Finding the ethics in broker compensation

There’s a limitless stream of alternative revenue being paid to health insurance brokers and advisers. Carriers offer volume bonuses as an incentive to sell more of their products. Stop-loss carriers pay overrides and dangle lavish all-inclusive vacations. Pharmacy benefit managers even kick back a portion of each prescription to advisers who build in these extra commissions. On top of that, renewal bonuses keep employer groups on the books. 

Are these incentives preventing us from what would ordinarily be annual due diligence? Ir worse, are they placing business where producers are better off instead of selling the solution their client actually needs?

For large group brokers, especially in the unbundled and self-funded world, the money train is barreling full-steam ahead down a track that goes on for miles. They’re raking in six-figure bonuses and taking trips to the Cayman Islands, while small group brokers are hustling on pennies to deliver the same value to small businesses across America. 

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In the small and mid-size markets where fully-insured plans are often the only available benefits solution and largely mandated by the state or department of insurance, there’s very little anyone can do to mitigate healthcare costs or manage premiums. As a result, they’re compensated a mere smidgen of what a self-funded broker would be capable of weaving in.

Small group brokers are working with hands outstretched to carriers who ultimately get to dictate their value, and — more often than not — underpay by incredibly large margins. This leaves them with just one option to better compensation: volume. Write more business with one carrier, make more money. 

So, is being a commission-based broker unethical? Of course not. Brokers who don’t have a choice in how they’re paid cannot possibly be responsible for the ethics at play. However, we’ve seen that a health insurance carrier paying commission to an adviser who has been entrusted to represent their own client serves as an unethical landscape in which brokers must conduct their business. 

Along with where the money is coming from, a larger question is brewing among those in our community: Is it unethical for advisers to be paid more every year if they deliver poorer results? 

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A recent poll I shared on LinkedIn revealed varying views about the commission-based system. Olympic Crest Insurance Founder Nancy Giacolone pointed out that commissions are not consistent. Some carriers, for instance, pay a percentage of premium or per-employee-per-month fee, while others carve out commissions and allow advisers to assess a direct fee with their clients. But this is all state and market-size specific and, therefore, each adviser is having a different experience when it comes to getting paid.

In states and markets where fees are allowed, advisers can choose to bill clients directly for their services and strip out commissions from insurance products, but the temptation to double-dip stays in play. 

If a large chunk of the compensation came after delivering optimal results, would advisers work smarter through the year on cost mitigation and containment? Probably. 

Being adequately compensated for the services we provide is an acceptable way for anyone to be paid. In many cases for emerging Health Rosetta certified advisers and agencies, a “bank-on-it-bonus” is built into the consulting agreement and rests solely on an adviser ’s ability to do what they say they can: manage and lower costs. 

We know all too well that insurance carriers and hospital executives dominate the healthcare spend in the U.S. by using the compensation landscape to keep costs and profits rising. UnitedHealth Group was the most profitable payer in 2021, bringing in more than double the profit of its next-closest competitor with $17.3 billion in earnings, according to FierceHealthcare.com. And yet, Americans are in more medical debt than ever before, while brokers and advisers continue to experience massive commission disparities between markets. 

So, what can we do? Many advisers say the same thing: it starts with transparency and disclosure. 

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Kevin Trokey, founding partner of Q4 Intelligence, has been a big advocate for disclosure over the course of his career. “I have been such a fan of compensation transparency for so long, but not just a here's-how-much-I-get-paid message,” he explained. “Advisers need to be providing a stewardship report of the value delivered along with the compensation they received, ensuring the two are balanced.”

This approach was backed up by Susan Rider of Human Capital Concepts, who is set to become the president of the National Association of Health Underwriters (NAHU) by 2025, an organization that uses lobbying efforts to improve healthcare legislation: “Why not share a stewardship report each year to outline what you accomplished for and with your clients?”

Advisers working in the small and mid-size, fully-insured markets all seem to agree that when you cannot control commissions or charge your clients a direct fee, you must disclose your paycheck to your clients instead so that they can at least have some insight into how an adviser’s value is being determined, whether fairly or not. 

For more information on how to create best practices around compensation disclosure, check out resources like NAHU.org or HealthRosetta.org for easy-to-use tools and information on getting started. Also consider connecting with folks like Jennifer Berman of MZQ Consulting, a firm dedicated to helping advisers and clients not only stay compliant in the field, but also encourage transparent insurance transacting for all.