Is Your Health Insurance Broker Really Acting in Your Best Interest?

In the complex world of employer-sponsored health plans, many companies believe they have a handle on costs. However, hidden fees, undisclosed commissions, and bonuses paid to brokers and third parties often inflate healthcare spending. These payments frequently go unnoticed, yet they represent a substantial chunk of your healthcare budget—money that could otherwise be spent on actual medical care for your employees.

The True Cost of Health Insurance Brokers

Most business leaders are aware that brokers receive commissions, typically ranging from 3% to 6% of the total premium, just for signing companies up with a health plan. But did you know that brokers often receive additional bonuses and other forms of compensation that aren’t always disclosed? These hidden payments, whether from insurers or PBMs, can have a direct impact on your premiums.

Some brokers also receive lucrative bonuses for keeping clients with the same insurer year after year, incentivizing them to push plans that might not be in your best interest. Supplemental benefits, such as dental, vision, or cancer care, often come with commission rates as high as 40% to 50%—far beyond what most employers realize. What’s worse is that many of these commissions aren’t required to be disclosed unless specifically requested by the client.

The Johnson & Johnson Lawsuit: A Wake-Up Call for Employers

The recent lawsuit against Johnson & Johnson highlights the risks companies face when they are not fully aware of how their health plans are managed. J&J was accused of breaching its fiduciary duty by overpaying for prescription drugs through a Pharmacy Benefit Manager (PBM) that charged inflated prices. The case underscores the importance of employers ensuring they are fulfilling their fiduciary responsibilities under the Employee Retirement Income Security Act (ERISA), which requires them to act in the best interests of their employees and health plan participants.

When brokers and PBMs pocket hidden commissions or negotiate deals that benefit them instead of your company, it can be argued that fiduciary duties are being compromised. Employers must have a clear process in place to select and monitor their healthcare vendors to ensure that their plan dollars are being used wisely—and that’s where many fall short.

Taking Control of Your Healthcare Costs

Fortunately, there are ways to regain control of your health plan and ensure that every dollar spent is going toward actual care for your employees—not broker commissions or inflated drug prices. One of the best strategies is to explore self-funded health plans through a captive insurance model.

By partnering with a captive, companies can custom-build their health plans to fit the needs of their workforce, cut out unnecessary middlemen, and directly contract with healthcare providers. This eliminates the hidden broker commissions and allows for full transparency over where every healthcare dollar is spent.

Another key cost-saving move is to examine your prescription drug spending. Many employers don’t realize just how much they’re overpaying for medications due to PBM markups. A transparent PBM model, similar to—but even more cost-effective than—Mark Cuban’s Cost Plus Drugs, could save your company an estimated $300 per employee annually by eliminating the middlemen and selling medications at cost.

Fiduciary Responsibility and Why It Matters

As a plan sponsor, you have a fiduciary duty under ERISA to act in the best interests of your employees. This means carefully vetting brokers, PBMs, and other service providers to ensure that their compensation structures don’t create conflicts of interest. If you aren’t sure how much of your healthcare budget is being siphoned off into commissions, bonuses, or other hidden fees, now is the time to take a second look.

The Johnson & Johnson lawsuit is just the tip of the iceberg, and we can expect more litigation in this space as employers are held accountable for the ways in which their health plans are managed. The best way to protect your company—and your employees—is to ensure full transparency in your healthcare arrangements.

Need a Second Opinion?

If you’re starting to wonder whether your current broker or PBM setup is costing you more than it should, now is the perfect time to get a second opinion. There are experts available who can help you navigate the complexities of self-funding, captives, and transparent PBM models to ensure your healthcare dollars are working for you—not for brokers or third parties.

You don’t have to make any immediate changes, but it’s worth exploring your options to see where you can cut costs without sacrificing care. If you’d like to be connected with someone who can provide that second opinion, feel free to reach out—I can refer you to the right people.

Email me at [email protected] to get started.

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