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New Law Requires Health Insurance Advisors to Disclose Commissions and Incentives to Clients

About 20 years ago, when I owned an employee benefits consulting firm, I accepted an invitation from a local benefits broker who wanted to discuss ‘business’ with me. The broker was very upset because one of his larger employer clients selected our organization to replace him. 

His former client believed that our transparent fee-based approach made good, ethical sense. The broker had received commissions and bonuses from insurance companies and vendors that were built into the premiums paid by this client, who had no idea of the amount being paid out. Conversely, we billed the client a monthly fee for our services and accepted no incentives from the vendors – a more transparent approach that would not complicate our allegiance to the client. 

As we finished our meeting, the broker’s final parting shot to me was simply: “No more taking over my clientele by using this approach.” My quick reply was equally frank: “It is up to our clients to determine how they wish to pay us, and they deserve to know how much we receive for our services.” 

It was a rather contentious meeting. The broker felt very threatened…as well he should.

Commissions and Perks from Insurance Vendors

Cash and gifts discreetly given to insurance brokers and consultants by insurance vendors – in exchange for business – can create a conflict-of-interest that adversely impacts the ‘independent’ guidance employer clients expect to receive from their advisors. Commissions create a perverse incentive for brokers and consultants – as insurance premiums increase, so too will the commission dollars that are paid out to the benefits advisor. As a consequence, keeping premiums as low as possible may not be in the best financial interest of the broker/consultant.

Throughout my years as a benefits consultant, I was frequently approached by insurance companies and other vendors to place their products in front of our employer clients. In return, we could receive commissions, volume bonuses, and other perks such as trips to top vacation resorts. Without question, commissions and other perks dwarfed a fee-based arrangement. During this time, there was no transparency rule that required brokers and consultants to report this information to their clients. How a broker or consultant was paid by the industry was truly a wild west arrangement that required little to no accountability to those who actually paid the bills – the employer clients.

Our firm avoided such contracts with insurance vendors because our desire was to be paid directly by our clients. This philosophy was quite simple: we worked for the employers who hired us, and not for the insurance vendors who enticed us. Unfortunately, for many of our smaller employer clients, insurers would not segregate commissions from the premiums they paid, so we accepted the commission but voluntarily shared with the client the amount we received on their behalf. 

For the record, I sold my consulting practice over 10 years ago. I was never comfortable with how the enticement of incentives in this industry could weaken ethical behaviors.

The Consolidated Appropriations Act of 2021

Given this backdrop, a new transparency regulation on compensation is about to take hold. Signed into law by President Trump on December 27, 2020, the Consolidated Appropriations Act, 2021, Public Law 116-260 (CAA) sets forth new compensation disclosure requirements that apply to brokers and consultants with respect to both fully-insured and self-insured group health plans subject to the Employee Retirement Income Security Act of 1974 (ERISA). The CAA also incorporates similar compensation disclosure requirements for individual market coverage via the Public Health Service Act. Disclosure requirements in the group health market apply to “Covered Service Providers” (e.g., brokers and consultants) whereas, in the individual market, they apply to health insurance issuers.

In short, if these advisors “reasonably expect” to receive $1,000 or more in “direct” compensation – and/or more than $250 in “indirect compensation” from the health plan or insurance carrier in connection with covered services to a group health plan, they must submit written disclosure to the client. Contracts entered into, renewed, or extended on or after December 27, 2021, must comply with these requirements.

These requirements generally apply to all types of health insurance plans, across all market segments – small group plans, large group plans, individual and family plans, self-funded plans, fully-funded (traditional) plans, flexible spending accounts (FSAs), health reimbursement arrangements (HRAs), etc.

Brokers must also keep their disclosures accurate and up-to-date and are required to update disclosures within 60 days after any changes in commission occur. It is the broker/ consultant’s responsibility to report all direct and indirect compensation to the employer.

