dissenting.
This is á case of first impression in which the plaintiff alleges that the imposition of financial incentives designed to limit the provision of health care benefits constitutes a breach of fiduciary duty under ERISA. The plaintiffs complaint alleges that there is a conflict of interest built into the compensation structure of the health plan in question. I fully accept the Majority’s conclusion that, *381taking the allegations of the complaint as true, “an incentive existed for [the defendants] to limit treatment and, in turn, HMO costs so as to ensure larger bonuses.” Maj. Op. at 372. I disagree with the Majority’s holding, however, that the mere existence of this asserted conflict, without more, gives rise to a cause of action for breach of fiduciary duty under ERISA. I respectfully dissent.
As described in the complaint, the defendants occupy two different roles in the health plan. The defendants are the plan’s doctors, who provide medical care to the plan beneficiaries, and they are also the plan administrators, who (as fiduciaries) make decisions about what claims and conditions are covered under the plan. The complaint alleges that the defendants have breached their fiduciary duty in two ways. First, according to the complaint, the defendants have hired CARLE owner/physicians (ie., themselves) to provide medical services under the' plan while cutting costs by minimizing the resources expended on each patient. By minimizing these expenditures, the defendants preserve funds to be distributed to themselves as year-end bonuses. Second, the complaint alleges that the defendants have administered disputed and non-routine claims. Again, the implication is that these claims are administered with an eye towards denying these claims to augment the defendants’ year-end bonuses. Thus, the complaint alleges a structural incentive to deny care both at the point of delivery (ie., the treatment decisions affecting patient care) and at the point of entry (ie., the coverage decisions). In my view, however, merely pointing out the existence of these structural incentives does not suffice to make out a cause of action for breach of fiduciary duty under ERISA.
Consider first the defendants’ alleged incentive to deny coverage in disputed and non-routine claims. Based on the allegations in the complaint, there is indeed an incentive to deny claims and thereby maintain large year-end bonuses. Unlike the common law of trusts, however, which is merely the baseline for determining the scope of fiduciary duty under ERISA, see Varity Corp. v. Howe, 516 U.S. 489, 496-97, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996), ERISA tolerates some conflict of interest on the part of fiduciaries. Most notably, section 408(c)(3) of ERISA permits an employer or other'plan sponsor to have its own “officer, employee, agent, or other representative” serve as trustee or other fiduciary. 29 U.S.C. § 1108(c)(3). See Donovan v. Bierwirth, 538 F.Supp. 463, 468 (E.D.N.Y.1981) (describing § 408(c)(3) as “an unorthodox departure from the common law rule against dual loyalties”). One justification for this departure from the common-law tradition is that allowing a plan sponsor to designate its own agent as a fiduciary reassures the sponsor that, in devoting its assets to the plan, it has not relinquished all ability to ensure that the plan’s resources are used wisely. This reassurance in turn encourages more employers and other sponsors to establish benefits plans. See Daniel Fischel & John Langbein, ERISA’s Fundamental Contradiction: The Exclusive Benefit Rule, 55 U. Chi. L.Rev. 1105, 112728 (1988). Although the dual loyalty ascribed to the defendants in this case is not identical to the conflict experienced by a fiduciary who is also the sponsor’s agent, section 408(c)(3) demonstrates that dual loyalties are not per se unlawful under ERISA.
Moreover, we have recognized in a related context that market forces help reduce the risk that the fiduciary’s conflict of interest in making coverage decisions will work to the detriment of the plan and the plan beneficiaries. In reviewing denials of benefits under section 502(a)(1)(B) of ERISA, we are often confronted with situations in which the plan administrator had a financial incentive to deny claims. For instance, in Chalmers v. Quaker Oats Company, 61 F.3d 1340 (7th Cir.1995), the plaintiff argued that corporate officers who served on the plan administration committee had an automatic bias against dispensing severance benefits because those benefits would be paid directly from the corporation’s earnings. Id. at 1344. In rejecting the plaintiffs claim of bias, we explained that “it is a poor business decision to make it a practice of resisting claims for benefits. In the long run, such a practice would dampen loyalties of current employees while hindering attempts to attract new talent.” Id.; see *382also Van Boxel v. Journal Co. Employees’ Pension Trust, 836 F.2d 1048, 1051 (7th Cir.1987). We have recently expanded on this rationale in finding that no conflict of interest existed when an insurer serving as a plan administrator denied a claim that, if it had been approved)' would have been paid out of the insurer’s assets:
[I]t is a poor business decision to resist paying meritorious claims for benefits. Companies ... that sponsor ERISA plans are customers who choose which group insurance policies they will use to fund their plans.... [T]hese employers want to see their employees’ claims granted because they want their employees satisfied with their fringe benefits. These corporate employers have the sophistication and bargaining power necessary to take their business elsewhere if an insurer ... consistently denies valid claims. In the long run, this type of practice would harm an insurer by inducing current customers to leave and by damaging its chances of acquiring new customers. Thus, no conflict of interest' exists because paying meritorious claims is in [the insurer’s] best interest.
