What to expect from your health-insurance broker
Five years ago, few if any employers in Rochester hired brokers to help them choose health insurance. While the use of brokers was common elsewhere in the country, Rochester’s community-rating system – under which every insured group paid the same premiums for a given plan, regardless of the group’s claims history – rendered brokers unnecessary. Insurance carriers employed their own account reps who sold the plans and maintained relationships with the employer groups. Excellus held a significant share of group health business in Rochester, with Preferred Care taking the rest.
Since then, however, a major shift has reshaped Rochester’s health-insurance landscape. As the cost of premiums has skyrocketed, local employers have become more aggressive in seeking relief. Many large employers are now self-insured, and many mid-sized companies have moved into experience-rated plans. Aetna and other carriers have entered the market, introducing a new array of options.
But community-rated plans remain the norm for companies with 50 or fewer employees. And, as the larger, healthier groups flee to other options, costs are soaring for those who, by law, are locked into community rating.
The emergence of health insurance brokers
As health insurance has become increasingly more complex and competitive, carriers have moved toward retaining brokers to bring them business, paying them commissions and/or bonuses. Typically, brokers are commissionable only on community-rated and fully insured experience-rated financial arrangements.
Around 2004, only 5 percent of Rochester-area groups used a broker, says Stephen Smola, a former director of rating and underwriting for Excellus BlueCross Blue Shield and who now runs the health care consulting firm Smola Consulting, LLC. Today, the figure is closer to 70 percent.
What many employers may not realize, however, is that payments into a “socialized broker pool” are difficult or impossible to avoid, Smola says.
Tacked on to every premium is a fee that started in the 1 to 2 percent range in 2004 and has quickly moved to the 2 or 3 percent range, he says. The rate is now capped at 4 percent, by agreement of the carriers and the State Insurance Department.
Employers that choose not to work with brokers end up subsidizing those who do. And, as more employers turn to brokers to help them select and administer health plans, the percentages paid to the pool will rise because carriers will have more broker commissions to pay.
For a typical small business with 100 employees that pays some $600,000 in annual health care premiums, 2 percent to the broker pool equals $12,000. Those who hire a broker may be hard-pressed to get $12,000 of service out of that person, and those who don’t hire a broker are surely receiving no value.
Smola argues that the system would be more equitable if health insurance rates were quoted two ways – with and without broker commission. Companies that act as their own brokers, then, would choose to pay the lower figure. Employers that do hire brokers would be on firmer ground to demand a level of service commensurate with that commission.
The commission structure – and the secrecy that often surrounds it – also raises questions of trust and objectivity. While the insured group makes the final decision regarding which insurance plans to buy, the choices can be so confusing that engaging a consultant to help with the process could be helpful – but only if the consultant/broker is acting in the employer’s best interests. Employers may worry that a broker will be inclined to promote plans that pay larger commissions rather than those plans that represent the best fit and value for the employer.
If one were buying a car or a computer, one would research objective sources in order to make an educated choice. One would not need to rely on the integrity of the car or computer retailer. But no Consumer Reports for health plans exists, leaving employers vulnerable to manipulation by unscrupulous brokers who may obscure the facts and/or misrepresent their role.
Unless or until the fees are spelled out and customers can opt out of the broker pool, insured groups have little opportunity to impact the system, except perhaps by lobbying the State Insurance Department or the Attorney General’s Office to take a closer look.
Leveraging your broker relationship
If you choose to work with a broker, recognize that he or she is a commissioned sales person and not an independent consultant paid by you.
To obtain the most value from the relationship, consider the following:
- Beware of a broker who tells you that because of the volume of his or her business with a specific carrier, he or she can negotiate better rates for you. While negotiation of lower rates based on a book of business can occasionally occur, it is not standard practice in the health insurance industry as it is for life, disability and other insurance products.
- Avoid brokers who offer discounts on services unrelated to insurance – updating an employee handbook or affirmative action plan, for example – in hopes of inducing an employer to give them an insurance broker of record contract. This violates New York State insurance law.
- Insist on a written agreement outlining the broker’s commissions and the services your company will receive. A good broker will help an employer design a plan, market the plan to carriers, and analyze the costs and benefits of suitable plans. Beyond that, some brokers may handle open enrollment, resolve billing and claim issues, and help communicate with employees, but it’s essential to clarify such expectations up front.
- Ask the broker to document his or her response rate when other insured groups have experienced claims issues.
- If a broker recommends that you move from a community-rated to an experience-rated plan, ask for references from similar companies that have made the transition. Some companies switch – only to discover, a year or more later, that premiums are jumping even higher than they would had the employer stayed with the community-rated plan.
- If your company is self-insured or experienced-rated, retain a competitive broker group to periodically conduct an independent market pricing. You will pay a consulting fee for such services, but the initiative may result in significant savings.
Conclusion
Discussions regarding containing health care costs have traditionally focused on educating and influencing the employee consumer of health insurance.
But now, as soaring costs and growing complexity have become the norm, employers too need to educate themselves to understand how brokers are compensated and how they can reap the most value from the broker relationship.
