How your health insurance broker gets paid
CFOs and CHROs tasked with finding and negotiating health insurance plans for their company’s employees often assume health insurance premium rates needed to increase each year. However, this is simply not the case. After learning the back end of the system and better understanding a broker’s role, I’ve been able to decrease health insurance premiums for my employees by 20% over five years—without changing my plan. And I’d like to help you do the same. But first, you need to understand how brokers operate—and how they get paid.
What is a broker’s role?
Unlike insurance carriers or agents, brokers are employed by a company to help it find the best insurance plan for the business. They are independent and sell plans for multiple carriers, offering you a broader view of the marketplace and your options. Ideally, they are working for you, helping you narrow down the options to find the plan that works best for your budget and needs.
However, though they are employed by your company—working with your best interests in mind—they aren’t paid by you, but rather by insurance carriers.
How brokers get paid
Brokers are paid a commission from insurance carriers. This money comes from your monthly premiums. For each year you renew, they also receive a commission (typically at a lower rate than new customers). While some brokers take a commission for each month of a plan, other take a flat fee from an employer based on the number of employees covered.
Health insurance premiums are regulated by the state and, for the most part, commissions remain fairly consistent from carrier to carrier. So hypothetically, commissions won’t tempt a broker to sell one carrier more than another.
While commissions won’t tempt brokers, bonuses might. Brokers are often given bonuses for the total sales they close for a given carrier. When your broker is nearing that bonus, he may be tempted to guide you towards the carrier who is offering the big bonus. So he’s no longer acting with your best interests in mind.
How to break the cycle
I believe this system is flawed and it’s time we took back some of our negotiating power. Start by looking at your 5500 Form—the annual report of your employee benefits plan–which will show the commissions and bonuses your insurance carrier paid to you broker. Then ask your broker what percentage of his total income comes from bonuses vs. commissions. Finding a broker that works solely on commission—and doesn’t accept bonuses—is a good start.
If you’re looking for additional guidance, I’d love to set up a meeting to go through your insurance plan to see where you can save money and share tips on how to negotiate with your broker. My company, Summit Path Group, is dedicated to educating CFOs and CHROs on how brokers operate and teaching them skills to negotiate better rates for their employees. If I don’t save you money, I don’t get paid.
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Breaking the mold of status quo BUCHA reliance.
5 年"When your broker is nearing that bonus, he may be tempted to guide you towards the carrier who is offering the big bonus. So he’s no longer acting with your best interests in mind."? I wonder what would happen if the clients knew this, what percentage would file ERISA fiduciary lawsuits??
Reducing healthcare spend and improving outcomes to all we serve
5 å¹´I could not agree more! ?Thats why we changed. ? https://www.npr.org/sections/health-shots/2019/02/20/694719998/insurers-hand-out-cash-and-gifts-to-sway-brokers-who-sell-employer-health-plans
Insurance. I do insurance at NFP.
6 å¹´This is an important share. Hope many read, and consider it. I read quickly, and would also add (unless I missed it) that a reluctance to self fund is often due to the loss of broker bonuses from carriers.
President at Bramhall Consultants
6 å¹´I built agencies on this old model for decades. These bonuses can increase a firm's revenue up to 50-60%, and they are not always disclosed to the client. In addition to a commission, the firm may receive up-front bonuses (I call these bounties) for placing specific employer groups with a carrier, productivity bonuses (which is why most firms use one or two carriers as "preferred"), persistency bonuses (keeping the incumbent in place and protecting the carrier's market share), trips, etc. The incentive list is long. Today, I charge my client a fee for what I do, only bring best in class vendors/partners/experts, and accept no financial incentives whatsoever from these vendors/partners/experts. My clients love this since they realize I am on the same side of the table with them, with no conflicts of interest, so I can focus on getting them exactly what they say they want.