Brokerage and consulting services subject to the new rules include:

  1. Brokerage services with respect to the selection of health insurance products (including vision and dental), recordkeeping, medical management, benefits administration, stop-loss insurance, pharmacy benefit management, wellness services, transparency tools and vendors, preferred vendor panels, disease management, compliance services, employee assistance programs (EAPs), third party administrators (TPAs); or
  2. Consulting services related to the development or implementation of plan design, insurance selection (including vision and dental), record-keeping, medical management, benefits administration, stop-loss insurance, pharmacy benefit management, wellness design and management, transparency tools, group purchasing organizations, preferred vendor panels, disease management, compliance, EAPs, and TPA services.

(There is a lack of clarity in terms of the scope of services and what plan service providers are subject to these requirements, particularly as it applies to the consulting category. Forthcoming regulations should hopefully provide additional guidance.)

Steps Employers Can Take

In 2021, ProPublica investigative journalist, Marshall Allen, wrote the book, “Never Pay The First Bill and Other Ways to Fight the Health Care System and Win.” The book included an Addendum that shares 13 questions that employers should ask their health insurance advisors to help determine how money from the industry might be influencing their advice to clients. These questions fit quite nicely with the upcoming regulations that will require compliance by brokers, consultants, and vendors.

  1. Do you or your company get paid any commissions from insurance companies or other vendors based on my organization’s health benefits? (Yes/No)
  2. Do you or your company get paid bonuses from health insurance companies or other vendors based on my organization’s health benefits? (Yes/No)
  3. Do you or your company receive any trips, meals, gifts, or other perks from health insurance companies or other vendors related to my organization’s health benefits? (Yes/No)
  4. Do you or your company get paid bonuses and/or commissions from health insurance companies or other vendors based on the loss ratio (or the profitability of the plan for the insurer) of my organization’s health benefits? (Yes/No)
  5. Do you or your company get paid bonuses and/or commissions from health insurance companies or other vendors based on the overall volume (including all business or new business) of employer-sponsored health plan members or groups? (Yes/No)
  6. Do you or your company get paid bonuses and/or commissions from health insurance companies or other vendors based on the retention of employer-sponsored health plan members or groups? (Yes/No)
  7. Do you or your company ever participate in “no shop” or “no market” offers on behalf of insurers or other vendors in which a bonus or commission is contingent on your not shopping an employer’s benefits to other insurers or vendors? (Yes/No)
  8. Do you or your company ever participate in vacations, trips, meals or other perks provided by insurance companies or other vendors, based on the volume or retention of employer-sponsored groups? (Yes/No)
  9. Do you and your company always disclose all bonus and commission money, and any other trips, meals, or perks to each employer group whose business might have qualified your company for the money or the perks? (Yes/No)
  10. Do you or your agency participate in fee-only payment agreements in which the only income you receive is coming directly from the employer who is purchasing the health benefits? (Yes/No)
  11. Do you or your agency participate in any payment arrangements in which the employer pays you directly for health benefits and your broker or agency takes a commission or a bonus from the insurance company or other vendor? (Yes/No)
  12. If you said yes to number 11: Do you always tell the employers who are paying you directly that an insurance company or other vendor is also paying you a bonus, commission, or other perk that’s based on that employer’s benefits? (Yes/No)
  13. If you do take direct payments from employers, what percentage of your benefit revenue is fee-based and what percentage is commission or bonus-based? Ethics experts say it creates a conflict of interest for brokers to claim to represent the interests of employers and then get paid by the health insurance industry. Will you please provide your perspective to explain why you represent employers who are purchasing health benefits but then also get paid by the health insurance companies?

Download these 13 questions an employer can ask health insurance advisors

Summary

The acquisition and management of health insurance is complicated, and because of this, employers are justifiably reliant on having trustworthy benefit advisors. The responses that come from the above questions should reveal the commitment advisors have to their clients. For those employers who are currently paying their advisors on a fee arrangement basis, having this discussion should be easy. However, also make sure these advisors are not receiving additional compensation and perks from your selected vendors. Double-dipping happens, and can weaken objectivity of the advisor.  

