# The benefits dirty dozen. Twelve health plan practices to question.

Source: https://ethosbenefits.com/insights/benefits-dirty-dozen
Type: Insight
Topic: Fiduciary duty and advisor pay
Author: Donovan Ryckis, Founder and CEO
Reviewed by: Patrick Ansara, Partner and Director of Client Operations
Publisher: Ethos Benefits
Published: 2026-09-28
Last updated: 2026-11-03
Cite as: "The benefits dirty dozen," Ethos Benefits, https://ethosbenefits.com/insights/benefits-dirty-dozen, updated 2026-11-03.

**Summary:** Twelve common health plan practices that quietly raise employer costs, from fee basis swaps to PBM spread pricing, with the question to ask about each.

## Key takeaways

- Most of the twelve practices are legal. They cost employers money because nobody compares the disclosure, the contract and the invoice side by side.
- Every one of them depends on an information gap between what the advisor or vendor knows and what the plan sponsor can see.
- Federal law entitles you to a written disclosure of broker and consultant compensation before you sign or renew, under ERISA section 408(b)(2)(B) as amended by the CAA.
- Claim level data and a real market check, started at least 150 days before renewal, make the other eleven practices visible.

Employers lose money on their health plans through twelve common practices that are mostly legal and rarely questioned. Each one works the same way: a gap between what the broker, carrier or vendor knows and what the plan sponsor can see. Close the gap with documents you are already entitled to, and each practice becomes visible.

## Where does the dirty dozen come from?
Every year the IRS publishes its [Dirty Dozen](https://www.irs.gov/newsroom/dirty-dozen), a list of schemes and abuses taxpayers should watch for. Ethos Benefits built the health plan version on The Business of Benefits podcast, where Donovan Ryckis, Chelsea Ryckis and Patrick Ansara counted down twelve practices across two episodes ([Part 1](https://youtu.be/sgfQDq7PtyY) and [Part 2](https://youtu.be/MMPzsi1GkFI)) and graded each one: dirty, or just dumb?

None of these happens everywhere, and plenty of advisors do none of them. Most plan sponsors could still find one or two in their own plan today, and the stakes are high. KFF's [2025 Employer Health Benefits Survey](https://www.kff.org/health-costs/2025-employer-health-benefits-survey/) put the average family premium at $26,993, up 6% in one year. KFF also found that 67% of covered workers are in self-funded plans, rising to 80% at firms with 200 or more workers. In a self-funded plan, every avoidable dollar is the employer's own money.

## Which twelve practices are on the list?
| # | Practice | Why it costs you | The question to ask |
|---|---|---|---|
| 12 | PMPM in place of PEPM | One letter multiplies a fee by your member to employee ratio | Do the disclosure, contract and invoice use the same fee basis? |
| 11 | Contract drift | Terms change between proposal and signature | What changed between the proposal and this contract? |
| 10 | Undisclosed equity and revenue share | Your advisor profits from the vendor it recommends | Do you hold equity in or take revenue share from this vendor? |
| 9 | Pharmacy purchasing collectives | Rebates and terms are kept from the plan | What would the same PBM offer us directly? |
| 8 | Captives as an easy button | Extra layers, and compensation you cannot move | Is the advisor's compensation in the captive assignable? |
| 7 | The controlled market check | The same short list returns the incumbent every year | Which carriers were asked, and what did each say? |
| 6 | Market clout and cross-plan offsetting | Your rates absorb another client's renewal | Were our rates built only on our experience? |
| 5 | Compensation that scales with premium | Advisor pay rises as your cost rises | What is this in dollars, and why does it grow? |
| 4 | The point solution pile-on | Small fees stack up with no measured use | What do we pay per employee who actually used it? |
| 3 | PBM compensation | Spread pricing, rebate retention and fees no one itemizes | Does the contract ban spread pricing and pass through all rebates? |
| 2 | Voluntary benefits and "free" technology | Employees fund the platform through commissions | What is paying for the free platform? |
| 1 | Obstruction of data and contracts | Without data, nothing else can be checked | Will you send our raw claims data to a warehouse we control? |

## 12. Is your fee charged per employee or per member?
**What it is.** Per employee per month (PEPM) counts enrolled employees. Per member per month (PMPM) counts every spouse and dependent too. The two look almost identical in a fee schedule, but switching from one to the other multiplies the fee by your member to employee ratio.

