Benefits Advisors Aren’t Gordon Gecko. Why Do We Disclose Financial Incentives and Conflicts Like Him?

You know your benefits is advisor is living in the 80's if they’re not shooting straight with you in these 4 key areas

Earlier I described the Health Rosetta Institute's theory of change on how to overcome the 3 trillion reasons protecting the wildly under-performing status quo. To recap where we start, we think in terms of Problem-Solution-Lever Point-Catalyst:

• Problem: We compare the poor-performing status quo to the Health Rosetta here.
• Solution: Health 3.0 is the vision/destination while the Health Rosetta is the road map and travel tips to get there.
• Lever point: When optimized, benefits advisors are worth their weight in gold. Sadly, far too many relationships between benefits consultants/brokers/advisors and their clients is rife with lack of disclosure and conflicts of interest which has unwittingly led to 20+ years of wage suppression.
• Catalyst: Summarized in Big Four Risk Management Leader: "ERISA Fiduciary Largest Undisclosed Risk I've Seen in My Career"

As I write this, the most respected experts in benefits are selecting the first cohort of Health Rosetta certified benefits professionals. These are the folks who have been operating with the highest levels of performance and disclosure. They're like the Seal Team 6 of benefits professionals. The cohort that will follow them are starting with adhering to the Health Rosetta Code of Conduct for Benefits Advisors which includes the disclosure outlined on our site that I've included here.

The core benefit for employers is the professionals adhering to these standards will ensure they are adhering to their ERISA fiduciary duty while delivering the greatest value to their employees. The core benefit for benefits professionals is they can differentiate themselves in a market that has lacked disclosure one should expect given the magnitude of the resources and the importance of health to the performance of employers. The role of benefits consultant/advisor should be highly regarded. It won't be until the industry is professionalized with practices that have become the standard in retirement benefits -- the other half of ERISA.

We welcome your input and feedback as we'll continue to improve this. Please add your comments below.

We should expect more of ourselves and our advisors

It's imperative that we understand and align incentives while building trusted, transparent relationships. Complete, meaningful disclosure of financial and non-financial incentives is the foundation for wise purchasing decisions. It's time to move beyond faux transparency that doesn't clearly disclose the true nature of compensation, revenue, and business interests. The HRI Benefits Advisor Compensation Disclosure Form is step 1 on the path towards this.

Benefits for Purchasers - Understand the big picture

Benefits compensation, fees, commissions, conflicts of interest, and complex ownership structures make it difficult to gain context on benefits packages. Qualified and effective solutions often go unused because of undisclosed compensation arrangements and other conflicts of interest. This prevents you from seeing a clear picture—optimal services, clear financial benefits and enhanced service to employees.

Advisor compensation isn't the only, or even the primary, reason to select particular products or work with a specific advisor, but understanding incentives is a critical, foundational step to wise purchasing. If an advisor truly puts your interests first, they should have no reason not to help you understand underlying incentives.

The HRI Advisor Compensation Disclosure Form makes this possible

Learn best practices & Use the Plan Sponsor Bill of Rights to Set Expectations

Requiring advisors and vendors to abide by the Benefits Plan Sponsor Bill of Rights is a good way to set disclosure and conduct expectations.

1. You have the right to ensure that your obligations in being the Sponsor, Administrator and Fiduciary of your Plans is protected in your Service Agreement.
2. You have the right to expect transparency in financial dealings between your chosen representative (broker or consultant) and your carrier and vendor.
3. You have the right to ensure those financial dealings do not compromise your fiduciary responsibility and the independence of the advice you receive.
4. You have the right to receive information about the full range of options available to you, not just those which preserve your representative’s income and the revenue gained by your Plan Administrator.
5. You have the right to an unbiased, independent review of all pertinent market options in an impartial manner, not just those which preserve your representative’s income and the revenue gained by your Plan Administrator.
6. You have the right to receive comprehensive reporting of your costs, and the potential drivers of those costs.
7. You have the right to receive answers to your questions, with no cloaking of responses with HIPAA Privacy and other “confidentiality” curtains.
8. You have the right to expect those you hire to adjudicate benefits to give their best effort to identifying inappropriate and grossly inflated charges before they issue payment.
9. You have the right to your data and should agree upon this requirement prior to execution of any vendor agreements
10. You have the right to receive complete service and outcome reporting from each of your vendors, including all fees associated with services rendered.