Mers v. Marriott Int’l Group Accidental Death & Dismemberment Plan, 144 F.3d 1014, 1020-21 (7th Cir.1998).
The reasoning regarding conflicts of interest in the denial of benefits context applies with equal force to the plaintiffs claim of breach of fiduciary duty. The sponsor of the plaintiffs plan, State Farm, is a sophisticated, experienced player in the. market for health benefits. The defendants do have a financial interest in denying coverage, just as the corporation did in Chalmers and the insurer did in Mers. But State Farm has an interest in ensuring that its employees are satisfied with their fringe benefits, and the defendants have an interest in ensuring that State Farm is satisfied with the defendants’ performance in delivering health care to the beneficiaries. In this sense, the interests of the administrator align with the interests of the beneficiaries and the sponsor. I recognize, of course, that monitoring of plan administrators by sponsors and beneficiaries is sometimes imperfect, and there is no guarantee that a sponsor will be able to find satisfactory alternatives in the marketplace. The plaintiffs complaint, however, alleges only that an incentive to deny coverage exists, which in my view is not enough to support an inference that market forces have failed in this case to protect the interests of beneficiaries.
The complaint’s second allegation of breach of fiduciary duty, alleging an incentive to deny care at the point of delivery, also fails to state a claim upon which relief may be granted. As the Majority points out, such incentives are increasingly common in the age of managed care. Although the Majority identifies the potential pitfalls of managed care plans, see Maj. Op. at 374-77, there are also benefits to such plans that nevertheless make them attractive to many sponsors and beneficiaries of ERISA plans.1 Since many *383sponsors and beneficiaries of managed care plans view financial incentives as a desirable way of conserving the plan’s assets by encouraging physicians to use resources more efficiently, merely alleging the existence of financial incentives to limit care cannot suffice to make out a claim of breach of fiduciary duty.
The complaint could be read to imply, however, that the defendants’ incentives to limit care are so high that they work to the detriment of the plan and plan beneficiaries. When health plans provide physicians with incentives to internalize costs and maximize efficiency, as appears to be the case here, there is a serious concern that patient care will suffer if the incentives to limit care are set too high. The task of identifying appropriate limits for incentives is an important item on the legislative and regulatory agenda. See, e.g., 42 U.S.C. § 1395mm(i)(8) (regulating the use of financial incentives by health care plans treating Medicare and Medicaid recipients); 42 C.F.R. § 417.479 (same); Edward B. Hirshfeld, Provider Sponsored Organizations and Provider Service Networks—Rationale and Regulation, 22 Am. J.L. & Med. 263 (1996) (discussing avenues for regulating provider sponsored organizations, or PSOs, which are physician groups that bear investment and insurance risk with respect to the delivery of health care services). If the complaint is indeed asserting that the incentives in this case are excessive, then the plaintiffs in effect are inviting the court to make its own determination about appropriate incentive levels in managed care.
In reversing the dismissal of the plaintiffs complaint, the Majority appears to accept this invitation. In my view, however, judicial efforts to determine permissible levels of financial incentives through the vehicle of ERISA’s fiduciary rules are unnecessary and ill-advised. No standards for conducting such an inquiry exist. Such a move would preempt legislative and regulatory efforts in this area and could seriously disrupt the ability of plan sponsors and beneficiaries to manage plan assets by agreeing to incentives that encourage cost-conscious medical deci-sionmaking. The Majority’s decision provides little guidance for the district court on remand, and I fear that the decision today could lead, both in this case and in the future, to untethered judicial assessments of permissible incentive levels in health care plans.
Although I cannot join the Majority’s decision in this ease, I share the Majority’s concern about the possibility of incentives that may harm plan beneficiaries, and I believe that courts have a role in ensuring that incentives are implemented in accordance with the fiduciary duties imposed by ERISA. In my judgment, this role is triggered when the market fails to ensure that the interests of sponsors, administrators, and beneficiaries are in alignment. As noted above, plan sponsors are likely to take their business elsewhere if they perceive that incentives are working to the detriment of beneficiaries or the plan itself, and thus market forces go a long way towards ensuring that incentives do not rise to dangerous or undesirable levels. In order for the market to function in this context, however, sponsors and beneficiaries need information about the financial incentives that are in place. Thus, I would follow the Eighth Circuit’s lead in holding that the failure to disclose financial incentives is a breach of fiduciary duty under ERISA. See Shea v. Esensten, 107 F.3d 625 (8th Cir.1997), cert. denied, — U.S. -, 118 S.Ct. 297, 139 L.Ed.2d 229 (1997).2
*384Until the Majority’s expansion of liability in today’s case, Shea stood at the frontier in terms of imposing liability under ERISA on health plans that seek to control costs by providing financial incentives to limit patient care. The She a decision has proven to be controversial. See, e.g., Weiss v. CIGNA Healthcare, Inc., 972 F.Supp. 748, 754-55 (S.D.N.Y.1997) (rejecting Shea and holding that there is no fiduciary duty under ERISA to disclose financial incentives to limit care); see also “Full Disclosure,” ERISA Litigation REPORTER, April 1997 at 3 (describing Shea as “a decision that has been getting a lot of notice” and as a “far-reaching example” of “the expansion of disclosure duties into non-benefits contexts”). The Second Circuit has obliquely adopted Shea’s rationale, however, in a decision upholding the denial of a motion for preliminary injunction. See Maltz v. Aetna Health Plans, 114 F.3d 9, 11-12 (2d Cir.1997). The health plan at issue in Maltz had been paying its participating physicians on a fee-for-sOrvice basis. When the health plan decided to switch to a capitation method of payment — which created a financial incentive to limit care by paying the physician a flat monthly fee for each enrollee on his or her list — the plaintiff-beneficiary sued for a breach of fiduciary duty under ERISA. The Second Circuit held that the plaintiff failed to demonstrate irreparable harm or a likelihood of success on the merits:
[We] certainly acknowledge that incentive programs may affect the decisions'physicians make in the treatment of their patients. Nothing in the contract between Aetna and its enrollees, however, limits Aetna’s ability to make significant changes in its relationship with its doctors as long as the enrollees are aware of the changes when they i’enew their contract with Aetna and Aetna provides them with competent, alternative physicians.... Maltz renewed her contract with Aetna with full knowledge of these significant changes.
