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Transparency Does Not End with Providers and Insurers – Benefits Brokers Are Next

On a sunny October day in 2004, I was expecting a phone call from a Wall Street Journal reporter who wanted to discuss the latest practices of insurance brokers steering their clients to higher-commissioned products. At the time, I was operating my employee-benefits consulting organization, assisting Iowa employers by obtaining and servicing their employee benefit plans. For the record, since October 2011, I no longer practice as a benefits consultant.

During 2004, New York State Attorney General Eliot Spitzer filed a civil lawsuit against insurance broker Marsh & McLennan, alleging it rigged bids and steered business to insurers who paid enticing commissions, even if the product and insurance company were not in the client’s best interest. It was a scandal that rocked the industry that I was part of at that time.

How this New York reporter became aware of my organization was somewhat of a mystery to me. She did mention that our website was ‘dripping’ with language that suggested “complete independence” from “outside influence” and that “we act in our clients’ best interest – always.” From her perspective, I presumed, maybe we were indirectly referring to activities in our industry that bordered being nefarious. She wanted to learn more.

Our firm, when possible, avoided such contracts with insurance vendors because our desire was to be paid directly by our clients. 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.

Cash and gifts quietly given to insurance brokers and consultants by vendors – in exchange for business – may create a conflict-of-interest that adversely impacts the ‘independent’ guidance employer clients expect to receive from their advisors. During that time, voluntary reporting of commissions and bonuses were seldom being practiced by others – both locally and nationally.

Unfortunately, the WSJ interview never happened as an unexpected priority required my immediate attention at the time.

Fast forward to now.

The $900 Million Stimulus Bill – Includes Broker Transparency Provision

Buried deep in the 5,593-page $900 million stimulus package that was signed into law on December 27 is a little-known provision that impacts the aforementioned conflict-of-interest issues. For brokers, consultants and employers, this provision can be found on page 4475, Section 202 BB of the stimulus package. I learned of this provision from a ProPublica article (January 6), aptly titled: “Lavish Bonus? Luxury Trip? Health Benefits Brokers Will Have to Disclose What They Receive from the Insurance Industry.” The title says it all.

Author Marshall Allen, whom I have corresponded with in the past, has written quite a bit about this subject. In fact, his 2019 article prompted senators to propose legislation that requires disclosure of such perks and payments. This legislation was never enacted until now.

Brokers – and Employers – Take Note

The provision requires brokers and consultants to share with their employer clients (in writing) the various forms of direct or indirect compensation they receive from vendors associated with the health plan purchased by the employer. Further, the disclosures must take place at the time the employer enters into the agreement with the broker/consultant – or when the plan is renewed. This requirement also includes brokers who sell individual health insurance coverage.

Additionally, any service provider acting as a consultant who reasonably expects to receive direct or indirect compensation relating to the development of the following services must also comply:

  • Plan design
  • Insurance or insurance product selection (including vision and dental)
  • Record-keeping
  • Medical management
  • Benefits selection
  • Stop-loss insurance
  • Pharmacy benefit management services
  • Wellness design and management services
  • Transparency tools
  • Group purchasing organization agreements and services
  • Participation in and services from preferred vendor panels
  • Disease management
  • Compliance services
  • Employee assistance programs
  • Third party administration services

The disclosure section of this stimulus package applies to a producer or entity expecting to receive more than $1,000 in direct or indirect compensation for selling or administering to ‘employer-sponsored health plans’ and ‘enrollees in plans on the individual market.’

Conclusion

The delivery and payment of healthcare is fraught with many incentives and disincentives that drive appalling behaviors, causing costs to soar. As a benefits consultant, I was a big proponent of disclosing any renumerations we received to each affected client. Philosophically, this behavior is similar to expecting hospitals, physicians and insurance companies to reveal the negotiated prices of medical services.

Brokers and consultants owe it to their clients to be open with how they are being compensated by various sources to assure the client is being properly (and ethically) served at all times. This behavior cements trust and can promote a strong bond between the buyer and seller.

It is simply the right thing to do.

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Prescription Drug Pricing – The Reenactment of Harry Houdini

Noted for his sensational escape acts in the late 19th and early 20th centuries, Harry Houdini used chains, ropes, locks, straightjackets under water and a host of other props to escape from assured harm, if not death. Crowds were enthralled with his heroics, and they paid him for this gross but thrilling form of entertainment.

To protect his unique career, he was a master on safe-guarding his escape secrets, and was very quick to sue others who imitated his escape stunts.

Fast forward to today. We continue to be entertained by protégé’s of Houdini, now better known to be ‘magicians.’ Some are quite well-known: David Copperfield, David Blaine, