Brokers’ Commissions From Insurers Impact How Much Consumers Pay
As the average cost of employer sponsored health care plans has tripled over the last two decades, ProPublica and NPR are examining the impact insurance brokers have had on these prices. The system of payments to brokers incentivizes them to push employers toward more costly plans.
Employers often turn to health insurance brokers to help them navigate the complex insurance options available for their employees.
But what many don’t fully realize is how the health insurance industry steers the process through lucrative financial incentives and commissions. Those enticements, critics say, don’t reward brokers for finding their clients the most cost-effective options.
Brokers are paid commissions based on the total premium paid by the employer. As employers sign up for more expensive plans, the brokers’ payouts increase. Brokers compete for huge bonuses, expensive awards, and trips.
Such incentives sound like typical business tactics, until you understand who ends up paying for them: the employers who sign up with the insurers — and, of course, their employees.
Even though the insurers pay the commissions, the cost is passed along to employers – and more specifically employees – through the price of premiums. Moreover, employers often do not understand that they might be steered towards plans that are more expensive or add unnecessary costs.
“If you want to draw a straight conclusion: It has been in the best interest of a broker, from a financial point of view, to keep that premium moving up,” said Jeffrey Hogan, a regional manager in Connecticut for a national insurance brokerage and one of a band of outliers in the industry pushing for changes in the way brokers are paid.
The president of the National Alliance of Healthcare Purchaser Coalitions, Michael Thompson, says that brokers’ own financial interest being tied to insurers creates a “cozy relationship” and he is wary of them “stirring the pot.”
Employers should know how their brokers are paid, but health care is complex, so they are often not even aware of what they should ask, Thompson said. Employers rely on brokers to be a “trusted adviser,” he added. “Sometimes that trust is warranted and sometimes it’s not.”
Some brokers have adopted flat fee pay structures, which removes the incentive to push employers towards more expensive plans. However, transparency is still not the norm for the industry. Experts say that there needs to be more scrutiny over health insurance brokers’ practices.