FAIR Health Board Access Interview with Phyllis Borzi, JD

February 17, 2022

The Honorable Phyllis Borzi, JD, was elected to the FAIR Health Board of Directors in October 2021. Considered the nation’s leading expert on the Employee Retirement Income Security Act (ERISA) of 1974, Ms. Borzi was unanimously confirmed by the Senate in 2009 to serve as the Assistant Secretary of Labor for the Employee Benefits Security Administration (EBSA). During her tenure, Ms. Borzi led the Department’s efforts to implement the Affordable Care Act (ACA), the Mental Health Parity and Addiction Equity Act and other health and pension laws, including regulations strengthening ERISA’s fiduciary restrictions on conflicts of interest for individuals providing advice on retirement investments. In addition to her public service, Ms. Borzi was a research professor in the Department of Health Policy at George Washington University Medical Center’s School of Public Health and Health Services and concurrently was Of Counsel with the law firm of O’Donoghue & O’Donoghue LLP, where she specialized in ERISA and other legal issues affecting employee benefit plans.

Ms. Borzi serves on the Board of Visitors at the Columbus School of Law at Catholic University, the Board of Advisors at the Institute for the Fiduciary Standard, the Board of Edelman Financial Engines, and the Board of the Maryland Small Business Retirement Savings Program (Maryland$aves) and is a charter member of the American College of Employee Benefits Counsel. She earned her undergraduate degree at Ladycliff College, her Master’s in English from Syracuse University and her JD from Catholic University. Ms. Borzi spoke recently with FAIR Health Access about her public service career and the importance of data in navigating an ever-changing healthcare landscape.

FAIR Health: What led you to pursue a career in law and government service?

Phyllis Borzi: I started my career as a pension lawyer. When I graduated from law school, I spent some time at a large law firm, then as a junior staff person on Capitol Hill, where I stayed for over 16 years. I then worked in the private sector for about 17 years and was honored to come back into government service during the Obama Administration as the Assistant Secretary of Labor for the Employee Benefits Security Administration.

My family, like most people in America, is an immigrant family. Although both of my parents were born in the United States, they were first-generation. But they had a strong sense of fairness, a strong sense of the need to give back. We weren't a very wealthy family: My father was a blue-collar worker when he started his career. My mother wasn't in the paid workforce; she took care of the kids and ultimately did volunteer work. But they instilled in all of us this notion that no matter how much we had, there was always enough to share with others. I was attracted to law, and in particular to government service, because I saw the law as a tool to assure fairness and some level of consistency in the way people were treated. I saw my government service as a way to give back to the people who either weren't as fortunate as I was, or who were but just didn't understand how important it was to think about our broader society. That’s probably why I was attracted to public health; its goals include broad societal impacts and issues.

FH: At one point in your career, you were a research professor and concurrently practiced law focused on issues pertaining to employee benefit plans. How did your research influence your practice and approach to these issues? What challenges, if any, did you face when translating research into practice?

PB: Throughout my career, whatever the policy or plan design issues I was looking at, I wanted to know what the data said; I always liked to start with the data. I found that in far too many circumstances, there were no data and so we were kind of flying blind. This was particularly true when I was in the policy arena, both on the Hill and in the Administration, and when I worked with various state and local policy makers. I saw my research work as laying the foundation for the development and evaluation of various policy initiatives, or in the case of employee benefits, plan design issues.

The challenges, of course, were that the research always was substantially behind the policy development. When I worked on the Hill, whenever Congress wanted to create legislative fixes to issues, I would research the information available. Invariably, there would rarely be the kind of data that I felt were necessary to make an informed decision. But once Congress passed a law, once a federal agency adopted a regulation, there was a flurry of research activity. If only we could do more gap analysis beforehand. The Administrative Procedures Act, which sets the ground rules for how a regulation must be developed and promulgated, requires an economic analysis: What do we know about the problem we’re trying to address? What's the cause of the problem? What are the options for dealing with the problem? Why is the option that the agency is proposing a reasonable alternative? Unless the data are there to support it, the regulation, the rule or the piece of legislation is not as firmly grounded as it should be.

FH: You have been described as “the godmother of ERISA in the 21st century,” and in 2015 successfully gained support for your fiduciary rule, which would amend ERISA to require that retirement advisory firms serve their clients’ best interests. (The rule was later blocked by a federal court.) What was the genesis and legal underpinning of the fiduciary rule? To what extent do you anticipate that ERISA and other laws related to employee benefit plans may evolve in the coming years?