**Why it costs you.** Patrick Ansara ran the math on the podcast: on a plan with 500 employees and 1,200 members, a $2 fee that moves from PEPM to PMPM costs $16,800 more a year (700 extra people at $2 for 12 months). PMPM is a legitimate basis for services that touch every member, such as a nurse line. The problem is a disclosure that says one thing and a contract that says another.

**The question to ask.** Put the compensation disclosure, the contract and the first invoice side by side. Does the fee basis match on all three?

## 11. Does your contract still match what you bought?
**What it is.** A vendor wins on its proposal. Legal and procurement review take months. When the contract arrives, nobody lays it next to the proposal, and terms have drifted: a longer term, a shorter termination notice, a performance guarantee that quietly disappeared. It often happens during price negotiation, when a vendor gives on price and takes it back in the terms.

**Why it costs you.** Drift in data rights does the most damage. A vendor that claims your claims data as its own blocks you from running a credible market check for the life of the contract. Renewal contracts drift too, and the person presenting yours may not have read it.

**The question to ask.** Ask for the contract during the RFP, not after selection, and compare it line by line with the proposal before you sign. Watch performance guarantees, termination clauses, contract length and data rights. Our [vendor procurement](https://ethosbenefits.com/services/procurement) work starts with the contract for this reason.

## 10. Does your advisor profit from what it recommends?
**What it is.** Some advisors hold equity in, or take revenue share from, the carriers and vendors they recommend. It is often disclosed, in a long document that arrives after open enrollment and rarely puts a dollar figure on the conflict.

**Why it costs you.** Under ERISA section 408(b)(2)(B), added by the Consolidated Appropriations Act, 2021, brokers and consultants who expect $1,000 or more in direct or indirect compensation must disclose it in writing reasonably in advance of the contract, as the Department of Labor confirmed in [Field Assistance Bulletin 2021-03](https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2021-03). The DOL's guide to [fiduciary responsibilities under a group health plan](https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/understanding-your-fiduciary-responsibilities-under-a-group-health-plan.pdf) says plan fiduciaries must pay only reasonable plan expenses. You cannot judge a fee you cannot see.

**The question to ask.** Request a quantified [broker compensation disclosure](https://ethosbenefits.com/benefits-101/broker-compensation-disclosure) before the renewal conversation. Then look for a favorite: the same vendor winning every category, every year, on criteria that are hard to verify.

*The panel's only unanimous verdict in Part 1: dirty.*

## 9. Is your pharmacy collective working for you?
**What it is.** A large agency assembles a pharmacy purchasing collective and promises buying power no single employer could get. The collective also earns revenue for the agency that built it, and that revenue comes from somewhere.

**Why it costs you.** Pharmacy is highly concentrated. The Federal Trade Commission's [interim staff report on PBMs](https://www.ftc.gov/news-events/news/press-releases/2024/07/ftc-releases-interim-staff-report-prescription-drug-middlemen) found the three largest PBMs process nearly 80% of the roughly 6.6 billion prescriptions dispensed in the United States. Inside a collective, two warning signs stand out: you cannot get audit rights or reporting guarantees into the contract, and you cannot see the data that would prove the collective's value.

**The question to ask.** Ask for a reprice study taken directly to the same PBM. One comparison tells you whether the collective's rebates and terms beat what you could get on your own. Our [pharmacy and PBM](https://ethosbenefits.com/services/pharmacy-pbm) reviews start there.

