A recent study from researchers out of John Hopkins shows a clear link between health insurance premiums and broker commissions. The link is not surprising among people who understand how the insurance business works. But without such knowledge, the study could be used as a reference point for suggesting that health insurance brokers have every incentive to sell higher-priced plans.
This is the nature of insurance across the board. Because the vast majority of brokers get paid on commission, the value of the policies they sell directly impacts their revenues. Yet at the same time, insurance brokers market themselves as working on behalf of their clients. They insist they work hard to make sure clients get the best possible deal.
The case is made easier when insurance brokers work with general agencies, like Dallas-based BenefitMall, offering access to dozens of different carriers. Bur even at that, there is still the question of how higher commissions influence broker decisions.
Commissions Passed on to Clients
It is difficult to adequately examine a link between insurance premiums and broker commissions without also being honest about who ultimately pays the commissions. Insurance companies do not eat those commissions. They pass them on to clients by building them into premiums. It is no different than any other business covering its operating costs.
Buy a car from any manufacturer in the world and you will also purchase, at least in part, the labor that went into making that car. Labor is a cost of doing business. Car companies pass the cost along to customers in their pricing. Health insurance carriers do the same thing. They pass the cost of commissions on to their subscribers.
As such, paying a higher commission ultimately results in higher premiums. The opposite is also true. So an insurance broker selling a less expensive product stands to make less commission. It is normal. It is to be expected.
Shopping Around for Insurance
Buying health insurance for employees should be no different than any other purchase a company makes. It is ultimately not up to the insurance broker to do all of the employer’s homework. Brokers tend to work with a general agency or a limited number of carriers from which they can choose. Employers have the freedom to shop around as widely and extensively as they choose to. And guess what? They should do so.
Employers should also be asking their brokers for quotes from multiple carriers. Quotes should be as detailed as possible, letting employers know exactly what they are getting for every dollar spent. This is the sort of thing that keeps brokers honest.
Self-Funded Health Insurance
As a side note, there is another option for providing generous health insurance benefits to employees: self-funding. Also known as self-insuring, self-funding is the practice of establishing a plan to cover employee healthcare costs directly via company revenues.
Although not all insurance brokers offer self-funding options, some do. Among those that do, there is a smaller group that helps clients establish and administer their self-funded plans. Many of these brokers work for a flat rate based on the number of employees enrolled. They may or may not work with third-party administrators.
The Johns Hopkins data shows a definite link between health insurance premiums and insurance broker commissions. Does the link further establish that insurance brokers purposely sell their customers higher-priced plans? No. It simply shows that higher-priced plans generate higher commissions. It is up to employers and health insurance brokers to work out satisfactory arrangements among themselves. Ultimately, everyone has to get paid – even brokers.