Broker Commissions for Fully Insured Health Insurance Plans Are Linked to Plan Premiums
By Ge Bai
The majority of Americans are covered by employer-sponsored health insurance. Health insurance premiums for American workers have been growing at 4.5% on average each year since 2010, reaching $21,342 (family coverage). Employers face substantial information asymmetry when choosing health insurance plans because the plans’ design details can be highly complex and most of employers don’t have adequate knowledge. Employers usually use insurance brokers to help make decisions on what health insurance plans. Insurance brokers are primarily paid commissions by insurance companies. The commissions are eventually charged back to the plan and absorbed into plan premiums, paid by employers and their workers.
In our study published in Medical Care Research and Review, titled “The Commissions Paid to Brokers for Fully Insured Health Insurance Plans,” we found that commissions paid to insurance brokers are positively associated with plan premiums. Based on the $178 median commission per enrollee, a business with 500 employees could pay close to $90,000 to brokers in a year. We used a national sample that covered 11.7 million employees enrolled in more than thirty three thousand health plans in 2017. The positive relationship between a plan’s commission and a plan’s premium is robust after controlling for various factors and different model specifications. The commission-to-premium ratio is greater for smaller plans, plans offered by nonmajor insurance companies, and in the Southern United States.
Insurance brokers play an important role in helping employers research plan options. However, the premium-linked commission structure represents a potential conflict of interest that may incentivize brokers to push for plans that have higher premiums but do not necessarily advance the employer’s best interest. For example, insurance companies might influence set high commission-to premium ratios for profitable plans so that brokers are motivated to steer employers to these plans.
Employers should be aware of the potential conflict of interest in the commission-based health insurance brokerage model. The U.S. Senate Committee on Health, Education, Labor, and Pensions has introduced the Lower Health Care Cost Act, which would require disclosure of direct and indirect compensation received by brokers to employers sponsored plans. This legislation would improve transparency related to brokers’ conflict of interest and help employers make informed plan choices.
Employers should also be open-minded about other options. They are better off when their interest is more aligned with their brokers’ interest. In an emerging fee-based brokerage model, brokers are paid fees directly by employers and are not compensated by insurance companies. Electronic brokerage platforms are also being developed to take advantage of technological advances to reduce search costs. Every dollar spent on health care by employers and employees is every dollar they cannot spent on other priorities. These new have the potential to improve transparency, enhance plan choice efficiency, and create value for employers and workers.
Article Details
The Commissions Paid to Brokers for Fully Insured Health Insurance Plans
Ge Bai, Angela Park, Yang Wang, Heidi N. Overton, William E. Bruhn, Martin A. Makary
First Published December 16, 2020 Research Article
DOI: 10.1177/1077558720980561
Medical Care Research and Review
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