What Do Hidden Fees Really Mean in Your Health Plan? A Wake-Up Call for Employers

More than a decade ago, mutual funds in retirement plans came under intense regulatory scrutiny for having multiple layers of fees. In addition to clearly disclosed fees, there were hidden costs buried in operations, tax inefficiencies and behavior-driven costs, all of which combined to erode investor returns. For fiduciaries, these were unacceptable, as the Department of Labor required plan sponsors to include service provider compensation in their Form 5500 filings.

Employers responded. They demanded transparency, pushed for clean share classes and embraced benchmarking tools. Today, most retirement plan sponsors understand the fees being charged and, under Section 408(b)(2) of the Employee Retirement Income Security Act, can determine if those fees are reasonable.

So why does this matter for employers who sponsor health care plans?

Because there is growing evidence that hidden fees are embedded in health plans, too—and employers may be just as blind to them as they once were to fees in their 401(k) plans.

Consider the recent decision from the U.S. 6th Circuit Court of Appeals in Tiara Yachts v. Blue Cross Blue Shield of Michigan. The court reversed a district court’s dismissal of fiduciary breach claims against BCBSM, finding that the insurer manipulated claim payments—overpaying out-of-network claims and then profiting by recouping part of the overpayment through a shared savings scheme. BCBSM had discretionary control over plan assets, and the court made it clear: The insurer was not just an administrator—it was a fiduciary.

Or look to the Department of Labor’s 2024 lawsuit against BCBS Minnesota, alleging the improper imposition of $66.8 million in provider taxes on self-funded plans. Some 370 plans were affected—and none appeared to realize they were being charged.

These are not isolated examples. Hidden fees show up in many forms:

• Embedded costs in claims payments;
• Third-party vendors being paid through the claims system; and
• “Free” point solutions whose compensation is invisible to employers.

Ask yourself: If you’re not cutting a check to a vendor, how are they getting paid? What impact does that have on your claims, your premiums and your fiduciary duty?

Claims drive plan premiums—and premiums are shared by you and your employees. That means you have a fiduciary obligation to ensure those dollars are spent wisely.

Just as they evolved when dealing with retirement plans, health plan sponsors must now adopt best practices to identify and manage these hidden costs, including:

• Demand access to complete claims and pricing data;
• Remove gag clauses from all contracts (as required by the Consolidated Appropriations Act of 2021);
• Implement a consistent, independent claims review process;
• Benchmark vendor fees and evaluate service value objectively; and
• Investigate how vendors are compensated and whether conflicts of interest exist.

This is not just a good idea—it is a regulatory requirement under ERISA and the CAA. The consequences of noncompliance are no longer hypothetical. Litigation is here, and more is coming.

Hidden fees are eating away at your health plan—just as they once ate away at retirement savings plans. But with the right tools, oversight and processes, you can uncover mismanagement, improper practices or unethical conduct—and reclaim control of your plan spend.

It’s time to stop assuming and start knowing.

When you shine a fiduciary light on your health plan, what you’ll uncover could save your business—and your employees—far more money than you realize. Don’t take the response “it’s just embedded into the claims” from your vendors. Dig into the details. Understand the impact and don’t be afraid to ask questions and/or seek help. The risks are real, and the opportunities are even bigger.

 
Jamie Greenleaf is a fiduciary consultant and co-founder of Fiduciary In A Box.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.