## 8. Is a captive solving a real problem?
**What it is.** A [group captive](https://ethosbenefits.com/benefits-101/stop-loss-captive) is a legitimate risk tool, and for some midsize employers it opens reinsurance markets they could not reach alone. The warning sign is a captive representative joining the call to explain self-funding because nobody on the broker's side can.

**Why it costs you.** Risk should be handled in order: avoid what you can, reduce what you can, decide how much to retain, and only then transfer the rest. Adding a captive layer on top of stop-loss before measuring the plan buys more insurance instead of addressing cost. In some arrangements, broker compensation is built into the captive layer and written as unassignable. If you later change advisors, the captive can decline to sign, and your insurance and your old broker end up aligned against your choice.

**The question to ask.** Compare the captive side by side with stop-loss outside it. Then ask where your advisor's compensation sits and whether it is assignable to a new advisor.

## 7. Was your market check ever going to find an alternative?
**What it is.** You go to market and come back to the incumbent, year after year. Every carrier has an ideal client: a funding type, a data package, a geography, a risk profile. A market check sent only to carriers that do not fit your plan was never going to produce a real alternative.

**Why it costs you.** Timing decides the outcome. Sixty days before open enrollment, your options are closed: no time to release claims data, no time for underwriters to price your risk, no room to negotiate. Watch for two more signals: a carrier that holds your claims data until you are 60 days out, and a carrier that offers a better number if you agree not to market the plan.

**The question to ask.** Pull your last three renewals and count the distinct carriers in each market check. If it is the same three names every year, that is a short list, not a market check. Start at least 150 days before renewal, as laid out in our [health plan renewal timeline](https://ethosbenefits.com/insights/health-plan-renewal-timeline).

## 6. Are your rates built on your own claims?
**What it is.** Large agencies often claim their size with a carrier works in your favor at renewal. Ask for the number behind that claim and it usually does not exist, because health plan data is restricted in ways securities data is not. Where an agency's size does pay off, it often shows up as broker compensation: book of business bonuses, persistency bonuses and bundled contracts.

**Why it costs you.** Cross-plan offsetting is the mechanical version. A carrier brings a brokerage a list of clients renewing in the same window and a revenue number it needs to hit, and the brokerage decides who absorbs it. If you are on the receiving end, you are paying part of another employer's renewal, and your rates no longer reflect your own risk.

**The question to ask.** Ask for an underwriting exhibit in writing that shows how your rates were built and confirms they rest on your plan's experience only. Then line up your last three renewals against your last three years of loss ratios. If rates moved independently of your claims, the size advantage was never working for you.

## 5. Does your advisor's pay rise with your premium?
**What it is.** Many mid-market plans still pay brokers a commission set as a percentage of premium. Growth bonuses, persistency bonuses and overrides can sit on top, often listed on the disclosure as "additional compensation" with no figure attached.

**Why it costs you.** A hypothetical example shows the problem. A 500-employee plan spending about $12,000 per employee pays about $6 million a year in premium. At a 4% commission, the broker earns $240,000. After a 12% renewal, premium rises to $6.72 million and the commission to $268,800. The plan is $720,000 worse off, and the broker's pay rose $28,800 for the same work. Percentage compensation is legal, and in the small group market carriers often require it. It becomes a problem when it is never put in dollars.

**The question to ask.** Find the compensation disclosure and check whether it shows dollar figures or only percentages. If enrollment is not final, ask for a projection from last year's numbers and an update after open enrollment. When a renewal comes in higher, ask why the compensation should grow if the scope of services has not.

## 4. Is every point solution earning its fee?
**What it is.** Each renewal adds something: a navigation app, a musculoskeletal program, a diabetes platform. Each is priced small enough to avoid a real conversation, and nothing ever comes off. Four dollars per employee per month sounds like little, yet on a 500-employee plan it is $24,000 a year, and a stack of six is $144,000.

