Clip of Vincent Catalano and Mark Flores on The Hidden Tax on Employee Benefits Nobody’s Talking About

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The Hidden Tax on Employee Benefits Nobody’s Talking About

A conversation with Mark Flores, Vice President & Co-Founder of AVYM Corporation

You sign a healthcare contract. You trust your insurance carrier. You pay your premiums.

And somewhere between your bank account and actual patient care, 15-30% of your money disappears.

Not into healthcare. Not into claims. Into what Mark Flores calls “the black hole”—a maze of undisclosed fees, improper billing, and systematic overcharges that most employers don’t even know exists.

Mark Flores, Vice President and Co-Founder of AVYM Corporation, joined the CLEARly Beneficial Podcast to pull back the curtain on one of healthcare’s best-kept secrets: how insurance carriers operating in hybrid arrangements—acting as both provider and administrator—are quietly draining millions from employee benefit plans.

And here’s the kicker: most employers have no idea it’s happening.

The $100 Million Wake-Up Call

Mark doesn’t just talk about this problem theoretically. He was a key architect in a landmark case that exposed it on a massive scale: United States of America & State of New Jersey v. Horizon Blue Cross Blue Shield of New Jersey.

The settlement? $100 million. The largest non-Medicaid settlement in New Jersey state history.

“We realized employers and doctors should be on the same team because they’re both paying into this black hole,” Mark explains. “The middlemen—whether they’re carriers, administrators, or other intermediaries—were taking significant portions that weren’t being disclosed.”

The case revealed systematic violations of what’s known as the “lesser of” provision—a basic contract term that should protect employers from overbilling. Instead of billing the lower contracted rate, Horizon was routinely charging the higher amount.

And it wasn’t an isolated incident. It was a pattern. For years.

“We found that the carrier was billing the higher amount rather than the lower contracted rate, which violated the basic terms of the plan,” Mark notes. “This wasn’t an accident—it was systematic.”

The Fiduciary Responsibility Most Employers Don’t Know They Have

Here’s something that surprises most HR professionals and business owners: when you provide health insurance to your employees, you have a legal fiduciary duty.

That means you’re legally required to act in your employees’ best interest when selecting health insurance providers and managing those relationships.

But here’s the problem: most employers have no idea how to fulfill this obligation—or even that it exists.

“Employers have a fiduciary duty to act in the best interest of their employees when selecting health insurance providers and services,” Mark explains. “But the reality is that most companies don’t have the tools or transparency to fulfill these obligations.”

Recent legislation, including the Consolidated Appropriations Act (CAA), has increased transparency requirements and placed more responsibility on employers to ensure fees are reasonable. But legislation alone doesn’t solve the problem.

Why? Because most employers lack independent resources to verify what they’re being charged.

The Trust Problem: Why ‘Trust But Verify’ Doesn’t Work

During our conversation, Vincent and Mark discussed the traditional broker-client relationship and how conflicts of interest have eroded trust in the industry.

“The insurance industry has operated on a ‘trust me’ model for decades,” Vincent observes. “But when the people you’re trusting have financial incentives that don’t align with yours, that creates problems.”

Mark agrees: “Employers need to shift their mindset from ‘trust but don’t verify’ to actually verifying their healthcare spending. Without independent validation, conflicts of interest will continue to drain employee benefit dollars.”

The challenge is particularly acute with national carriers serving large enterprises. While these carriers offer convenience and broad networks, their size creates a fundamental problem: they can’t disaggregate services.

“If you’re a big national carrier, you’re working with lots of different entities across the country,” Mark explains. “You don’t have the same relationships or transparency that you’d have with more focused arrangements.”

Hybrid Arrangements: The Perfect Storm for Conflicts of Interest

One of the most problematic structures Mark identifies is what he calls “hybrid arrangements”—situations where insurance carriers act as both healthcare providers and claims administrators.

Think about that for a moment.

The same company that owns hospitals and employs doctors is also deciding which claims get paid and how much they get paid.

“When carriers operate in hybrid arrangements—acting as both provider and administrator—it creates inherent conflicts of interest that cost employers millions,” Mark states.

It’s like having the fox guard the henhouse. Except the fox is also selling you eggs. And auditing your egg consumption. And telling you how many eggs you need.

The conflicts are built into the structure.

The 15-30% Nobody Talks About

So how much are we talking about here?

According to Mark’s experience working with employers across the country, most organizations are losing between 15-30% of their total healthcare spend to undisclosed fees and improper billing practices.