Major Categories of Disclosure

1. Product and Account Specific Financial Compensation. These are typically what we think of when we think of how brokers and consultants are compensated, but it's just the start. In particular, look for abnormally highly-compensated additional services.
2. Non-Account and Non-Product Specific Financial Compensation. While this may only be a small percentage of the overall compensation you pay, across all of a broker's or consultant's clients, it can be enormous. For some offices, this is their entire source of net profit each year. This can significantly affect products suggested. Common types include book-of-business and volume-based commissions.
3. All Other Financial Compensation, Conflicts of Interests, and Perks. Brokers and consultants may have an enhanced position with a carrier or vendor through all-expense-paid trips, conferences, and even paid membership to preferred carrier panels
4. All Non-Financial Compensation, Conflicts of Interests, and Perks. Conflicts can also arise from relationships rather than compensation. Brokers and consultants often present options with products and services for which they have a direct ownership or stakeholder position. Coalitions, administrative platforms, and private exchanges are often owned and operated by firms. These products and services are frequently positioned more favorably without a thorough market assessment.

Types of Compensation & How to Calculate

In general, each fee should be calculated in one of four ways.

1. Claims-based – Fees are based on the $ amount or number of claims in the plan and generally are expressed as percentages or aggregate per claim fees for the period
2. Per member or employee – Fees are based upon the number of eligible employees or actual members in the plan
3. Transaction-based – Fees are based on the execution of a particular case, plan service or transaction
4. Flat rate – A fixed charge that does not vary

Also, pay attention to abnormal compensation multipliers.

Specific Best Practices

1. Expect complete and meaningful disclosure, just like you do in every other significant vendor relationship.
2. Have pointed conversations and mandate disclosure before entering into an arrangement with a broker, consultant, or vendor.
3. Be cautious of firms and people that are especially apprehensive about full disclosure. It's a strong indicator of misaligned interests.
4. During contract negotiations, set expectations that you will request complete and meaningful disclosure.
5. At the end of each plan year, require complete and meaningful disclosure for the plan year.
6. Disclosures should be provided within the first 90 days following the end of the plan year.
7. Require projected costs for each variable cost item for the upcoming plan years while under contract.

Health Rosetta Certified Benefits Advisors are required to complete this form with each client.

If you're not working with one, we'll help your current advisor get certified or help you find a new advisor for free if they can't or won't rise to a higher standard. Contact us to get started.

Benefits for Advisors - Stand out in the market

Show current and potential clients that you are 100% transparent. The HRI Benefits Advisor Disclosure Form is a powerful way to build trust and loyalty. It's a tool for winning new clients and keeping current clients, letting you meaningfully differentiate yourself from the competition. It puts the pressure on them to rise to a higher level of practice, which most won't.

The HRI Advisor Compensation Disclosure Form makes this possible. Download the form here. If you're not yet certified, learn how the Health Rosetta Benefits Advisor Certification helps you stand out in the market.

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Dave Chase is the Managing Director of the Quad Aim Fund, Executive Producer of The Big Heist (the first fiercely non-partisan satirical film to address healthcare), co-founder of the Health Rosetta Institute (a LEED-like organization for healthcare) and author of the forthcoming book, “CEO's Guide to Restoring the American Dream - How to deliver world class healthcare to your employees at half the cost.” His recent TED talk was entitled "Healthcare stole the American Dream -- here's how we take it back."

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