**Why it costs you.** Some never had a chance to work. A program can be added that the plan's existing pharmacy or administrative contract does not allow, with no member communication and no link to deductibles or accumulators, so utilization is zero. Each program can also carry its own broker compensation, so compensation that looks clear on the medical plan may sit in the pharmacy contract, the stop-loss and the FSA as well.

**The question to ask.** List every vendor with its annual fee, then divide by the number of employees who actually used it. Check for overlap, ask in writing whether your administrative services agreement permits the program, and ask for pricing based on use rather than a flat PEPM.

## 3. What does your PBM really earn on your plan?
**What it is.** Most employers have never seen a dollar figure for what their PBM makes on the plan, because it is not one fee. It is per-claim fees, rebate retention, [spread pricing](https://ethosbenefits.com/benefits-101/pbm-spread-pricing), collective arrangements and administrative fees that live in the contract rather than the proposal.

**Why it costs you.** None of it appears as a single line item. One red flag you can check yourself: in a PBM RFP, if one bidder's administrative fee is a small fraction of what transparent PBMs quote, that money is being made somewhere else. Questionnaire answers also frequently fail to match the contract language, which is why the contract matters more than the sales responses. Federal reform now addresses part of this: under the Consolidated Appropriations Act, 2026, ERISA plans must receive 100% of PBM rebates for plan years beginning on or after August 3, 2028, as explained in our [PBM reform](https://ethosbenefits.com/insights/pbm-reform) analysis.

**The question to ask.** Does the contract prohibit spread pricing, and does the PBM keep any portion of rebates? Ask in writing for the contract's definitions of specialty drugs and pass-through.

## 2. Who pays for your "free" benefits technology?
**What it is.** A free enrollment platform and free one-on-one benefits counseling are often paid for by commissions on the voluntary products sold during those sessions. That makes it compensation funded by employee premium, and the counseling session doubles as a sales conversation.

**Why it costs you.** When loss ratios on voluntary products run low, employees pay far more in premium than they receive in claims. Some commission schedules are heaped into the first year, which can encourage a carrier change once the schedule drops. This has moved into court. Suits filed starting December 23, 2025, including [Pimm v. United Airlines](https://www.millerchevalier.com/sites/default/files/resources/General_Alerts/2025-12-23_Pimm-v-United-Airlines.pdf), name employers and their benefits consultants and allege excessive commissions on voluntary products, as tracked in our [ERISA health plan litigation](https://ethosbenefits.com/insights/erisa-health-plan-litigation) analysis. There is employer exposure too. The DOL's [voluntary plan safe harbor](https://www.law.cornell.edu/cfr/text/29/2510.3-1) keeps a voluntary program outside ERISA only if the employer receives no consideration beyond reasonable pay for administrative services. A discount the employer receives that is funded by employee premium can put that at risk.

**The question to ask.** What is paying for the free platform, and what is the commission schedule on the products funding it? Voluntary benefits do real work for many employees. None of that requires the compensation to be hidden. Our guide to [voluntary benefits and fiduciary duty](https://ethosbenefits.com/benefits-101/voluntary-benefits-fiduciary-duty) covers the rules.

## 1. Can you see your own claims data and contracts?
**What it is.** You ask for your claims file or your executed contract and get a summary, a delay or an excuse. Sometimes the obstacle is the broker, sometimes the contract the broker brought you, sometimes the carrier.

**Why it costs you.** A quarterly carrier report is a summary, not data. Without claims line by line, down to the procedure code, there is nothing to benchmark against and no way to judge whether a cost was reasonable. A renewal increase justified by two high-cost claimants tells you nothing about whether that risk continues. Contract terms that block access to cost and quality data can also create a problem for the [gag clause attestation](https://ethosbenefits.com/benefits-101/gag-clause-attestation) your plan files each year with [CMS](https://www.cms.gov/marketplace/about/oversight/other-insurance-protections/gag-clause-prohibition-compliance-attestation).

