This ruling reinforces the importance for all self-funded ERISA health plans to understand how TPAs manage claims and compensate themselves—especially when such practices may compromise plan integrity and violate fiduciary duties.
By Mark Flores – Executive Vice President and Co-Founder at AVYM Corporation
May 22, 2025
A recent federal court decision is bringing new attention to a common—but often misunderstood—practice in the administration of self-funded employee health plans. Many large employers rely on third-party administrators (TPAs), including major national carriers like Blue Cross, UnitedHealthcare, Cigna, Aetna, and Humana (collectively referred to as BUCAHs), to manage their health plans. A key practice among these TPAs is to retain fees based on a “Percent of Savings” when they reduce payments to medical providers.
While these programs are widely used and accepted as standard operating procedure across the industry, they are often complex, poorly understood, and intentionally hidden from employers—especially their leadership teams, HR departments, and legal counsel.
“The Court found that [plaintiff] sufficiently alleged BCBSM used an undisclosed “flip logic” to systematically overpay medical claims and later profited from its own mismanagement through a so-called “Shared Savings Program,” in which it clawed back over-payments and kept a percentage for itself.”
What This Means for Business Leaders
For executives overseeing self-funded health plans, this case is a wake-up call. It shows how standard administrative arrangements—often buried in complex contracts—can create financial and legal risks. These “shared savings” or “cost containment” programs may look like cost-saving tools on the surface but can incentivize behavior that increases claim costs before “reducing” them for a fee.
Business leaders should work closely with independent advisors, like Avym to: Review how TPAs are compensated; Understand any shared savings or recovery programs; Ensure transparency and fiduciary accountability in plan administration.
As this case illustrates, failure to do so can result in financial losses—and potentially significant legal exposure. Additionally, system-wide practices (like Flip Logic or Overpayment Offsets) can still create fiduciary duties if they affect plan assets and raise the question as to whether health plan assets are being misused.
Case Details: Tiara Yachts Inc., v. BCBS Michigan
Tiara operated a self-funded health plan and contracted Blue Cross Blue Shield of Michigan (BCBSM) to manage it. The company later discovered that BCBSM:
- Overpaid medical claims by using a method called “flip logic,” which bypassed negotiated discounts and caused the Plan to pay inflated rates.
- Subsequently launched a Shared Savings Program (SSP) to “recover” those overpayments—keeping 30% of the recouped funds for itself, despite having caused the overpayments in the first place.
Tiara filed a lawsuit under the Employee Retirement Income Security Act (ERISA), alleging that BCBSM acted as a fiduciary and misused plan assets by systematically overpaying claims, then profiting from the corrections.
While a district court initially dismissed the case, arguing that BCBSM was not functioning as a fiduciary and that the remedies sought weren’t available under ERISA, the U.S. Court of Appeals for the Sixth Circuit reversed that decision on May 21, 2025. The appellate court ruled that:
- ERISA permits the types of remedies Tiara is seeking, including monetary damages, restitution, and disgorgement.
- ERISA permits the types of remedies Tiara is seeking, including monetary damages, restitution, and disgorgement.
This ruling reinforces the importance for all self-funded ERISA health plans to understand how TPAs manage claims and compensate themselves—especially when such practices may compromise plan integrity and violate fiduciary duties.