Let’s put that in perspective:

• If you’re spending $5 million annually on healthcare: You’re potentially losing $750,000 to $1.5 million
• If you’re spending $10 million annually: That’s $1.5 million to $3 million
• If you’re spending $50 million annually: You could be losing $7.5 million to $15 million

Every. Single. Year.

“Insurance administrators often charge fees that aren’t disclosed to employers, potentially taking 15-30% of total claim spend,” Mark notes. “And most employers have no idea.”

What About Fully Insured vs. Self-Funded Plans?

During our conversation, Mark and Vincent discussed the key differences between fully insured and self-funded health plans—and how these structures affect an employer’s ability to monitor spending.

Fully Insured Plans: In a fully insured arrangement, the employer pays a fixed premium to an insurance carrier, and the carrier assumes all the risk. The carrier processes claims and handles administration. The employer has very limited visibility into actual claims data or administrative fees.

Self-Funded Plans: In a self-funded plan, the employer assumes the financial risk for employee healthcare claims. The employer typically hires a third-party administrator (TPA) to process claims, but the employer owns the claims data and has much greater transparency.

Hybrid Arrangements: Some plans blend elements of both structures—for example, self-funded plans with stop-loss insurance or level-funded arrangements. These can offer middle-ground options but also introduce additional complexity and potential conflicts of interest.

Mark’s key point: regardless of which structure you choose, you need independent verification of your costs.

“The structure matters less than the transparency and independent oversight,” Mark emphasizes. “Without that, any arrangement can become a black hole.”

The Culture Change Employers Need to Make

Beyond structural issues, Mark identifies a critical cultural problem: most employers simply don’t prioritize healthcare spending oversight the way they should.

“Employers need to change their culture to better understand and manage these fiduciary obligations,” Mark states. “It’s not enough to just sign contracts and trust that everything’s fine.”

This cultural shift requires:

1. Treating healthcare spending like any other major expense: Would you spend millions on real estate without independent verification? Or IT infrastructure? Healthcare deserves the same scrutiny.
2. Building internal expertise or partnering with independent advisors: Most companies lack the in-house expertise to properly audit healthcare spending. You need independent resources that don’t have conflicts of interest.
3. Demanding transparency from carriers and administrators: Don’t just accept “that’s proprietary” as an answer. You’re entitled to understand where your money goes.
4. Regular claims audits and validation: This shouldn’t be a one-time exercise. Ongoing monitoring is essential.
5. Understanding your fiduciary obligations: Ignorance isn’t a defense. Employers need to educate themselves about their legal responsibilities.

Real Recovery: How Independent Validation Works

Mark shared an example during our conversation that perfectly illustrates why independent claims investigation matters.

He described helping an employer recover a large claim by identifying a subrogation opportunity—a situation where a third party (like an auto insurance carrier) should have been responsible for paying the claim instead of the employer’s health plan.

“We found that there was a car accident involved, and the auto insurance should have covered the medical expenses,” Mark explains. “By identifying the subrogation opportunity, we recovered the full amount for the employer’s plan.”

This is the kind of detail-level work that most employers never do—and most brokers and carriers don’t prioritize because it’s not in their financial interest.

Mark’s approach goes beyond traditional overpayment audits. He focuses on:

• Strategic cost savings: Finding systematic ways to reduce future spending
• Process improvements: Identifying and fixing underlying issues that cause problems
• Fiduciary breach identification: Uncovering situations where plan administrators failed their duties
• Recovery programs: Actually getting money back into employee benefit plans

“We design innovative recovery programs that exceed traditional overpayment reviews by identifying strategic cost savings and systemic process improvements,” Mark notes.

The CAA and New Transparency Requirements

The Consolidated Appropriations Act (CAA) has created new transparency requirements that should help employers—but only if they know how to use them.

“Recent legislation, including the CAA, has increased transparency in health plan fees and placed more responsibility on employers to ensure fees are reasonable,” Mark explains.

Key CAA provisions include:

• Broker and consultant compensation disclosure: Employers must receive detailed information about all compensation their brokers and consultants receive
• Prescription drug reporting: Plans must report pharmaceutical spending and rebate information
• Comparative claims data: Employers can request data comparing their claims experience to similar groups

But here’s the catch: the CAA creates requirements for disclosure—it doesn’t automatically create action.

Employers need to actually review the disclosures, understand them, and act on them. That requires expertise most companies don’t have in-house.

Why Most Brokers Can’t (or Won’t) Help

Vincent and Mark discussed a sensitive but critical topic: why traditional insurance brokers often can’t provide the independent oversight employers need.

The reason comes down to incentives.

Most brokers are compensated through commissions from insurance carriers—either directly or indirectly. Even “fee-based” arrangements often include carrier bonuses, override commissions, or other incentive payments that create conflicts.