Under this new regulation, benefits brokers will be required to disclose a range of information previously kept fuzzy at best, hidden at worst. Both individual and employer clients will now have a full view of the true incentives that guide brokers’ decision-making — the good, the bad and the costly.

Employers, especially those with self-funded health plans, are considered to be plan fiduciaries. This means they must act prudently and in the best interest of participants and beneficiaries covered under the health plan. These regulations should be helpful when determining which advisors are most trustworthy.

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Iowa Employer Benefits Study© on ‘Hold’
Plus: The Great Resignation

Iowa Employer Benefits Study©

I have decided to put a ‘hold’ on the Iowa Employer Benefits Study for 2022 and into the indefinite future. Although the COVID-19 pandemic was not helpful to this annual survey, changes in the background research resources that I had relied on for the past two decades have also impacted the long-term viability of pursuing this important survey.

Data Point Research, Inc. (DPR), my trusted research partner for twenty years, no longer offers its excellent survey services. Our history of joint collaboration was immensely important to having both accurate and consistent data when trending benefits and costs in Iowa. I will miss my long-term relationship with Andrew Williams, founder of Data Point Research, but just as importantly, I have been very fortunate to call him a great friend and professional colleague. My best to Andrew!

I also owe a great deal of gratitude to those organizations, consultants and brokers who purchased blocks of the Lindex® benchmarks and studies over the years. Without their support and loyalty, the Iowa Employer Benefits Study would not have been as relevant and successful.

Finally, since 1999, the first year this annual study was performed, over 15,000 Iowa organizations have participated in this random survey process. I am proud that our survey results have provided Iowa employers with reliable, relevant, and customized information that cannot be found anywhere else in Iowa. This comprehensive statistical review of Iowa employee benefits has been a key resource for Iowa employers and policy makers. I am very thankful to the Iowa organizations that have taken the time to dutifully respond to this survey. Without their annual assistance, this study would not have been possible.

Although this study has been put on hold, future assessments are certainly possible.

The Great Resignation

According to the U.S. Department of Labor, a record 4.4 million Americans quit their jobs in September alone (4.3 million in August). In fact, according to data from the people analytics firm Visier, at least one in four people quit their jobs in 2021. A PwC survey indicates that 65 percent of people were looking for a new job as of August.

Since experiencing work place changes due to the COVID-19 pandemic, employees are now expressing their work culture and location preferences and finding opportunities elsewhere. This has become a big wake-up call to organizations in Iowa and around the country – its a phenomenon known as the GREAT RESIGNATION of 2021.

Without question, employee benefits are extremely important when attracting qualified employees. But employee retention requires adhesive steps that will serve as ‘glue’ to keep employees both happy and on the payroll. What is this special glue? It begins by having a culture that permeates throughout the organization that promotes work-life balance and invites a sense of trust and belonging.

Employees are quitting their jobs in food, retail, hospitality AND in higher-paying jobs in many other industries. These employees no longer wish to commute to work and want to learn new skills to grow beyond their current job opportunities. Job dissatisfaction varies across demographics and occupations, according to a recent article in the Wall Street Journal. Work-life balance and flexibility was important to employees prior to COVID-19, but it has become more pronounced during the pandemic and its importance is here to stay. Pay equity and child care are critical issues for many who are dissatisfied with their current employment arrangement.

We certainly found this in our 2007 Iowa Employment Values Study. In the workplace environment, employees value respect, achievement and having the opportunity to balance work time with family needs as most important. To attract and retain employees, employers will need to create a culture that is more responsive to employee needs and values. In an uncertain labor market where job openings outnumber applicants, assessing the local market of employee desires and sources of discontent will be crucial for any employer to stand out.

It is time for employers to evaluate existing employment practices and look for new opportunities to meet the expectations of their employees. Employers want their employees to be committed to their jobs, but employees want employers to show commitment to them. It is a two-way street.

