Is your insurance broker completely transparent with their compensation from your group? Most brokers get paid commissions by insurance companies – the most common of which is Blue Cross, United, Cigna, Aetna (BUCA). Their commissions come as a percentage of the premiums you pay. When you get an increase in your premiums, your broker just got a raise. Have those commissions ever been disclosed to you? Having been in this business for as long as I have, I can tell you that in most cases total compensation is not completely disclosed.
If brokers are getting paid by a Third Party – an insurance company – who are they actually working for – their client or the insurance company? This is different than any other arrangement you have with other consultants or professionals. The brokers effectiveness is tied to the ability (or inability) of the insurance company and what they can offer you as an employer. But if your costs go up, and your brokers revenue goes up, where is the incentive for them to seek a different path of effectiveness?
When I was a broker working for a couple of different insurance agencies, we got paid in a variety ways. We would take your typical commission from the insurance company (or stop loss carrier), and/or charge a per employee per month fee, we would receive commission overrides from the insurance company – which by the way were very lucrative, we would receive administrative fees and/or rebates from the Pharmacy Benefit Manager (PBM), and commissions from other lines of coverage like life insurance, disability, dental, etc. We would only disclose some of those revenue sources if our client asked.
In my opinion, if a broker wanted to prove their effectiveness and be financially committed to their recommendations, they would go at risk for their fee. This means sharing in a percentage of the savings rather than receiving commissions and waiting for the insurance company to do something novel. I can’t tell you how many times I’ve heard employers state that there broker has come to them at renewal and said “I’ve got good news and bad news. The bad news is that the insurance company wanted to raise your rates 15% this year, but the good news is I got it down to 12%.” When was the last time your broker brought you any ideas that could lower your health care costs by 20-40%?
Full disclosure and transparency also include asking your broker how much of their business is with BUCA? How much revenue do they receive from BUCA, both in commissions and overrides, as well as other sources and fees. If the effectiveness and innovation of your broker rests with an insurance company’s program, that says it all. Today’s innovation comes from the disruption of the status quo of insurance companies and offering proven programs that can effectively reduce the cost of your health insurance. As I stated my book “You Don’t Know What You Don’t Know” most employers tend to stay away from the questions about compensation, and if they did address broker compensation I’m not sure that they would even ask the right questions. It’s all about disclosure and transparency.