Like a lot of big federal spending bills, the new coronavirus relief package is a grab bag of unrelated legislation.
And one provision in the 5,593-page measure passed last month could lead to revealing conversations between employers and the brokers they rely on to find them the best deals on health insurance and other benefits.
The Consolidated Appropriations Act, 2021, the much-debated legislation that authorized a new round of stimulus checks for many U.S. households, mandates that brokers disclose to employers how much they make from insurance carriers and vendors.
Health benefits brokers are trusted advisers to employers, who sponsor health plans for about 150 million Americans. But ProPublica showed in 2019 how the insurance industry influences the consultants behind the scenes with cash and gifts — from six-figure bonuses to swanky island getaways. Critics called it “a classic conflict-of-interest” that may cause brokers to put the industry’s interests above those of their employer clients, which drives up costs. In response to the ProPublica story, senators proposed legislation to require disclosure of the perks and payments.
Companies provide an array of services to employer sponsored health plans, including traditional health insurance, vision and dental products, pharmacy benefits, third-party administration, claims review and more. Each service provider may provide payments to brokers that might be unknown to the employer. For example, a pharmacy benefit manager might pay a broker a fee for every prescription filled under a health plan. Or a third-party administrator might give the broker a payment for each employee on a health plan.
Under the newly passed requirement, brokers and consultants must tell employers the various forms of direct or indirect compensation they receive from vendors associated with a health plan. The disclosures must take place at the time the employer enters into the agreement with the broker or when it’s renewed. The act also requires brokers to disclose their compensation to individuals who purchase insurance plans.
“It is a game changer,” said Doug Aldeen, a Texas attorney who specializes in law and regulations related to health plans. The requirement goes into effect in December, a year after the bill was signed into law, but Aldeen said employers should demand the “big reveal” now. “Frankly, it’s big money.”
A broker’s base commission can be 3% to 6% of the total health insurance premium, ProPublica found. That means the broker makes more as premiums go up. Commissions for some supplemental products can be as high as 40%, and bonuses could be as high as $150,000 for a single employer group. Bonuses may be based on the size of employers with a carrier or on keeping employers with an insurer when it comes time to renew. In addition to money, the industry treats brokers to bucket-list experiences, like batting against retired Yankee Mariano Rivera or taking a trip to the Super Bowl or a luxury resort.
Aldeen’s clients include the small but growing movement of brokers who have stopped taking industry cash. Instead, they get paid directly by employers, which eliminates the conflict of interest and gives them an incentive to deliver better value.