The broker relationship for your healthcare benefits is an important one. Dave Chase, Author of “The CEO’s Guide to Restoring the American Dream” wrote that the role of the broker (or advisor as we prefer to call ourselves) is the most important job in America because of the impact a broker can have on the profitability of your business and your employees well being. This relationship helps you determine not only the correct level of benefits you offer your employees but also how to help your employees navigate health efficiently. A good advisor should be able to help you by lowering costs and improving benefits to your employees and also be willing to put their fees at risk if they don’t. Is your broker relationship one beneficial for your company and your employees, or is costing you significantly more than what you pay in commissions?
Do you know how much you pay your broker? You rely on your broker for so many things, you have a right to know this amount. Like any investment, you should be able to determine the return. Like any key employee, you should be able to determine the impact your advisor team has on your business.
Most employers don’t scrutinize their broker’s compensation since it’s normally between 4-5% of the medical premium Kaiser Family Foundation estimates that your broker earns on average annually, in commissions and fees, $2,568–$25,423 per each group of 10–99 employees and $11,328–$113,280 per group of 100–1,000 employees. This is a broad range as I’ve seen some brokers pulling in $150,000+ for 75 life groups. That type of revenue, to me, should come with a discernible, emotional, and financial impact to your employees and a significant impact to your company’s bottom line.
How your broker is compensated is also a matter you need to consider. Most typically make a percentage of premium. In other words, the more your costs go up, the more they get paid. How is this even logical? A good advisor should be more than happy to accept a flat fee or have a flat fee with an incentive if certain savings milestones are met.
What should you pay for and what’s a fair payment for services? You know that’s a difficult question to answer as there is no standard pricing for consulting services and if you ask any major or national consulting firm how they calculate their fees, they won’t have a good answer other than the one they won’t tell you and that is “whatever we can get away with.”
What Value Should Your Broker Relationship Bring to Your Company?
In many areas of benefit plan management, I often say “You write the check, so you should write the rules.” In the case of a relationship with any advisor you should have a similar attitude. I don’t mean that you should simply dictate terms and expect to have an order taker as a teammate. That’s not healthy, will not be productive, and I wouldn’t work with you. What I mean is that most national consulting firms will tell you “We’re the biggest firm with XYZ carrier,” “We have great resources,” or “We’re a ‘one-stop shop’ relationship with your broker.” So what? Who cares? How many of those “resources” do you actually need? In my experience working for a national consulting firm, having called on all of them as a former healthcare executive, regardless of the resources most clients still work with three people, a broker, an account manager, and an understudy. The other resources are hardly or never used.
The value of your relationship should also be measured through cost savings and preserving benefit value. This means you should not have to pass cost increases on to your employees to simply make a budget number. Healthcare spending for employees and employers, combined, have risen between 5-7% (after plan changes) per year for the past decade. (This means your costs have gone up 50% to 100% since the Affordable Care Act passed.) A good broker relationship, one that’s proactive and forward-looking with respect to the economics of healthcare benefits, would look for ways to address your company’s rising annual costs and help devise strategies to manage spending.
Turn your broker from an expense to an asset through:
- Properly understanding defining the relationship
- Understanding ALL sources of revenue
- Aligning your advisors fees with your business outcomes
Properly Understanding and Defining the Relationship
As a client you have the right to information, reporting, transparency, in all aspects of your plan. Typically a broker establishes the relationship by presenting you with a broker of record letter and then maybe an ambiguous scope-of-services that make you believe you’ll actually get those services. You should discern those services and ask for specific pricing for only those services that are meaningful to your business. You must set forth expectations for the relationship with your broker. This is key to building trust and creating a partnership for success. You hire a broker to provide the best benefit at a reasonable cost. A broker who only meets with you once a year or who provides you with a one-size-fits-all plan not specific to the unique needs of your company should not continue being your broker.
Organizations like the Society for Human Resource Management suggest that expectations be set forth in clear and concise terms. This may be done formally, through means of a written agreement, or on an informal basis, but a baseline understanding of roles and responsibilities should be communicated up front. This ensures both parties possess a clear understanding of what is expected, and metrics can be built to measure cost-effectiveness.
Understand Hidden Commissions and Fees
Although Kaiser Family Foundation research uncovered the average commissions and fees brokers earn based on company size, their data does not look at hidden commissions and fees earned. These hidden revenues are dollars not paid by the insurer (or a third-party administrator in the case of a self-funded plan) but your dollars which erode the effectiveness of your healthcare plan. Many if not all national brokerage firms have devised compensation strategies that ensure they make more money through claims activities like per script commissions, or overrides based on the volume of business with each carrier. You should demand and expect a full and complete disclosure of all commissions, fees, and other revenues paid to a broker in connection with your relationship with them. You should also ask to “do the math” and calculate the total annualized compensation as you may be surprised-to-shocked at how much is paid beyond normal commissions. From there you can do your own ROI and how much your broker is costing you. If the look on your face is “holy crap” I didn’t know they made that much, you probably have the wrong advisor.
You may feel uncomfortable asking a broker to provide you with information about their compensation; this is a case where you must simply become comfortable with being uncomfortable. A proper assessment of your benefits cost to the company can only be done in an environment of full transparency by all parties. You should also understand exactly all areas of compensation as well as overrides. It’s very common for brokers to make money through pharmacy transactions, ambiguous shared savings arrangements, and hidden fees on top of their commission. I’ve seen many compensation disclosures where the firm will tell you the percentage of commission is built into the premium, but never have I seen a competitor actually do the math and show you how much they make on an annualized basis. Make sure you ask for that because once you see the total dollar amount for all sources, you’ll be able to ask yourself, “are we getting this kind of value?” If your broker or advisor is hesitant or reluctant to share this information, then it’s a good sign that you are being overcharged. (Contact us if you'd like a free Compensation Disclosure Template that you can send to your broker. Ours actually requires them to do the math and may include hidden fees you're not aware.)
Ask for Performance Guarantees
Performance guarantees align your advisor to the success of your plan. Would you reward your head of sales for crappy performance? Well you should treat your advisor accordingly. You should consider their use as a way to ensure you have your broker’s full attention and move away from the traditional commission-based model. With a performance guarantee, the broker’s compensation only goes up when performance benchmarks have been reached. This is an objective way to incentivize your broker to work on your behalf to control costs and remove those misaligned incentives found in the traditional benefit compensation model.
If in the end you are able to determine your broker relationship is a cost burden and not a cost benefit, you must be ready to fire your broker. Your responsibility is as a fiduciary for your company and its bottom line, not the bottom line of your broker profiting from you at your expense.
If you found this article to be helpful, we invite you to share it with your colleagues and peers via social media and/or email. Better yet, if you'd like a free review of your plan that includes a compensation disclosure, contact us directly.
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