Doing right by your client will boost revenue

Gallagher Benefit Services breached its contract with the Osceola County School District "for the basest of reasons – greed," the school district asserts in a lawsuit filed in U.S. District Court in late 2021. The brokerage also stood accused of violating the school board's trust. 

Under Gallagher's consulting agreement to research and recommend a health insurer, annual commissions were capped at $195,650. However, more than $4 million in "secret" fees were allegedly collected from the carriers that it recommended.

In a June 2022 hearing, U.S. District Judge Anne Conway rejected Gallagher's motion to dismiss the lawsuit, stating, "…[T]he School Board's factual allegations provide a reasonable basis to believe that Gallagher committed intentional misconduct."

To be clear, many brokers choose their client's best interests over their own self-interest. The industry's culture, however — and way too many vendors — make it very easy and lucrative for brokers to make the wrong choice for their client.

The BUCAH (Blue Cross, United Healthcare, Cigna, Aetna, Humana) insurance carriers and other vendors in the benefits space offer all manner of financial incentives to encourage brokers to sell their solution.

Read more: Why collaboration is independent brokers' secret weapon

To get and keep premium dollars, carriers offer large brokerages a broad range of financial incentives besides the commission on the paid premium. They include a multiple of that commission, contingent bonuses for achieving certain performance objectives and retention bonuses for keeping the premium with the carrier. Other sweeteners include luxurious awards trips for top producers to destinations like Tahiti, Ireland, the Bahamas and Greek Isles.

Several years ago, an article in these pages reported that Blue Cross Blue Shield (BCBS) of North Carolina offered brokers a bonus of $50,000 to move employers with 250+ lives to one of its fully-insured health plans. That could buy a year of college tuition, a new car or healthy down payment on a house. So, how many brokers did that bonus induce to move the client to Blue Cross from another carrier that was a better fit or a Blue Cross fully insured plan from a self-funded plan that was better for the client? North Carolina Blue Cross certainly believed that $50,000 would influence brokers' behavior in their favor.

The role of compensation in influencing broker recommendations and vendor choices has been hidden from the client by a lack of real compensation transparency. Employers largely have been kept in the dark about the sources and amount of compensation the broker earns from their company's health plan.

Fortunately, the 2021 Consolidated Appropriations Act (CAA) includes language requiring full compensation disclosure from brokers. This transparency is intended to force them to reveal their total compensation from an account, including all the different and creative incentives and revenue streams that BUCAHs and vendors pay the broker. 

Read more: What brokers should expect when it comes to compensation disclosure

Because the business model of large brokerage houses is based on these myriad revenue streams from premium dollars placed with the BUCAHs, the CAA surely will test their creativity as they seek to comply with the letter, if not spirit, of the law. 

Please know that, as an avowed capitalist, I'm all for companies making a healthy profit and sales professionals earning a good living when they deliver real value to the client. But the status quo in the benefits industry forces brokers to make difficult daily choices between what is best for the broker or their client. It's not just hard on the broker, it's detrimental and corrosive to the benefits industry.

But what would happen if brokers could reject the status quo's perverse incentives and its me-or-the-client choices? What if brokers had the option of providing massive value to the client in the form of higher quality healthcare for a much lower price? What if delivering that greater client value earned brokers substantially higher compensation that clients would be happy to pay?

The great news for brokers is that the emergence of next-generation, unbundled employee health plans has allowed them to offer a value proposition far superior to the traditional carrier-based fully insured and self-funded administrative-services-only plans. Innovative brokers are getting rid of the BUCAH middleman, unbundling the BUCAH plans and rebuilding them with vendors whose incentives are aligned with the employer. The result is better benefits and no deductibles or co-insurance for employees, lower costs for employers and more compensation for the broker.

Read more: For a small business, healthcare savings can be used to attract and retain talent

By carefully managing the healthcare supply chain for both quality and cost, these brokers can deliver demonstrably higher quality healthcare with zero out-of-pocket costs while reducing the employer's year-over-year spend by 10% to 20% in year one alone. A 2020 feature article in Chief Executive magazine chronicled the remarkable results achieved by three next-generation brokers for their CEO clients. 

These well-documented cases are not only redefining employer-sponsored health plans, they are changing the compensation equation for the broker. In a case of doing well by doing good, these forward-thinking brokers are getting paid 50%, even 100% or more, for improving the health plan and reducing employer overspend.

One broker in Indianapolis recently won a 400-life company by showing the CFO a projected savings of $860,000 in year one by alternatively sourcing just the plan's 20 most expensive medications. The CFO willingly approved an $84,000 consulting fee for the new broker, despite paying the incumbent broker only $36,000. He was glad to pay almost two and a half times more because the new broker was bringing so much more value than the incumbent vs. an annual renewal increase. This classic scenario is happening every day across the country as brokers implement these next-generation plans.

Now brokers have a choice to serve their own self-interest by serving their clients' best interests. This alignment of interests represents a seismic change – and massive improvement – in the benefits industry.