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