The Value of Health Insurance Brokers

The word broker is derived from Old French. Some sources say its meaning has roots in wine retailing. The Spanish word for some uses of the term is corredor, or runner. Some brokers are running and hustling for you, and others are selling you wine, hoping you come back with an empty bottle.

In healthcare, brokers help most companies buy, manage, and choose healthcare plans. Judging by rates of change, spending trends, and objectivity, it’s debatable where they’re adding value and how keen their eye is for innovation. The raw data from the 2017 Kaiser Employer Health Benefits Survey provides an unbiased view of how companies that use a broker and those that don’t fare. Of course, selection bias may be at work since those who don’t use a broker may be more sophisticated, have more Ivy League degrees, or listen to more healthcare podcasts.

Many brokers seem to be ok with the way things are. The current industry has a great business model. Commissions go up with healthcare inflation. They make plenty of money and even if you sit still, you collect 6%. That’s a business Warren Buffett would love. They also have a captive market. Kaiser data show 88% of companies use a broker to buy healthcare benefits.

Risk and Innovation

What’s good for a company is not necessarily good for a broker; so, the definition of risk depends on who you are. For instance, flat fees may be better for the employer, but not the broker. One broker’s 2017 annual report highlights: “Our ability to generate premium-based commission revenue may also be challenged by the growing desire of some clients to compensate brokers based upon flat fees rather than variable commission rates. This could negatively impact us because fees are generally not indexed for inflation and do not automatically increase with premiums as commissions do.”

As I have written elsewhere, it appears 1 of the best ways to save money in the short-term is to discourage employees from signing up for benefits. Savings from a 1% decrease in take-up rates can give firms a 7-fold return on investment (ROI) compared with telemedicine (the take-up rate is the % of eligible employees who enroll in health benefits). But who knows what leaps to reduce take-up rates will do to turnover and productivity? The 2018 Willis Towers Watson Best Practices Survey lists the spousal penalty (or surcharge) as a “best practice” for reducing spend. In fact, it’s listed first and averages $1200 per year. A subtle approach charges much higher contributions for spouses to push them off the fence. In healthcare, this is innovation.

The Survey Says

Where is the value? As entrepreneur Jim Rohn said: “Success leaves clues.” There are statistically significant clues (P <.01) from the 1200 firms with 200-plus employees represented in the survey data studied.

Companies that use brokers:

• Have 5% lower take-up rates. Again, a 1% drop in the take-up rate has 7 times the ROI of telemedicine.
• Are 22% less likely to use penalties and rewards for doing a health risk assessment (HRA). That’s refreshing since most HRAs are worthless or less than worthless. Google “Al Lewis HRA” for proof, or read his latest blog post.
• Contribute 5% less to employee healthcare, or more than $200 less per year (employers who use a broker contribute 80% of annual premiums for single employees versus 85% for those who don’t use a broker).
• Tend to be slightly younger, based on the percentage of employees over 50 (33% vs 36%).

But:

• There is no statistically significant difference in annual plan premiums (even after adjustments for plan designs and age) between the broker and nonbroker groups.
• Companies who go it alone are no less likely to have a high-deductible plan, a plan with narrow networks, or 1 that eliminates hospitals to control costs or use coinsurance for specialty prescriptions.
• The out-of-pocket maximum under preferred provider organization plans in the 2 groups are virtually identical, as are the wellness rewards offered, the percentage of employees who complete HRAs or biometric screenings, and the percentage who earn more than $60,000.

The value of a broker appears to be in helping companies reduce plan enrollments, “right-sizing” contributions, and in getting some of the wellness penalties and rewards right. Of course, this will vary since not all brokers are equal. Companies need to demand data. If you use a consultant or broker to buy benefits, ask yourself: is my broker running for me, or getting me drunk?

With all the screened case studies, broker-commission-paying ancillary vendors, flashy presentations, and best practices surveys, it’s getting harder to tell the difference.