Today’s column is directed toward business owners who provide group health insurance. As a business owner, you must deal with multiple insurance contracts to mitigate risk for you and your firm. You also may provide employee benefits through group insurance contracts.
Much like I always wonder what the real mark-up is when I buy a car from a dealer, you might be wondering how much your agent/broker is paid.
The Consolidated Appropriations Act of 2020 has been said to be the biggest piece of legislation enacted in American history and created an array of complex new law for many sectors, including health insurance.
Effective 12/27/2021 brokers and consultants are required to disclose expected commissions, in writing to the clients in advance of a new sale, renewal or change to a health insurance contract. This includes all lines: health, dental vision, FSA, HRA, and COBRA etc.
The threshold for disclosure is if the agent or agency expects to receive at least $1000 in direct or indirect compensation. Further, the law states that the employer has a fiduciary responsibility to ensure receipt of this information from the broker. If either party does not comply, the plan is considered out of compliance and can face penalties or disallowance of the deduction for the plan. To further complicate things the Department of Labor has not issued guidance, but has allowed for “good faith efforts” at compliance.
One of the biggest challenges for a broker is to estimate bonuses and extra compensation that is paid to them in the form of cash or services. Many of those bonuses are based on production and the agent may not know what the production will end up to be by the end of the calculation period.
The lack of transparency was always a bit of a thorn in the side of brokers when they would lose a case to a PEO (Professional Employer Organization) or other HR company vendors. There is really no reason that the group has to drop their current broker, but the PEO often makes it appear that way so they can get the extra revenue in addition to all of the other fees they charge.
I was not surprised when some agents were up in arms about the disclosures. Those are typically folks that simply deliver a renewal and do nothing more for the client. When I had my practice, we typically paid all the costs for the online enrollment platform for our groups as well as many other services. In many ways, I was on call 24/7, answering emails or inquiries from the employer and employees of my groups. I had office staff and overhead. I was never embarrassed about the compensation I received. Often if a client asked and I told them my compensation, they were surprised we didn’t make more for all we did for the groups.
There is a difference in transparency between large groups (100 employee+) and small groups (under 100). Typically large groups understand they can negotiate the broker’s commission which typically runs between 3-5% of the medical insurance premiums. Ancillary benefit commissions are in the 8-10% range. Self-funded groups may be charged a per member per month fee, plus a percentage of the stop loss premiums.
With smaller groups the base commission is built into the contract, running at 5-7% for health insurance and 8-10% for ancillary products (dental, vision, life etc.). Some vendors such as Kaiser, will pay the broker a per member per month fee. This commission is built into the product and usually not negotiable.
As employers prepare for their group renewals, it will be important that they ask for this information. It’s not inappropriate to ask the broker why they recommend a certain vendor. Do they get a bigger incentive from that company or is it truly because there is a quantifiable benefit to the client and employees?