Most brokers earn commission from insurance carriers. Others charge fees for services provided. Greater transparency in these payment methods can help you control rising health care costs.
But, more importantly, a clear picture of how your broker is paid can lead to a long-term, strategic relationship that benefits you and your employees.
Working with a broker is often the first step in creating a comprehensive employee benefits plan. Your broker can help you:
- Choose the right carriers
- Implement the best coverage for your employees
- Manage costs
- Complete open enrollment
- Educate new employees about their choices
- Resolve issues throughout the year
What does your broker get out of the deal? Have you ever thought to ask what’s in it for them?
Asking the hard questions
Every broker should be able to answer these questions:
- Will you push me to use certain insurance companies because they pay you more?
- Will you charge any fees in addition to the monthly premium?
- Will I receive a monthly bill from you in addition to the one I already get from the insurance company?
Will you push me to use certain insurance companies because they pay you more?
The answer to the first question should always be a resounding NO. Brokers should place business with the carrier that is in the best interest of their client.
Be sure to ask for a monthly reconciliation of all commissions paid to your broker by insurance carriers. It will allow you to see exactly where your premium dollars are going and how your broker is being compensated. It will also enable you to see if the carrier is creating incentives for your broker to encourage participation and reduce overall costs.
Will you charge any fees in addition to the monthly premium?
Some brokers charge a monthly fee to manage your plan. In most cases, this fee covers the cost of online benefit portals, a dedicated customer service team and ongoing employee education. Be sure to get in writing what services your broker will provide and when. Negotiate a per-employee rate and make sure that rate is locked in for at least 12 months.
If your broker does not offer any services other than placing coverage, there should be no additional fees.
Will I receive a monthly bill from you in addition to the one I already get from the insurance company?
If your broker charges a monthly fee, you should receive a bill for the services provided. Each month, you should receive an itemized list of active employees and any adjustments for terminations and new hires.
If your broker bills consulting fees for certain services, like a salary survey or dependent audit, those items should be listed separately. In many cases, you will receive a separate bill altogether.
Commission-based models
Most insurance companies pay relatively the same commission to brokers in a certain geographic area. That means if your company offers a fully insured health care plan that is qualified under the Affordable Care Act, your premium should be the same no matter which broker you choose.
If you have a self-insured health care plan, the administrative fee you pay can fluctuate and influence the amount of commission your broker earns. Many brokers will accept a lower commission in order to save their clients money on administrative fees.
Some insurance companies will also pay brokers a flat fee per policyholder. For example, each month in the first year of the plan, the broker will receive an additional $15 per new enrollee. If you stay with the same carrier in subsequent years, the rate will go down. For example, the broker may receive an additional $7.50 each month per renewal.
Fee-for-service models
Today’s brokers take a consultative approach with their clients. Some charge one-time fees for particular services such as creating an employee handbook or drafting a five-year strategic benefit plan. Others charge a larger fee, like a retainer, to examine your employee benefits plan and make recommendations on cost-saving programs and implementation.
To make the most of these fee-for-service models, your broker should be willing to sacrifice a portion of the fee based on how well their recommendation works. For example, your broker may be willing to return a percentage of their fee if your plan doesn’t meet the projected cost savings.
Transparency is key
If you have any questions about how your broker’s pay is structured, ask. No matter how your broker is paid, they should be open and honest about how they make their money. For additional information, contact our Employee Benefits team.
This content is for informational purposes only, should not be considered professional, financial, medical or legal advice, and no representations or warranties are made regarding its accuracy, timeliness or currency. With all information, consult with appropriate licensed professionals to determine if implementing any recommendations would be in accordance with applicable laws and regulations or to obtain advice with respect to any particular issue or problem.
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