Brokers: Why They Feel Their Commisions Are Justified (Sort Of) – Brian Klepper

As you might imagine, yesterday’s post on the excessive and deceptive nature of broker compensation raised a few hackles. I received several protests from brokers/agents who argued that they are saddled with inordinate responsibilities in exchange for their commissions.

In the interests of fairness, we should first keep in mind that what brokers do for the money is distinct from the inappropriateness of the scale and manner of their compensation. These are separate issues, and despite what many of them say, it is difficult to reconcile their inherent financial conflicts with the plans and their representation that they are employer advocates.

Then we should put aside most people’s two natural responses to brokers’ pleas that we appreciate their workload: 1) Who cares? and 2) How is this different than the rest of us?

But with those issues out of the way, brokers’ arguments about the relationship between their compensation and responsibilities do make a significant statement about their role as flak-catchers, trouble-shooters and intermediaries between an increasingly dysfunction and unresponsive health plan system and increasingly irate enrollees and employer benefits managers. Here are a couple more comments, from the same, very articulate broker I quoted yesterday.

As a personal aside I want to emphasize that this guy’s not whining – he was the one who brought up the subject of crazy broker compensation in the first place. Instead, he’s trying to present a balanced perspective on how brokers are a cog in a much larger set of gears that are spinning out of control.

Your readers probably think I sit on my fat butt and collect big paychecks and do nothing for them.

Although my gross commissions would appear to most folks, at
first glance, to be a pretty good paycheck, I have to pay myself for
all my business expenses.In exchange, I get to be on call 24/7
(yes, my clients frequently call me at all hours, since they often
can’t contact the carrier when their ID card doesn’t work, or the
hospital ER won’t treat them if they can’t verify benefits, or they’re
on vacation and break a leg).  I get to be psychiatrist, counselor,
coach, and babysitter for my clients.  Since the advent of HIPAA
privacy regs, I also get to be the focal point for every employee’s
medical problems (since their employers shouldn’t be involved).  All of
the animosity swirling around health insurance?  It’s not directed at
the carriers, or the employers, or the legislators, or the lobbyists.
It is all laser-focused towards me – because I’m the guy they see.Vacations
are something other people take – I cannot take off two weeks, because
there is nobody to do my job. The best I can hope for is a few days,
and even then I’m tethered to email and voice mail.The plan
designs change constantly, carriers are always adding or deleting one
benefit or another, and don’t even get me started on how much the
ever-changing networks cause grief for my clients (and ultimately for
me and my staff).Yes, the commissions are stupid money, but
only in that they represent such a large part of the gross premium
dollar.  Where it really breaks down is that the carriers are so inept,
incompetent and ignorant that they’ve created and nurtured a tortured
system that becomes more inefficient, more costly, more difficult to
navigate every year – and increasingly, it is only us brokers and
agents who stand in the way of total collapse. While I realize that the
commission issue is important, it is just a symptom of a much larger

I can’t help injecting here that this reminds me of the $7/hour customer service reps for large companies – see my piece on Mega Life and Health
– who take all the heat for their bosses who lay corrosive,
self-serving plans, and then hide from view. The difference is that the
brokers are paid very well for their role.

As several respondents have pointed out, there are better ways.
Health information exchanges and standardized benefits structures could
provide a lot of transparency and simplicity in an overly complex
marketplace. Brokers could work for the purchasers as consultants. But
of course they’d probably make less, and they won’t be the ones who
advocate for that.

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4 replies »

  1. MG, what do you mean “they have a right to earn a living too”?
    I agree that they have a right to earn a living, but that doesn’t mean they should earn a living as brokers in the current system, or even one that resembles the current system very closely. Slave drivers have a right to earn a living, just not as slave drivers (that’s an illustrative example of the point, folks, not an equation of brokers with slave drivers.)
    As I said in my response to the last thread, brokers clearly serve a felt need among employers. This is why the system persists above all else. Most insurers would be happy to do away with the commissions, though of course they can’t tell the brokers that for fear of retribution.
    As for why insurers offer so damn many plan designs that confuse everybody: it’s because creating a plan for every niche has been proven to be a good strategy for growing enrollment. If health insurers didn’t find takers for all those different plan designs, they wouldn’t offer them. And if they felt they could offer just one or two plan designs and still retain market share, they would. But they don’t, and they can’t, with very few exceptions.
    This is why I say it is a market failure. No part of the market is in a position to change the incentives to get a better outcome. Part of the impetus has to come from government.

  2. While I am sure that some of the criticisms of brokers are well-deserved, they have a right to earning a living too and I am sure that the competency and professionalism of brokers ranges across a wide spectrum just as with about any class of white-collar professionals in the U.S.
    The real problem lies with disclosure issues and it is quite common in health care when an intermediary (e.g., broker) arranges a purchasing transaction between two parties in the health care system. This issues comes up with several intermediaries players in the health care system including PBMs and group purchasing organizations .
    Standardizing benefit designs and setting up health information exchanges would probably help to reduce administrative costs if designed properly and not over regulated but the broker process needs to include a more through job of disclosure.
    Brokers respond to financial incentives just as any other human being and they might fail to represent the fiduciary responsibility of their employer clients if those incentives are not aligned with the employer goals.

  3. There has to be a delivery system of some kind for the industry. Agents/brokers are the logical ones to deliver it, be they captive, general brokers or employees. There is no argument there. The argument comes with those who seem to show up just in time to deliver the “bad news” at renewal time, reap the benefit of the increase in a raise in commissions (commissions are paid as a % of the premium) and not give any more service for the increase in pay – and the cycle repeats itself.
    There are clearly other issues such as data that would help manage the plan better, but that the carrier refuses to give out in groups under a certain number. But that part of the equation is a whole other discussion.
    The individual situations have to be taken into consideration. I know some agents who truly service and are advocates for their clients and I know others at the other end of the spectrum who do nothing but collect commissions. As an employer, I have to ask, “What employee do I have that I pay this amount of money to for the labor and knowledge involved? For that sum what would be my expectations? Am I getting that much from the agent/broker in value?”.
    The transaction needs to be transparent in order for there to be percieved value by the employer – other than event tickets, golf games, etc.

  4. “Where it really breaks down is that the carriers are so inept, incompetent and ignorant that they’ve created and nurtured a tortured system that becomes more inefficient, more costly, more difficult to navigate every year”
    No wonder consumer directed/driven healthcare is doomed. Single-pay government run anyone? One carrier, one set of rules, no brokers.
    “and increasingly, it is only us brokers and agents who stand in the way of total collapse.”
    How can we thank you enough?