. She has led two of the three largest supplemental benefit practices in the industry and brings deep expertise at the intersection of employee benefits, ERISA compliance, and fiduciary strategy. Under her leadership, Employees First delivers proprietary audit solutions and Tier 1 legal-backed models that return value to employees and help employers avoid legal landmines.