If the COVID-19 pandemic has taught us anything, it is to be honest with ourselves and others – and then act accordingly!

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New Kaiser Survey on Employer Health Coverage Released

The Kaiser Family Foundation (KFF) released its 2021 Employer Health Benefits Survey on November 10. The results provide an important glimpse into what is happening to employer-sponsored health insurance around the U.S.  Overall, Kaiser surveyed 1,686 non-federal public and private organizations with three or more employees, and from this number, 523 employers were located in 12 Midwestern states (an average of 44 employers per state). The Kaiser study does not break out the results by each state, only by region.

Unlike the results found in the 2020 survey, this year’s survey provides a much better representation of how employer-sponsored health insurance has changed since the COVID-19 pandemic began in March 2020. Additionally, KFF revised the 2021 survey to reflect changes employers and health plans made to address potential issues and uncertainties arising from the pandemic. The survey took place from mid-January through July of this year.

Key Findings by Kaiser

The Kaiser survey is very helpful because it documents national health trends for employer-sponsored plans. Some of the key findings in 2021 include the following:

  • About 59 percent of employers offer health benefits, a percentage much like the previous year. Similar to Iowa, the larger the employer, the more likely health benefits are offered. About half (49 percent) of U.S. organizations with 3 – 9 employees offer health coverage, and nearly all (99 percent) of the organizations surveyed by Kaiser with at least 200 employees offer health coverage.
  • The average single and family premiums increased by four percent over the past year, while worker’s wages increased by 5 percent and inflation increased by 1.9 percent.
  • The average annual premium for single health coverage is now $7,739 ($7,470 last year), while the average family health premium is at $22,221 ($21,342). Over the last five years, the family premium has increased over 22 percent, and over the last 10 years, it has increased 47 percent.
  • On average, covered workers contribute 17 percent of the total single coverage premium ($1,299 annual) and 28 percent of the premium for family coverage ($5,969 annual). In our 2019 Iowa study, we found that covered workers contributed 18.6 percent for single coverage while workers for family coverage contributed 30 percent of the premium.
  • The average single deductible found by Kaiser now stands at $1,669, which is remarkably similar to last year’s $1,644 average. In 2021, 85 percent of covered workers have a deductible in their plan, similar to last year (83 percent).
  • Fifty-eight percent of small firms and 83 percent of large organizations address health risks and unhealthy behaviors by offering a wellness or health promotion program in at least one of these areas: smoking cessation, weight management, and behavioral or lifestyle coaching.
  • Telemedicine, which includes video chats and remote monitoring, continues to be very popular. In 2021, 95 percent of organizations with 50 or more employees that offer health insurance cover some healthcare services through telemedicine in their largest health plan, up from 67 percent three years ago.
  • Organizations with at least 50 employees were asked about changes they made to their health plans (after COVID-19 began) regarding mental health coverage for their employees. The results:
    • 31 percent expanded ways through which enrollees could get mental health or substance abuse services – such as telemedicine.
    • 16 percent developed new resources, such as employee assistance programs.
    • Six percent expanded the number of mental health or substance abuse providers in their plans’ networks.
    • Four percent waived or reduced cost-sharing for mental health or substance abuse services.
  • Health Care Price Transparency – Health insurance plans, including self-funded employers, will be required to make information available to enrollees about the estimated cost of services and cost sharing on a “real-time” basis. Twenty-six percent of large employers believe that providing employees with additional information about the cost of services will help their healthcare decision-making “a great deal” and an additional 50 percent responded that it will help their decision-making “somewhat.” Only three percent of large employers say the new transparency rules will reduce health spending “a great deal,” while 15 percent said they will reduce health spending “not at all.” Thirty-eight percent believe the new rules will reduce spending “somewhat” and 40 percent responded that spending will reduce by “very little.”

The Kaiser study was published in the peer-reviewed journal Health Affairs.

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