Health insurance brokers market themselves to employers as a buyer’s agent, promising to use their expertise to find employers the best deal. A new study, however, reported a positive association between health insurance broker commissions and premiums paid by employers offering fully insured group health plans to their workers.
What’s more, brokers are also paid various types of bonuses by insurance carriers, based on the amount of total business the broker has placed with the carrier, the amount of new business delivered to the carriers, or other types of metrics based on profit delivered to the carriers.
If you’re an employer looking for fully insured health insurance plans, your broker has every incentive to sell you a higher-priced plan compared to a lower-priced plan, a plan structured to produce more profit for the carrier rather than savings to you, a plan sold by the carrier that has a better bonus structure compared to a better plan for you offered by another carrier.
Larger employers often hire one of a handful of major insurance carriers to administer a self-funded plan, in which the employer pays all of the medical claims incurred by its workers. The carrier is merely a claims processor, writing checks to hospitals and doctors out of the employer’s own bank account. What incentive does that carrier have to make sure the employer isn’t being overcharged, billed erroneously, fraudulently, or billed for inappropriate and unnecessary care at more expensive sites of care? None. They just mail the check. It’s not their money on the line.
So fully insured employers buy plans sold by agents who have no incentive to keep costs down or recommend the most suitable plan; self-funded employers have carriers that have no incentive to keep costs down or quality high. That economic jujitsu is stealing prosperity and growth from American businesses, and stealing the American dream from the working class.
What are employers to do? First, smoke it out. Fully insured employers should ask their broker to disclose all dollars flowing to them as a result of the employer’s business, including all commissions and bonuses paid for health plans as well as for ancillary lines such as disability or life insurance. Employers should also ask their broker to disclose any end-of-year carrier overrides or bonuses that the broker will receive, and from which carriers. If a broker is suggesting a specific plan offered by a carrier, the employer should ask whether the broker is paid a different commission or monthly fee for that plan compared to other plans not being recommended. Transparency will help the employer understand the incentives the broker has to recommend certain carriers.
Second, self-funded employers may want to enter into a direct fee arrangement with their broker, who would receive no commissions from any carrier and instead is paid a flat rate or a per-subscriber-per-month rate directly from the employer. Some innovative brokers are also willing to guarantee their work by taking a portion of their fee as a percentage of savings year over year. The broker serves as a plan architect, designing benefits and building a plan using an independent administrative entity, an independent stop-loss carrier, pharmacy solution, and patient navigation services, usually without needing the help of any of the well-known health insurance oligarchs. These unbundled plans are increasingly being used by employers who want to both save money and offer their workers generous benefits at the same time. Through flexible management and financing structures, these plans are also becoming possible for small employers — even those with under 50 employees.
Our broken healthcare status quo makes service providers, brokers, and insurance carriers do better financially when patients are sicker and are charged higher prices. Re-humanizing employer-sponsored health benefits will require competition on the basis of delivering the highest quality care for the lowest possible cost. The only way this will happen is when all the incentives in the supply chain, including brokers and carriers, are re-aligned to the best interest of employers and their workers.
Katy Talento, ScM, is CEO of AllBetter Health and a former health advisor to President Trump on the Domestic Policy Council. Ge Bai, PhD, is an associate professor of health policy and management at Johns Hopkins Bloomberg School of Public Health.