6th Circuit to BCBSM: Administrators Can’t Hide Behind Contracts or ‘System-Wide Practices = Windfall Potential for Self-Insured Employers. The court found that BCBSM’s overpayment of claims and self-compensation from plan assets plausibly make BCBSM a fiduciary under ERISA, a reminder that plan sponsors should be watching closely. By classifying these actions as fiduciary conduct, the court created a pathway for self-insured health plans to recover assets that were improperly used.
When “administration” turns into exploitation.
In a case that we have written about before, the Sixth Circuit reversed the district court’s dismissal and held that Tiara Yachts plausibly alleged that BCBSM acted as an ERISA fiduciary when it (a) overpaid claims using plan funds and (b) implemented a “Shared Savings Program” that allowed BCBSM to retain a portion of recovered/avoided overpayments.
This ruling creates a powerful pathway for all self-insured employers to recover misused plan assets. With experts estimating that 15%–35% of claims spend may be improperly diverted, the recovery potential is massive. Most ASA contracts contain cost-containment or shared-savings programs like the one challenged in this case, meaning many employers could have dollars on the table.
Tiara Yachts, a self-insured employee health plan, engaged BCBSM to administer its self-funded health plan. As customary with most Blue arrangements, the contract included provisions that allowed BCBSM to process claims through the Blue Card Program, in order to access negotiated rates from providers that were not part of BCBSM’s network.
However, according to the lawsuit, instead of applying the negotiated Host Blue discounts promised, BCBSM allegedly used a “flip logic” workaround, treating certain providers as fully out-of-network and paying full billed charges rather than the contracted rates.
The result? Claims that should have been reimbursed at discounted levels were paid at inflated amounts, with no clear benefit to the plan or its members. It was unclear, based on the court documents, whether BCBSM kept any or all of the inflated amounts.
And then came the twist: BCBSM’s so‑called Shared Savings Program (SSP). This program “recovered” the very overpayments caused by BCBSM’s own pricing practices, while charging a 30% fee on the funds clawed back, or keeping the recovered amount entirely.
In other words:
They created the overpayment.
They charged to fix it
Their client paid twice
A textbook case of turning an error into a revenue stream.
Court’s holding (what the Sixth Circuit decided)
The court reversed the dismissal and held Tiara Yachts plausibly alleged that BCBSM was acting as an ERISA fiduciary with respect to the challenged conduct (paying claims and the SSP), so the fiduciary-breach claim could proceed.
Court’s rationale (why the court reached that result)
Functional test, control/authority over plan assets: ERISA fiduciary status is determined functionally: a party is a fiduciary to the extent it “exercise[s] any authority or control respecting management or disposition of [plan] assets.” The court applied that standard and concluded Tiara’s complaint plausibly alleged BCBSM had such control (e.g., BCBSM wrote checks from the Plan account, controlled deposits/disbursements, and paid claims using plan funds).
Contractual relationship doesn’t defeat fiduciary status: The Sixth Circuit rejected the district court’s view that because BCBSM acted under contract those allegations were “merely contractual” and therefore outside ERISA. The court emphasized a party’s contractual role as administrator/TPA does not insulate it from fiduciary duties if it is exercising control over plan assets in carrying out that role. (Put differently: being a contractor ≠ automatic non-fiduciary.)
System-wide business practices don’t automatically avoid fiduciary status: The district court had thought a “system-wide” error (affecting many plans) means the conduct was a business decision, not a fiduciary act. The Sixth Circuit rejected a categorical rule that system-wide conduct cannot be fiduciary conduct: if the alleged conduct used plan funds or otherwise involved disposition of plan assets, fiduciary status can exist even if the practice was applied broadly.
The court warned that a contrary rule would let an administrator squander assets across all plans with impunity.
Plausibility / pleading standard: The court applied the usual Rule 12(b)(6) plausibility standard, it did not require claim-level invoices or exact dollar tracing at the pleadings stage where the complaint alleges a systematic error affecting plans that used a particular claims-processing system. The court also addressed the Shared Savings Program claims and discussed the appropriate pleading standards (including whether Rule 9(b) / heightened pleading applied), permitting amendment where necessary.
Equitable relief / tracing: On equitable remedies (§1132(a)(3)), the opinion explained the usual tracing requirement for equitable restitution and that plaintiffs will need to plead facts sufficient to trace Plan funds for some forms of equitable relief, the court remanded / allowed amendment rather than finding futility.
The Department of Labor also filed an amicus brief in support of Tiara Yachts, and urged reversal of the district court’s dismissal, arguing BCBSM plausibly acted as a fiduciary when it overpaid claims with plan funds and thereby breached ERISA duties.
Practical takeaway
The Sixth Circuit’s opinion narrows the shield administrators often invoke by labeling conduct as merely a ‘business’ or ‘contractual’ decision. When a TPA or insurer uses plan funds, or controls their disposition, in a way that plausibly wastes self-insured health Plan Assets, that conduct can support fiduciary-breach claims under ERISA at the pleadings stage. The DOL’s amicus brief reinforces this interpretation and underscores the agency’s concern about insulating TPAs from ERISA’s fiduciary duties. Misused self-insured Plan Assets should not only be identified, they should be recovered.