Id. at 12. Although' the posture of Maltz as a preliminary injunction case makes it difficult to discern how the court would ultimately rule on the merits, the Maltz opinion suggests at least a tentative acceptance of Shea’s holding that nondisclosure of financial incentives to limit care may constitute a breach of fiduciary duty under ERISA.
Even when disclosures have been made, I would not rule out the possibility that the imposition of incentives to limit care could support a claim of breach of fiduciary duty when there is a serious flaw in the manner in which the incentive arrangement is established or a significant limitation on the ability of plan sponsors to obtain alternative arrangements in the market. Such a claim would have to make some allegation, which the plaintiffs in the instant ease do not, pointing to' special circumstances suggesting a breakdown in the market or in the negotiating process that led to the imposition of incentives. The complaint in this case, however, contains no allegation of nondisclosure, and it fails to make any allegations suggesting that the financial incentives to limit care are anything but the result of the bargain fairly struck between the plan’s sponsor, administrator, and beneficiaries. I would affirm the decision below dismissing the complaint.
. The goal of a managed care plan is to deliver health care more cost-effectively by eliminating unnecessary or ineffective treatments and providing necessaty care more efficiently. Some plans, like the one addressed in this case, attempt to achieve these goals by introducing incentives that encourage physicians to internalize part of the costs of treatment. (According to the complaint, the instant plan contains a bonus structure that makes the physician’s income depend in part on how efficiently the physician delivers care by minimizing expenditure of resources.) Other plans try to achieve efficiency goals by implementing utilization review procedures, in which the treating physician must obtain from the insurer advance approval of patient-care decisions. This method also has its drawbacks, especially when the reviewer lacks the medical expertise of the treating physician. See generally E. Haavi Morreim, Diverse and Perverse Incentives of Managed Care: Bringing Patients into Alignment, 1 Widener L. Svmp J. 89, 91-95 (1996) (describing the variety of cost-containment techniques employed by managed care plans).
Of course, the desirability of these different cost-containment measures from a policy standpoint is not our concern. But in assessing the plaintiff's assertion that incentives alone constitute a breach of fiduciary duty, it is worth noting that some commentators defend the use of financial incentives as a superior alternative to utilization review by insurers. By removing the insurer as an intermediary in patient care decisions, financial incentives can give physicians greater clinical autonomy (provided that the incentives are set at an appropriate level) and may lead to better decisions about how to reduce costs while maintaining quality. See Frances H. Miller, Capitation & Physician Autonomy: Master of the Universe or Just Another Prisoner’s Dilemma? 6 *383Health Matrix 89, 97-99 (1996); David Orentlicher, Paying Physicians More to Do Less: Financial Incentives to Limit Care, 30 U. Rich. L.Rev. 155, 173-77 (1996).
. The Majority relies on Shea and another decision, Ries v. Humana Health Plan, Inc., No. 94 C 6180, 1995 WL 669583 (N.D.Ill. Nov.8, 1995), in reversing the dismissal of the plaintiff's complaint. See Maj. Op. at 372-73. I do not believe that these cases aid the plaintiff. In both cases, there was a breach of fiduciary duty because the health plan failed to disclose to plan beneficiaries the existence of financial arrangements between the plan and health care providers that allegedly operated to the detriment of the beneficiaries. See Shea, 107 F.3d at 628; Ries, 1995 WL 669583 at *2, *7. The complaint in the instant case, however, never asserts that the plaintiff's health plan failed to disclose the financial incentives under which its physicians were operating. Thus, these disclosure cases are inapposite to the plaintiff's theory, which appears to be that the mere existence of such incentives (or, at least, *384incentives that a court might feel are excessive) constitutes a breach of fiduciary duty.