**The question to ask.** Negotiate data terms alongside price, ideally a raw claims feed to a data warehouse you own and control. Member level data requires a business associate agreement and a plan administration purpose, and both are routine. If a vendor will not give you your own data, you have learned whether it belongs on next year's short list. Axiom Healthcare Services moved to a carrier with full data and audit rights and turned a 2.6% renewal increase into a 13% decrease; the [Axiom Healthcare case study](https://ethosbenefits.com/results/axiom-healthcare) shows how.

*The panel's only unanimous verdict in Part 2: dirty.*

## What do all twelve have in common?
Every practice depends on an information gap. A fee basis swap survives only if nobody reconciles the invoice. A controlled market check passes only if you cannot see what other carriers offered. Percentage compensation stays hidden only if the disclosure is vague. PBM economics stay invisible only if nobody reads the contract.

That is why tactic 1 sits at the top. Once you hold claim level data, a renewal conversation has one job: how to reduce the frequency and severity of claims, starting from the claims themselves.

## What should you ask for at your next renewal?
| Ask for | Why it matters |
|---|---|
| A broker compensation disclosure in dollars | Percentages hide the scale. Dollars start a real negotiation. |
| Compensation across every line, not only medical | Pharmacy, stop-loss, FSA and voluntary lines carry their own economics. |
| An underwriting exhibit in writing | It confirms your rates rest on your own experience. |
| The PBM contract before the questionnaire | The contract is where spread pricing and rebate retention live. |
| Utilization for every point solution | Cost per actual user is the honest measure of a vendor. |
| A raw claims data feed to a warehouse you own | It makes every other term enforceable. |

## Where should you start this month?
- **Count the carriers.** Pull three years of renewals and count the distinct names in each market check.
- **Stack three documents.** Compensation disclosure, contract and first invoice. Confirm the fee basis matches.
- **Request the disclosure early.** Ask for a quantified 408(b)(2) disclosure before your next renewal conversation.
- **Count back 150 days.** Put your renewal date on the calendar and block the week that starts the process.
- **Ask where compensation sits,** especially in a captive or pharmacy collective, and whether it is assignable.
- **Confirm your data rights in writing** with your carrier or TPA.

None of this requires you to become a benefits expert. It requires asking for documents you are entitled to and comparing them. A [benefits committee](https://ethosbenefits.com/services/fiduciary-governance) with a written record of each decision turns those checks into a habit.

*This article is general information, not legal or tax advice. Podcast figures are worked examples discussed on The Business of Benefits.*

## From the Ethos Benefits team

> So it's really about going through each of those terms with a fine-tooth comb to say, all right, this is what was sold and this is what we're signing up for.

Patrick Ansara, Partner and Director of Client Operations, Ethos Benefits, on [The Business of Benefits, Episode 87](https://ethosbenefits.com/podcast/benefits-dirty-dozen-part-1)

## On the podcast

- [Benefits Dirty Dozen, Part 2: Health plan tactics 6 to 1](https://ethosbenefits.com/podcast/benefits-dirty-dozen-part-2), The Business of Benefits, Episode 89
- [Benefits Dirty Dozen, Part 1: Health plan tactics 12 to 7](https://ethosbenefits.com/podcast/benefits-dirty-dozen-part-1), The Business of Benefits, Episode 87
- [Benefits Broker Conflicts and Hidden Compensation: Jay Gepfert of Culpepper RFP](https://ethosbenefits.com/podcast/benefits-broker-conflicts-jay-gepfert), The Business of Benefits, Episode 57

## Frequently asked questions

### Are these broker and vendor practices illegal?

Mostly no. Most are legal arrangements that cost the plan money when nobody checks them. The exception is disclosure. Brokers and consultants to group health plans who expect $1,000 or more in compensation must disclose it in writing before the contract is signed, extended or renewed, and a missing disclosure is a compliance problem.

### How do I find out what my broker is paid?

Ask in writing for the compensation disclosure required by ERISA section 408(b)(2)(B), and ask for dollar figures, not only percentages. Ask specifically about compensation inside the pharmacy contract, stop-loss, FSA and voluntary lines, and about any equity or revenue share with recommended vendors.

