It's tempting to breeze through contract execution during another busy renewal season, but pausing to truly review the contractual language could save group health plan sponsors
A recent case, Tiara Yachts, Inc. v. Blue Cross Blue Shield of Michigan, serves as a powerful reminder: what's in your client's contract matters. Seemingly harmless terms like "shared savings" may sound like smart
At first glance, the shared-savings model appears to align employer and vendor goals. Networks or
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Many employers are being steered into arrangements where overpayments result from pricing errors, poor contract negotiations or improper claims handling. Vendors then collect a fee for fixing those very same issues and the plan pays twice — once for the mistake and again for the "correction."
Just as hidden fees became the hallmark issue in 401(k) fiduciary litigation, shared savings is quickly becoming the next flashpoint in health plan oversight.
Under ERISA, plan fiduciaries are obligated to act solely in the interest of plan participants and ensure all expenses are reasonable and necessary to the operation of the plan. Shared savings arrangements can violate this duty in several ways. Vendors profit from their own errors, which undermines the duty of loyalty, while fees tied to error correction lack transparency and can go undisclosed. Also, claims processing lacks independent oversight, which invites fraud or waste.
In Tiara Yachts, the employer alleged that its administrator pocketed undisclosed administrative and access fees while touting savings. The court recognized the embedded conflict and allowed the case to move forward — putting other employers on notice.
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Employers are told to celebrate shared savings as proof of cost containment. But in reality, it often reflects waste that should have never occurred, vendor incentives that reward inefficiency and lack of transparency that makes true cost assessment impossible.
Fiduciaries must ask: Am I paying my vendor to eliminate waste — or to benefit from it?
As a trusted partner of a plan sponsor, your role includes helping employers navigate not only plan design but also the fine print. Contracts are more than administrative tools. The right language can protect the plan; the wrong language can create legal exposure.
Here's how to help your clients safeguard their responsibilities and their participants:
- Review contract language thoroughly
Contract terms matter. Support your clients in negotiating provisions that serve their plan — not the vendor. - Encourage legal review
Recommending a highly qualified ERISA attorney to review contract language isn't just smart — it's often essential. A few hours of legal insight can prevent years of liability. - Demand full transparency
Require full disclosure of all fees, repricing arrangements, and shared savings mechanisms — especially those that may represent conflicts of interest. - Secure claims-level data access
Employers must have access to their data to validate performance and spending integrity. No transparency, no trust. - Implement independent claim reviews
Pre-payment audits or neutral third-party claim reviews can avoid the pay-now-chase-later trap. - Benchmark vendor practices
Use available data and industry comparisons to evaluate whether vendor charges are reasonable, just as 401(k) sponsors do with investment and recordkeeping fees.
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Shared savings may look like cost savings on paper — but when not carefully managed, they're really a profit strategy for vendors and a compliance risk for employers.
The Tiara Yachts case is a wake-up call: fiduciary oversight must go deeper than surface-level savings. With heightened enforcement under the Consolidated Appropriations Act and renewed litigation risks, employers can no longer afford to ignore what's written into their contracts.
As a benefit partner, your guidance can help employers make informed decisions.
