A federal appeals court has given the green light to a lawsuit accusing Blue Cross Blue Shield of Michigan of mismanaging and profiting from an employer’s self-funded health plan - putting claims administration practices under the spotlight.
In a decision handed down May 21, 2025, the Sixth Circuit Court of Appeals reversed a lower court’s dismissal of a case brought by boat manufacturer Tiara Yachts, Inc. The company alleges that the insurer routinely overpaid healthcare claims through a processing method known as “flip logic” and then retained a portion of recovered or prevented overpayments under a so-called Shared Savings Program.
Rather than using traditional group insurance, Tiara Yachts operated a self-funded plan, hiring BCBSM to administer it. The arrangement, governed by an Administrative Services Contract, gave BCBSM authority to interpret plan terms, determine claim eligibility, and pay providers using plan assets. The ASC also allowed Tiara Yachts to dispute paid claims within 60 days and request audits covering the prior 24 months.
According to Tiara, Blue Cross promised to apply Host Blue rates for out-of-state claims but instead paid many non-network providers at full billed charges. The “flip logic” mechanism allegedly enabled this practice, leading to substantial overpayments. Internal BCBSM emails referenced in the complaint stated flip logic affected “all” customers on the same claims platform, excluding auto insurance clients. Tiara, which did not purchase auto insurance, fell within that affected group.
Then came the Shared Savings Program, launched in January 2018. Without individualized opt-in, BCBSM enrolled all self-funded clients, including Tiara, and collected 30% of any overpayments recovered or prevented through third-party services. Tiara contended this created a conflict of interest, as the insurer had first allowed the overpayments, then profited from fixing them.
The district court initially dismissed the case, ruling that BCBSM’s actions didn’t qualify as fiduciary conduct under the Employee Retirement Income Security Act (ERISA). But the Sixth Circuit disagreed. In a published opinion by Judge Bloomekatz, the appellate panel found that Tiara plausibly alleged BCBSM exercised control over plan assets by determining how and when to pay claims, and thus could be treated as an ERISA fiduciary.
The court also ruled that the Shared Savings Program might involve fiduciary conduct because BCBSM allegedly had discretion over a key variable in its own compensation: the pool of overpayments. That control, the court said, could support a claim for breach of fiduciary duty through self-dealing.
In terms of relief, the court found that Tiara could seek recovery on behalf of the plan under ERISA § 1132(a)(2) and pursue equitable remedies - like restitution and disgorgement - under § 1132(a)(3), but only for funds still retained by BCBSM. Overpayments that remained with healthcare providers would not be recoverable under the equitable claim.
No insurance policy language was under dispute, as the case involves a self-funded plan governed by a services contract - not a traditional insured policy. Still, the decision may have wide implications for insurers and third-party administrators handling similar arrangements.
The case is now remanded to the district court for further proceedings.