### When should an employer start the renewal process?

At least 150 days before the renewal date, and 180 days or more if procurement runs long. That gives time to release claims data, let underwriters price the risk and send a real market check to carriers that fit the plan. By 60 days out, a real market check is no longer possible and the employer has little room to negotiate.

### Can an employer get claim level data from its carrier or TPA?

Usually yes, if the right is negotiated into the contract before signing. The employer should negotiate data terms alongside price, ideally a raw claims feed to a data warehouse it owns and controls. Member level data requires a business associate agreement, a plan administration purpose and secure storage, and those requirements are met routinely.

### Do these practices apply to fully insured plans?

Several do, including contract drift, compensation disclosure, the controlled market check and data obstruction. A fully insured employer still picks the broker, signs the contracts and pays fees and commissions built into premium, so those practices cost it money too. The pharmacy collective and captive practices mainly affect self-funded and alternatively funded plans.

### What is the difference between PEPM and PMPM fees?

PEPM, per employee per month, counts enrolled employees. PMPM, per member per month, counts every spouse and dependent too. Switching a fee from PEPM to PMPM multiplies it by the plan's member to employee ratio. On a plan with 500 employees and 1,200 members, a $2 fee that moves to PMPM costs the employer $16,800 more a year.

## Sources

1. [Field Assistance Bulletin No. 2021-03, Disclosure of compensation by brokers and consultants to group health plans](https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2021-03), U.S. Department of Labor, Employee Benefits Security Administration
2. [29 U.S. Code § 1108, Exemptions from prohibited transactions (section 408(b)(2)(B))](https://www.law.cornell.edu/uscode/text/29/1108), Legal Information Institute, Cornell Law School
3. [Understanding Your Fiduciary Responsibilities Under a Group Health Plan](https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/understanding-your-fiduciary-responsibilities-under-a-group-health-plan.pdf), U.S. Department of Labor, Employee Benefits Security Administration
4. [FTC Releases Interim Staff Report on Prescription Drug Middlemen](https://www.ftc.gov/news-events/news/press-releases/2024/07/ftc-releases-interim-staff-report-prescription-drug-middlemen), Federal Trade Commission
5. [Gag Clause Prohibition Compliance Attestation](https://www.cms.gov/marketplace/about/oversight/other-insurance-protections/gag-clause-prohibition-compliance-attestation), Centers for Medicare & Medicaid Services
6. [29 CFR § 2510.3-1(j), Group or group-type insurance programs (voluntary plan safe harbor)](https://www.law.cornell.edu/cfr/text/29/2510.3-1), Legal Information Institute, Cornell Law School
7. [Pimm v. United Airlines, No. 1:25-cv-15581 (N.D. Ill.), complaint filed December 23, 2025](https://www.millerchevalier.com/sites/default/files/resources/General_Alerts/2025-12-23_Pimm-v-United-Airlines.pdf), U.S. District Court, Northern District of Illinois (copy hosted by Miller & Chevalier)
8. [Public Law 119-75, Consolidated Appropriations Act, 2026 (Division J)](https://www.govinfo.gov/content/pkg/PLAW-119publ75/html/PLAW-119publ75.htm), U.S. Government Publishing Office
9. [2025 Employer Health Benefits Survey](https://www.kff.org/health-costs/2025-employer-health-benefits-survey/), KFF
10. [Dirty Dozen tax scams](https://www.irs.gov/newsroom/dirty-dozen), Internal Revenue Service
11. [Health and Welfare Plan Practices Part 1: Tactics or Tricks, Dirty or Dumb?](https://youtu.be/sgfQDq7PtyY), The Business of Benefits podcast, Ethos Benefits
12. [Health and Welfare Plan Practices Part 2: Tactics or Tricks, Dirty or Dumb?](https://youtu.be/MMPzsi1GkFI), The Business of Benefits podcast, Ethos Benefits