PB: What caused us at the Department of Labor to take up the fiduciary rule was that so few of us have the skills to become financial professionals, yet all of us need help in navigating the complicated and fluid world of investments. Unfortunately, far too few people seek professional advice because they don't know whom to trust and are afraid that if they seek out somebody who purports to be an investment professional, they're just going to sell them products. This has become a bigger issue as the investment marketplace becomes more complicated and as people realize that they need assistance. Under the securities laws, there are two distinct categories of people: registered investment advisors and broker/dealers. Registered investment advisors are fiduciaries under the securities laws, and are therefore subject to a legal standard of care that requires them to put their clients’ interests ahead of their own financial interests. In contrast, those in the broker/dealer world are not under that legal obligation and are only required to make sure that their recommendations are suitable. Similarly, insurance agents are subject to the same lesser suitability standard. There are at least two problems with this regulatory approach. First, consumers are confused: They can’t tell whom to trust because the legal obligations of people offering investment advice are not clear. And second, the compensation structures built into some of the various business models often result in a misalignment of the interests of advisors and their clients by creating financial incentives to steer investors into certain types of investments or investment strategies that may not be best for the client.

We at the Department of Labor had some data at the beginning, and substantial data by 2015, that illustrated the economic harm that was occurring when people—customers, investors, pension plan participants, 401(k) plan participants, IRA owners—were given financial advice that was not legally required to be in their best interest. We decided that it was important to address this issue. The fiduciary rule was later challenged by the financial services industry in many courts; the Department of Labor prevailed in every single court with the exception of the Fifth Circuit Court of Appeals. The Trump Administration declined to appeal either to the Fifth Circuit or to the Supreme Court, so the rule is not currently in effect.

Nevertheless, there already was a movement among some of the financial institutions to embrace a form of a fiduciary conflict of interest rule. The Securities and Exchange Commission was under a great deal of pressure to move forward with its own version of the rule. Under the Biden Administration, the Department of Labor has picked up the mantle. The market is moving in the direction of providing greater consumer protection.

FH: As a consumer advocate, you have noted the importance of financial literacy for consumers seeking to make informed financial and investment decisions. In your view, what steps could be taken to improve consumer financial literacy as it pertains to healthcare decision making in this country?

PB: Financial literacy in the retirement area has been on the radar screen of policy makers and employers for a much longer period than financial literacy as it pertains to healthcare, but the issues are similar. That is, to what extent are we able to raise the level of experienced understanding of ordinary nonfinancial experts as to the financial aspects, and financial decision making, in either the retirement or the healthcare realms? Having been in both worlds, I know it is a much more difficult set of tasks to deal with financial literacy in the healthcare decision-making arena than it is in the pension/retirement investment arena. That is because there are far fewer empirical data about the quality, the efficacy, the cost of dealing with various issues in healthcare decision making, and certainly with various providers.

Years ago, AARP published a paper that showed that healthcare decision making was enormously complicated partly because there are so many more subjective factors to be considered in healthcare than in retirement or investments. Over the past few years, there has been some improvement, but to the extent that people aren’t expert, providing more choices makes it less likely that they will make decisions based on non-subjective factors. If you look at the surveys about how people determine which doctor to use, or which hospital to go to, it’s virtually almost always by word of mouth. Often, this results in consumers choosing healthcare providers or health plans that are lower quality, higher cost and, in many cases, much more limited, because people just don't know what to look for. The more the marketplace can develop objective measures of quality, efficiency, cost and effectiveness, the more this will help consumers.

As a practical matter, undermining the move toward greater financial literacy, I think, is the trend away from comprehensive employer healthcare plans and the movement toward individual, so-called “consumer-driven healthcare plans,” health savings accounts. In my mind, these plans are like IRAs for healthcare and have the same issues as IRAs; namely, that most consumers, due to a lack of financial literacy, are unable to decide, for instance, which healthcare providers in a given geographic area are the best.

FH: FAIR Health has continued to lead as a source of independent and objective price and utilization information for all healthcare stakeholders, including consumers. How do you think FAIR Health’s role in the healthcare sector has evolved?

PB: Cost transparency is an important component of the world of transparencies and is a tool that you should have in your arsenal to make better decisions. But transparency alone, without educating people on how to evaluate cost as part of the overall healthcare equation, doesn't get you very far. Cost transparency is probably most useful for the many employers who are still in the marketplace and are in the business of providing healthcare benefits to their employees, because employers are in a better position than each individual consumer to make those kinds of decisions. But even employers need help.

One of the big gaps in knowledge, in data and research—certainly when we were working on the Clinton health plan, and when I was the point person at the Department of Labor working with the White House on implementing the ACA—was not having an independent and secure data repository as a source of data. That’s why I think FAIR Health has become, if not the sole source, then one of the most significant sources of this information. Although participation in this database is voluntary, it still is the best. I think FAIR Health is, in many cases, the only source of objective, comprehensive data. It has unique datasets. This is so important for all the stakeholders in the healthcare world: for policy makers, for insurance companies, for hospitals, for providers and, ultimately, for consumers.

The work that FAIR Health is doing is critically important for policy makers and other stakeholders in the marketplace, and that’s why I was so honored to be invited to participate on the Board of Directors.

*FAIR Health Board interviews reflect the views of the Board member in his or her individual capacity and not necessarily those of FAIR Health or other organizations with which the Board member is affiliated.