There is nothing wrong with a broker getting paid. Servicing a benefits plan is real work: enrollments, file feeds, claim escalations, compliance notices, renewals. The problem isn't that brokers get paid. The problem is when you can't see how, because the way a broker is paid shapes the advice you get.
The three main models:
- Percent of premium. Commission built into your rate, roughly 2 to 7 percent depending on size. The issue is the incentive. If your premium goes up 12 percent, your broker's pay goes up 12 percent too, without any extra work.
- PEPM. A flat fee per employee per month. Your broker makes the same whether the renewal comes in at plus 3 or plus 15, which takes the conflict out of the renewal conversation.
- Flat service fee. A set annual fee paid directly, with commissions zeroed out. The cleanest on paper. Just confirm in writing with every carrier and vendor that commissions were actually removed, or you could be paying twice.
Then there are the commissions nobody mentions. Stop loss premiums can carry their own commission. Some PBMs pay brokers a fee on every prescription filled. Carriers run bonus programs for placing a certain volume of business. None of that is illegal, but if your broker recommends one stop loss carrier or one PBM, you deserve to know whether that vendor is paying them to do it.
The Consolidated Appropriations Act requires brokers expecting $1,000 or more in direct or indirect compensation from an ERISA group health plan to disclose it in writing. If you've never received that disclosure, ask for it. If your broker hesitates, that tells you something. I'll tell any client exactly how I'm paid, including mine.
Questions to ask
- How are you paid on our plan, in total dollars, across every line of coverage and every vendor?
- Do you receive any compensation from our stop loss carrier, PBM, TPA, or any point solution vendor?
- Are you in any carrier bonus or override program that our business counts toward?
- Can you send your CAA compensation disclosure for our plan?