House Appropriations Act of 2021-Insurance Brokers and Agents Must Disclose All Compensation from Insurance Companies

 

Finally-some good news for employers who provide medical insurance and other employee benefits to their workers. Buried in the House Appropriations Act of 2021 is a requirement that insurance agents and brokers disclose compensation and inducements from insurance companies to employers whose contracts they represent. (States, 2021) Agents will be required to disclose direct and indirect compensation they receive from insurance companies and they must do so at the time a contract is negotiated. (Allen, 2021) 

As a former insurance broker who specialized in employee benefits, this is long overdue and I always disclosed my compensation to clients in an annual report at the time of contract renegotiation. One of the reasons I left that industry was my behavior, which did not include gouging my clients and assiduously representing their interests was considered “naïve”. One of the more financially successful brokers in the Seattle area was in fact a broker who sold products to clients which the employees would have to pay for, but were no substitute for actual medical insurance, yet highly lucrative. None of these voluntary sickness and accident plans would protect employees in the event of a major illness. I hated to see employees having to pay more and more of their hard-earned money for medical plans with no improvements in care.

 Worse yet, prior to the approval of the Affordable Care Act in 2010, employers could discriminate against employees based on their health and some sought to do just that, not accepting a client if there were employees with medical needs above their stop loss target. In other words, insurance companies or in this case, reinsurance companies want to avoid any potential loss. I suspect in the world of reinsurance this practice is still ongoing though probably more subtle. Reinsurance is  used in self-insured health plans, which are exempted from laws that fully insured plans are subject to because it is not considered insurance under ERISA (US Department of Labor, 1974) It is always about the money not someone's health.

Moving at the glacial pace of the insurance industry, people have finally caught on to the conflict of interest these well-paid client representatives have between direct corporate incentives with their employers and indirect incentives to sell certain products from the insurance industry. Of course, the two largest brokerage firms, each worth a billion, Marsh McClennan and Willis Towers Watson are keeping mum on this. Afterall, their clients may ask for discounts when they see how much money they have been raking in, especially for health care plans.

In my 2013 book, Unraveling US Healthcare-A Personal Guide I wrote about the insurance industry fee rip offs, from excess reserves, to high administration costs, and of course what employers pay to their agents or brokers is plan overhead. (Winter, 2013)

However, in the last decade more people in the insurance industry became turned off by the perverse incentives to make insurance companies and their representatives wealthy but at the customer’s expense. A better way to do business with someone negotiating your employee benefit plans, including medical insurance, is on a fee basis, not commission. The fee is paid by the employer, the client directly to the broker’s firm. It is not always possible to get products without commissions in them, especially for life and disability plans, as these depend on the state product filing requirements, but it is completely feasible for corporate medical plans for employers with fifty or more employees.  

Marshall Allen, a healthcare advocate and Pro Publica reporter has just written a book which guides employers and every day consumers through the pitfalls of insurance contracts and ways to save money, Never Pay the First Bill And Other Ways To Fight The Health Care System And Win came out last month. (Allen, Never Pay The First Bill) In the event you don’t have time to read the book, here is a handy list of things you can do, as a financial officer, owner, or benefits purchaser for an employer:

1.       Know what your broker or agent representative is getting paid from your firm. Ask your representative directly for this information and if they stall or refuse to give it to you, find another representative.

2.        If your company pays Marsh McLennan $50,000 a year in commission, determine how this compares for your size firm and total plan contributions annually. If you are paying your representative more than 3% of the gross contributions for your medical plan, you are probably overpaying.

3.       Understand that the services you are getting which are bundled with the brokerage firm could possibly be less expensive by unbundling them and finding a consultant or third-party administrator for some of the services.

4.       There are brokers who will represent clients for flat fees, which could really save a client money. If you can find someone to negotiate your contracts for $15,000 instead of $50,000-why not!

5.       There is an organization which certifies consultants who follow best practices, avoiding agreements which generate conflicts of interest called the Health Rosetta, a clever play of words on the Rosetta Stone. (The Health Rosetta, n.d.) 

6. Do background checks on anyone you are entrusting with costly and confidential information about your company by checking client references and the Office of the Insurance Commissioner for any complaints before you contract with them. 

7. Know what you are buying, a health and accident plan is NOT major medical insurance and should not be represented as such. 

8.  Participate in employer groups which share experience and strategies for saving money without sacrificing care. 

9.  Read information from health care advocacy groups like LeapFrogGroup.org and the Lown Institute.org. 

10. Review your claims statements for fraud as your insurance company is probably not doing a good job of fraud prevention, especially for smaller claims, which are going to be anything less than $50,000 or more.

      The insurance industry is still a very flawed mechanism to deliver health care, but it remains the main vehicle to finance and direct treatment for about half the US population. The US is wedded to the insurance industry for now, so hopefully this piece provided some utility value for my readers.

 And this is the healthpolicymaven signing off encouraging you not to sign blanket releases when you consent to procedures, to designate that for which you agree and those treatments you decline. Your health care should be based on your values not some institutions.

 Roberta Winter is a healthcare analyst and journalist and she accepts no money for any of her opinions in this column, which has been under continuous publication since 2007.

