Fiduciary Responsibilities of Health Plan Administrator Come Under Question
On May 21, 2025, a three-judge panel of the Sixth Circuit Court of Appeals in Ohio reversed a lower court’s decision to dismiss a case filed by Tiara Yachts against Blue Cross Blue Shield of Michigan (BCBSM). The rulings hinged on whether BCBSM acted as an Employee Retirement Income Security Act (ERISA) fiduciary when administering Tiara Yachts' self-funded insurance plan. The lower Court had ruled that BCBSM’s actions did not qualify as fiduciary conduct under ERISA, claiming that the case was a contractual dispute as the complaint was covered by contractual language. The Appeals court disagreed, finding that BCBSM’s control over plan assets allows them to be treated as an ERISA fiduciary.
The Tiara Yachts case now returns to the trial court, but the Sixth Circuit’s decision signals that Third-Party Administrators (TPAs) may no longer easily avoid fiduciary liability under ERISA by claiming they operate without discretion when they exercise control over plan assets or fail to act in participants' best interests. The outcome in this case has significant implications for how courts may assess the fiduciary status of TPAs, especially in light of what appear to be contrasting decisions. For example, in Mass. Laborers’ Health and Welfare Fund v. Blue Cross Blue Shield of Massachusetts (BCBSMA) (2023 WL 3069637), the First Circuit held that BCBSMA was not an ERISA fiduciary. In that case BCBSMA served as a TPA and was required by contract terms to apply negotiated rates. The First Circuit found that an alleged failure to apply those rates did not constitute an act of discretion that would show discretionary control over the Plan necessary to declare BCBSMA a fiduciary. This apparent circuit split may prompt further litigation—or even Supreme Court review—on when TPAs are deemed fiduciaries under ERISA.
Parties and facts of the Tiara Yachts case
For background information on self-funded plans, ERISA, and how unique aspects of Blue Cross Blue Shield operations affect this case, see the glossary below.
Tiara Yachts designs and builds boats in Michigan and offers health insurance to its employees through a self-funded plan. In January 2006, Tiara Yachts hired BCBSM as a TPA to administer the plan. According to the terms of the Administrative Services Contract, BCBSM reimbursed providers from the plan's assets after determining which claims to pay and for what amount.
The Blue Card system requires the insuring Blue to pay out-of-state providers at the rate they negotiated with their local Blue. Instead, Tiara Yachts claims that BCBSM paid non-local providers the provider’s charged rates rather than the local Blue's lower negotiated rate. These practices resulted in significantly higher payments from Tiara Yachts for health services performed by an out of state provider. Tiara Yachts also claims that the BCBM system for managing claims had processing errors that allowed providers to overbill the plan by improperly coding for services. In January 2018, BCBSM enrolled all self-funded customers in a "Shared Savings Program" that would recoup overpayments to providers, with BCBSM retaining 30% of the recovered payments. Tiara Yachts claims this program presents a conflict of interest, as it allows BCBSM to financially benefit from overpayments it shouldn’t have made in the first place.
The Appellate Court's decision does not assess the validity of these claims but rather addresses whether BCBSM was acting as an ERISA fiduciary when it administered the health plan for Tiara Yachts. ERISA (29 U.S.C. § 1002(21)(A)) states that a party is a fiduciary with respect to a plan to the extent it “(i) … exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) … renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) … has any discretionary authority or discretionary responsibility in the administration of such plan.” The Appellate Court had to determine if each of the actions claimed by Tiara Yachts “involved either control over plan assets or discretionary authority over plan management or administration, which would confer fiduciary status on BCBSM for Tiara Yachts’ allegations in this case.” As BCBSM “had the authority to write checks on the plan account” and had control over where and when the plan funds were disbursed, the Court determined that BCBSM had acted as a fiduciary to the plan.
BCBSM claimed that it did not have an ERISA fiduciary duty as the relationship between BCBSM and Tiara was governed by the contractual language in the Administrative Services Contract, which included "specific and explicit mechanisms for auditing and disputing overpayments or errors in claims processing."
The Department of Labor (DOL) filed an amicus brief that claimed the district court’s interpretation “would cut a gaping hole in ERISA’s enforcement scheme” and that “[t]he actions alleged by the Complaint—overpaying claims with Plan funds—are unambiguously fiduciary conduct.” The brief adds that “[t]he Shared Savings Program thus created a perverse incentive for BCBSM to allow improper payments and mismanagement of Plan assets… and profit on its own mismanagement.”
In its ruling overturning the lower court ruling, the Sixth Circuit stated, "contractual duties and ERISA fiduciary status are not mutually exclusive” and, in agreement with the DOL’s amicus brief, that "to hold that an administrator like BCBSM insulates itself from ERISA liability because a contract governs its relationship with its customer would gut ERISA's fiduciary provisions.”
Significance
In the Tiara Yachts case, the Sixth Circuit did not rule that TPAs are automatically ERISA fiduciaries and whether this case represents a true circuit split is unclear. In this case, the court examined specific facts of the relationship to determine if the TPA was acting as a fiduciary and it is unclear if the standard applied by the First Circuit in the 2023 case would have led to that same determination. The Source’s published research found that “the financial incentives of TPAs may not always align with those of self-funded employers” and that carriers may not exercise the same level of care with self-funded plans as they do with fully-funded products. Imposing fiduciary duties on the TPAs could help address these concerns, as the insurers would be required to treat the employer's money as if it were their own.
The final decision in this case may help clarify the TPA's role as a fiduciary under ERISA, illuminating legal duties beyond what is outlined in the service contract. This case highlights the broad reach of ERISA law, but determining whether a fiduciary duty exists requires an analysis of specific facts.
GLOSSARY:
Self-funded plans
Essential to the case is the functioning of self-funded insurance plans. Employers can choose to insure their employees via either a “fully-insured” plan (where the employer pays monthly premiums to the insurer for a standardized product, and the insurer bears the risk for all claims) or as a “self-funded” plan (where the employer use their own funds and assets to pay the claims for their enrollees but contracts with a plan administrator to manage employee enrollment and benefits, process claims, provide customer service, and manage a network of providers).
ERISA
Also central to this case is the Employee Retirement Income Security Act (ERISA). ERISA was enacted in 1974 to protect employee benefit plans (including pensions, health plans, and life insurance plans) from abuses, including fraud and mismanagement. Among other things, ERISA imposes fiduciary responsibilities on those who manage and control plan assets, requiring them to act in the best interests of the participants and to make decisions with care and good faith.
Unique Aspects of Blue Cross Blue Shield Operations
The national Blue Cross Blue Shield Association is comprised of thirty-eight regional affiliates, each of which operates independently but process claims through a central system. The regional Blues participate in a Blue Card program, which allows enrollees to access care from providers who are not in their home network but are in-network with another regional Blue without incurring out-of-network rates. The insuring Blue then pays the provider the rate they negotiated with their local Blue. This allows the insured to seek care outside of their geographic home area without having to pay out-of-network rates.