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Brokers: A Price Above Rubies by Brian Klepper

OK. Now that Matthew’s away, let take a break from picking on the doctors, the hospitals, the health plans, the drug companies, and the device companies. Let’s talk about the brokers.

Brokers, you’ll recall, connect health plans and employers. They typically represent themselves as unbiased, protecting employers’ interests and helping them objectively negotiate the hall of mirrors on the path to buying health benefits.

There’s only one problem with this story. Brokers are generally paid sales commissions by the health plans. They are not paid by the employer, but by the insurance companies. Which of course makes them maybe a teensy bit less objective than we might like.

And they’re not simply paid. They’re paid VERY WELL, often 6%-10% or more of the premium.

Here’s a note I received over the weekend from a broker pal in Florida where, like everywhere else, the explosion in health care cost is pricing increasing percentages of small business purchasers out of the coverage market. Prospects are increasingly hard to find and close, so the plans have been raising the bounties. He writes:

One specific thing I remember from your presentation several years ago is really ringing true.  You mentioned that we, as agents/brokers, were probably being overpaid for our services (via inflated commissions).  I was probably the only agent in the room who agreed with you. Well, it has gotten worse in Florida.  One carrier is paying $30 per employee per month regardless of premium for groups of 4-50; another is paying a whopping $41 a month per employee!   For most of last year and the first six months of this year, another carrier was paying a base commission of 5% of gross premium (with production bonuses pushing that to 7% for most agents/brokers), AND was paying a $1,000 bonus each month for any agent who submitted two groups of  more than 4 employees; $5,000 each month for those agents submitting 3 -5 groups of at least 4 employees each; and $7500 for 6 groups per month or more.  Many of us were getting at least the $5000 bonus each month, sometimes for as little as 15 or 20 covered employees TOTAL for the month!  This means that they were paying us either 5% or 7% of gross premium AND a huge bonus, which annualized pushed most of my business with that group close to 10% commission average. That’s ludicrous when the public is scrambling to try to pay premiums – and it is indicative of how out-of-whack our current insurance market is.The industry is heading down the tubes, slowly but surely.  I now think it is inevitable that the government will eventually weigh in, and I don’t see how it can be otherwise (especially in a low-wage state like Florida, where small group health insurance premiums for families in their 50’s and 60’s can easily approach $2,000 a month and more).

Let’s talk for a moment about the employer with 50 employees who is buying coverage in good faith. What would be the response to the knowledge that on a one year 50 employee contract, $24,600 ($41x12x50) goes to the broker. This is the person who convinced you to buy a particular plan, though if you had gone with the plan he disparaged, he might have taken home only half that.

Both are excessive, of course, but the deeper issue is whether the employer knows that the broker will be paid a commission by the chosen plan, and the size of that commission.

It’s simply another case showing that, without transparency, the health care marketplace can’t work and the walls come closer to tumbling down.

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Terri KitchenedwinPatCindikweller Recent comment authors
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Terri Kitchen
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Terri Kitchen

I am studying broker and agent commissions and bonus structures. How can I get information about what different insurers pay?

edwin
Guest

Uhhh…absolutely very useful for me. Thank you very much, GREAT!!!

Pat
Guest

I realize laws and regulations are different in most states, but to use generalities in this situation discredits those who do provide a services to help clients make informed decisions about the benefits they offer their employees.
I agree. Of course there are some bad apples and of course they will attract the most publicity, however, for every unprofessional agent not “earning” their commission, there are 10 who are conducting their due diligence and adding more benefit than their commission value to both the insurance company and insured.

