U.S. Department of Labor sues San Juan-based health benefits provider
The federal agency filed a lawsuit against Suffolk Administrative Services and its associated entity, Providence Insurance Co.
The U.S. Department of Labor (DOL) has filed a lawsuit in the U.S. District Court for the District of Puerto Rico against Suffolk Administrative Services (SAS); Providence Insurance Co.; and executives Alexander Renfro, William Bryan and Arjan Zieger, alleging Employee Retirement Income Security Act (ERISA) violations.
The complaint accuses the defendants of self-dealing, excessive fees and mismanagement of health benefit plan assets.
SAS and Providence Insurance are alleged to have marketed employer-sponsored health plans as affordable under the Affordable Care Act (ACA), while failing to disclose significant fees collected through a self-dealing structure.
“The department alleges Suffolk Administrative Services and its current and former executives unilaterally approved millions in unreasonable and unnecessary fees to Suffolk Administrative Services, its sister company Providence Insurance Co., and other service providers,” the DOL stated.
Since 2016, the Providence multiple employer welfare arrangement (MEWA) has enrolled more than 1,900 employers. The DOL claims that more than half of the contributions were directed to administrative fees, with minimal funds used for health claims.
Acting Secretary of Labor Julie A. Su stated that SAS and its executives set excessive fees without transparency to employers.
The plans allegedly paid administrative fees exceeding 50% of contributions, with executives directing substantial portions to themselves and affiliates.
The DOL’s suit highlights Providence’s reliance on administrative fees, noting that in some cases, these fees reached more than 70% of contributions, while industry standards require at least 80% of funds to go toward medical claims.
For example, SAS directed that roughly one-third of all contributions go toward their own business units while minimizing claims payouts, the federal agency stated.
“The U.S. Department of Labor acted to stop this excessive fee arrangement and recover as much as $40 million in unjust profits on behalf of plan participants,” said Klaus Placke, regional director in San Francisco of the Employee Benefits Security Administration. “We want to ensure these plans are administered properly and that their participants have access to affordable healthcare benefits.”
The agency also accuses Providence of charging reinsurance fees without providing claims coverage and claims that payments to marketing companies accounted for up to 17% of contributions, despite limited services.
The DOL seeks to appoint an independent fiduciary to oversee the plans and to bar the defendants from serving as ERISA plan administrators. The case is assigned to Judge Camille L. Vélez-Rivé.