References

Allen, M. (2021, January 9). Health Benefits Brokers Will Have to Disclose What They Receive From the Insurance Industry. Salon.com. Retrieved July 25, 2021, from https://www.salon.com/2021/01/09/health-benefits-brokers-will-have-to-disclose-what-they-receive-from-the-insurance-industry_partner/

Allen, M. (n.d.). Never Pay The First Bill And Other Ways To FIght The Health Care System And Win. Portfolio/Penguin. Retrieved July 25, 2021, from https://www.nyjournalofbooks.com/book-review/never-pay-first-bill

States, 1. C. (2021). Consolidated Appropriations Act 2021. Federal Register of the United States. Retrieved July 25, 2021, from https://www.congress.gov/bill/116th-congress/house-bill/133

The Health Rosetta. (n.d.). Retrieved July 25, 2021, from Health Rosetta.org: https://healthrosetta.org/

US Department of Labor. (1974). Employee Retirement Income Security Act of 1974. Retrieved July 25, 2021, from https://www.dol.gov/general/topic/health-plans/erisa

Winter, R. E. (2013). Insurance101. In R. E. Winter, Unraveling US Healthcare-A Personal Guide (pp. 171-176). Rowman and Littlefield. Retrieved July 25, 2021, from https://www.amazon.com/Unraveling-U-S-Health-Care-Personal/dp/1442222972

 

  

 

Health Insurance Premiums and Government Oversight: Consumer Implications from the Affordable Care Act Implications

Government Oversight of Private Insurance: What it Means for the Cost of Your Health Insurance
The plethora of health care laws passed in 2010 under the Affordable Care Act,include provisions for “rate setting” and monitoring of private sector insurance plans on a federal level. The ruling applies to all insurance plans which participate in any government funded health care program, including Medicare, Medicaid, and the soon-to-be-deployed regional insurance exchanges. This article explains how this differs from present rate monitoring and premium-setting and the ultimate impact on the consumer.
The Rules
Health & Human Services is charged with establishing a health insurance rate oversight committee, to assess the reasonableness of proposed health insurance rate increases starting in 2014. Since health insurance premiums have continued to grow at a rate in excess of inflation and increased 41% between 2003 and 2009, according to a Commonwealth Fund study , affordability is a concern. The federal PPACA law mandates health insurance as a means to providing national health care, so the viability of the national health care program depends on manageable health insurance premiums for the private sector.
Current State
Insurance premiums are determined based on each state’s rate authorization standards with the Insurance Commissioner, who is an elected official. Some states have a “use and file” policy which means the insurance company can decide to make plan changes, adjust the rates, and start implementing before the state approves them. Other states have a “file and preapproval” policy, which means you have to get the state office to approve of your math, the reasons for your plan increase first. The insurance company then has the opportunity to comment and either accept the commissioners regulations or withdraw the product. In the case of Principal Financial Group, when a previous Washington State Insurance Commissioner mandated that all individual medical plans provide maternity coverage and other provisions, they pulled their product from the state. In economic terms this is referred to as an unintended consequent of a regulatory action. The federal government does not have the authority to control state insurance premiums for the private sector. Medicare and Medicaid plans are of course, a different story as they are government plans.
Altered State
Through the process of gathering data, analyzing cost impacts, discerning patterns, and revealing information to health care purchasers, both individual and corporate, Health and Human Services, which oversees the Centers for Medicare and Medicaid, is charged with creating a more transparent process for what you actually end up paying for medical insurance. The intent is good, but there is no regulatory authority to enforce rate fairness by state and a regulation without enforcement can be problematic. Finally, the cost of the regulation will be borne by the private sector rate payers, which will add a nominal cost to individual premiums, spread over the entire population.
Economic Impact
I spoke briefly of unintended consequences above, but let me restate, if an additional regulation means more insurance companies will cease to offer insurance plans to the small group and individual markets, this may not be a good thing for consumers. Of course, the insurance industry is already seeing a reduction in the number of companies offering medical insurance and this trend has been going on since I was in the benefits business in the 80’s and 90’s. In short, private sector companies, both for-profit and not-for-profit will make market decisions based on where their strengths lie and act accordingly. And one could argue that as long as the companies which remain are of quality and offer good consumer products and services, this change is not untenable. The Netherlands and Switzerland both have private sector insurance programs financing their public health plans and only a hand full of companies provide the coverage, which seems to work fine. Also, they pay much less per-capita for health care than the United States does, but the healthpolicymaven has told you that before.
What it Means to the Health Insurance Premium Payer
OK, here is the “skinny” on this one, since the federal government Does Not have rate setting authority for insurance, which is controlled by each state’s elected insurance commissioner and those state administrators, this change will not have a direct impact on the rates you pay for medical insurance. What is more, since it is highly unlikely the government will be able to overturn ERISA or the McCarran Ferguson Act; don’t expect to see any rate relief. ERISA is the Employee Retirement Income Security Act which created the exemption for self-funded or self-insured plans, which most major employers have used to exempt themselves from many state and federal mandates. I do not see the government succeeding in overturning this act either. The McCarran Ferguson Act is a federal law which gives states the authority to regulate insurance. It should also be noted that insurance premiums taxes are a major source of funding for the states and they will never give up that revenue. Indirectly the fact the government is requiring the disclosure of the rate factors and will publish the information is a good thing for consumers. You will no longer have to be an insider in the insurance business, which you know I was for a couple of decades, to understand this process. In conclusion, will this make your insurance cheaper, no, because that depends on many complex factors that have to do with underfunding of government programs which the private sector has to support with cost transfers, market supply factors, and the degree to which primary health care is deployed in this country. Finally, people will still have to care enough to read about the provisions and many people don’t. The healthpolicymaven’s book, Unraveling U.S. Health Care should come out later this year and it is a guidebook to our health system, in lay person’s terms, which I am hoping will facilitate more outreach in this area.