Cindi
Guest
Cindi

How about a group of Brokers in my area that received “secretive” payments for moving clients to another local insurer? How about the fact that the secret bounty was in addition to the normal commission paid to the brokers and IS still unknown to the client? How about the fact that the bounty was even higher on a per head basis if you moved business from specifically named local carriers who were the stiffest competition in the area? How about the fact that this insurer is owned by the largest non-profit hospital in our area, who also happens to own… Read more »

kweller
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kweller

While it may be true some brokers receive larger commissions, in Washington State, health plans offered to groups under 50 lives must be filed with and the rates, with the commission figure into them, approved by the OIC. If a group selects a plan then the rate filed is adjusted up or down based on the age, zip code of the employees, and NAICS classification. If the group goes directly to the carrier the carrier will offer only their plans. If the group uses a broker, we show the group a variety of plans offered by the carriers that are… Read more »

C Naylor
Guest
C Naylor

Sorry pal, I didn’t write the article. You did. Where is your data? You refer only to one person in Florida. I’m afraid that isn’t statistically valid.

Pat
Guest
Pat

Brian, As a former sales and marketing exec with the nation’s largest health plan, I can confirm that your figures are accurate. The per member per month or per subscriber per month flat rates were instituted in an effort to stem the increasing automatic raises for brokers each year as rising health care costs dictated (ostensibly)the need for increased premiums. At the height of the health care inflation, 15% premium increases created an automatic 15% raise for the broker with no incentive to reduce the base on the part of some, less than honorable, brokers (not all, there are some… Read more »

Brian Klepper
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Brian Klepper

To C. Naylor
Sorry, Pal. I wasn’t paid. I’ve been in health care for a long time and have watched a lot of brokers up close. The quotes that I posted were real. If you have a different point of view, then prove it in collaboration with other brokers. We’re eager to see your information. Show us the data.

Bob
Guest

I see situations every day where the consumer bought coverage without the assistance of a broker. Almost without exception, they purchased a plan that was too costly for the coverage it provides. Consumers typically underestimate the kind of coverage they need and buy plans that fail to deliver real value. As others have pointed out, the compensation figures you throw out are over-stated. The commission is paid on a sliding scale and usually works out to 1 – 3% of premium on small (under 50 lives) cases. When a business owner cuts out the broker to save 3% on premium… Read more »

C Naylor
Guest
C Naylor

I am a broker. I know I can find a few despicable cases to point at about journalists. You have not done your homework. I see commissions in the range of 1% to 3%. In many cases they are graded, i.e., the % drops significantly as the premium increases. This is very poor journalism. Whatever you were poid for this is too much.

Steve
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Steve

Before making statements like this on a global basis, you need to do more research. Very few companies pay the commissions that you are mentioning. The highest I remember seeing from a highly rated carrier was about 5% many years ago. Most pay on a flat monthly fee. Yes, some increase that fee based on the volume, but that is usually because the larger producing agencies do much more of the work for them and submit a higher percentage of completed paperwork (vs. having to call to get answers to simple questions like birthdates that were omitted). Maybe I take… Read more »

Ed
Guest

I’ve been a broker/agent for almost 20 years and decided early on in my career to disclose, to the client, all the commission I make on any transaction. I think it’s giving everyone one of us a bad name when commission and bonus payouts approach 30%. Ask AON and Marsh about disclosure.
Let the clients know what the broker makes. It keeps us honest and in most cases the client will be surprised how little the actual payouts are.

Peter
Guest
Peter

And what well funded group is going to lobby, donate to political campaigns, offer after DC well paid careers, and wine and dine politicians in order to offset the millions being spent now to “influence” political parties to keep the present system going?

Bud Lee
Guest
Bud Lee

This is a classic example of a dysfunctional unregulated market where these leeches who add no value to the transaction take resources out of the delivery system. Exchanges sponsored by the government are the best chance to improve unbiased information-sharing as they provide through numerous other consumer/buyer-oriented information-only websites. This is not a panacea but eliminating the broker function, which is solely the result of a dysfunctional, opaque information exchange, would be a giant leap forward in making the market work more efficiently. B Lee

Donald R. First
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Donald R. First

Brian , I think what you might be finding are extremes, Flat commission schedules do not work in most circumstances. Carriers who offer them are many times desperate for new business, probably because of a limited network. Carriers must continue to add new business as underwriting wears off after a time and you need to offset the xtra claims.
I believe the Governor of Pennslyuvania, is trying to mandate an 85% loss ratio, which will obviosly have an effect on small businesses in PA.