According to the study, commissions–paid on a premium-per-member basis–were passed through from the insurance companies to the plan sponsor, thus in effect raising the plan's premium. (Photo: Shutterstock)
Broker commissions have come under attack again, this time from a study of commissions on 33,000-plus employer plans covering nearly 12 million employees in companies large and small.
Researchers from Johns Hopkins University reviewed public information on broker commissions in 2017 on the plans. (No information on self-funded plans was included because those plans do not have to meet the same public disclosure regulations as fully insured plans sponsors.)
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The study, "Commissions Paid to Brokers for Fully Insured Health Insurance Plans," concluded that the commissions that plan sponsors pay to their brokers represented an area of potential savings for those sponsors. Had those sponsors contracted directly with insurers, or contracted with brokers who charged set fees, they likely could have greatly reduced their coverage spend, the researchers said.
They noted that the commissions–paid on a premium-per-member basis–were passed through from the insurance companies to the plan sponsor, thus in effect raising the plan's premium. The insurance companies' payments to brokers were covered 100% by the plan sponsors.
"Commissions are charged to the plan and thus increase the premium paid by employers and workers. The positive relationship between commissions and premiums indicates that it is possible that commissions might affect premiums, which represents a potential conflict of interest for insurance brokers for these plans," the study said.
"Brokers might advise employers to contract with plans that yield the highest commissions for themselves, rather than plans that bring the best value for the employer and workers, thus leading to inefficient purchase decisions. Insurance carriers might influence broker behavior by manipulating the structure of commissions—for example, setting high commission-to-premium ratios for the plans with high profitability and low ratios for the disfavored plans."
Against this dark scenario of commissioned brokers in league with greedy insurance companies, the study offered an alternative. Plan sponsors might do well to investigate fee-based brokers and see what the cost difference might look like, and to use readily available online services to investigate the benefits of contracting directly with insurance companies.
"A fee-based brokerage model has emerged, in which brokers are compensated with fees directly paid by employers without receiving any payment from insurance companies. Technological advances, by reducing search costs, offer employers new opportunities to rely on internal resources to search online and directly contract with insurance plans without using intermediaries. Whether the fee-based brokerage model and the no-intermediary purchasing model can change the landscape of the health insurance brokerage market remains to be seen," the study said.
Further, the researchers called for those determined to lower health plan costs to support The Lower Health Care Cost Act, a U.S. Senate bill that "would require that health insurance brokers disclose all compensation associated with plan selection and enrollment before the contract is finalized. This legislation has the potential to reduce information asymmetry faced by employers and to facilitate informed decision making."
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