“The broker model has changed over the years,” Vincent reflects from his own experience as a former broker at major firms like Arthur J. Gallagher and Lockton. “Fee-based work is challenging because employers resist paying directly for services they think should be ‘free.'”

But nothing is free. When brokers are paid by carriers, their incentives naturally align with carrier interests—not necessarily employer interests.

Mark puts it bluntly: “Employers often lack independent resources to assess benefits issues due to conflicts of interest in the industry, particularly with insurance carriers and advisors.”

This is why Vincent founded CLEAR Healthcare Solutions as an independent consultancy—to provide advice that’s genuinely free from carrier influence.

And it’s why Mark’s work at AVYM Corporation focuses exclusively on employer and plan interests, not carrier relationships.

What Employers Should Do Right Now

Based on our conversation, here are the concrete steps Mark and Vincent recommend:

1. Understand Your Fiduciary Obligations Educate yourself and your leadership team about your legal responsibilities as a plan sponsor. This isn’t optional—it’s the law.
2. Demand Independent Claims Validation Don’t just trust that your TPA or carrier is processing claims correctly. Hire independent experts to verify.
3. Review All Fee Disclosures Actually read the CAA disclosures you’re receiving. If you don’t understand them, hire someone who does.
4. Audit Broker and Consultant Compensation Know exactly how your advisors are compensated—including all indirect payments, bonuses, and incentives.
5. Request Claims Data Access If you’re self-funded, you own the claims data. Demand access to it in usable formats.
6. Look for “Lesser Of” Violations Review whether your plan is consistently being charged the lower of billed charges or contracted rates. If not, you may have recovery opportunities.
7. Identify Subrogation Opportunities Many plans miss opportunities to recover costs from auto insurance, workers’ comp, or other liable parties.
8. Build Internal Expertise or Partner Strategically You either need to develop in-house capabilities to oversee healthcare spending, or partner with truly independent advisors.
9. Change Your Culture Around Healthcare Spending Treat your healthcare budget with the same rigor and oversight you apply to other major expenses.
10. Don’t Accept “Proprietary” as an Answer When carriers or TPAs claim information is proprietary, push back. You’re entitled to understand where your money goes.

The Bottom Line

The hidden tax on employee benefits isn’t a conspiracy theory. It’s a documented reality that’s been proven in court cases, settlements, and independent audits across the country.

The $100 million New Jersey settlement wasn’t an aberration—it was a window into systematic practices that happen everywhere.

“Without independent validation, conflicts of interest will continue to drain employee benefit dollars,” Mark warns.

But here’s the good news: this is fixable.

With the right expertise, independent oversight, and cultural commitment to transparency, employers can:

• Recover millions in overcharges and improper billing
• Prevent future losses
• Actually fulfill their fiduciary responsibilities
• Redirect savings into employee benefits or other business priorities

The question is: are you ready to look?

Because what you don’t know is definitely costing you.

About Mark Flores

Mark Flores is Vice President and Co-Founder of AVYM Corporation, a leading consulting firm specializing in medical claim transactions and ERISA-governed health plan compliance. Widely recognized as a subject-matter expert by courts, regulators, and industry stakeholders, Mark pioneered claims validation, recovery, and education programs that protect self-insured health plan assets and identify fiduciary breaches and systemic inefficiencies.

Mark served as a key consultant in United States of America & State of New Jersey v. Horizon Healthcare Services, Inc., helping secure the largest non-Medicaid settlement in state history ($100 million). His insights have been featured in Forbes, Bloomberg, BenefitsLink, and other industry publications. Learn more at www.avym.com.

About Vincent Catalano & CLEAR Healthcare Solutions

Vincent Catalano is the CEO of CLEAR Healthcare Solutions and host of The CLEARly Beneficial Podcast. With over 23 years of experience in the employee benefits and insurance brokerage industry, including time at Arthur J. Gallagher, Catalano founded CLEAR Healthcare Solutions in 2023 to provide independent, unbiased healthcare benefits consulting.

The CLEARly Beneficial Podcast features solution-oriented conversations with healthcare innovators, industry leaders, and benefits professionals. His unique position as an independent consultant allows him to have frank conversations about healthcare issues that corporate-employed professionals cannot address. New episodes release weekly on Tuesdays at 8:00 AM across all major platforms. Learn more at www.clearhcs.com.

Disclaimer: The information provided in this podcast is for educational and informational purposes only and should not be construed as legal, financial, or professional advice. Listeners should consult with qualified professionals regarding their specific situations.

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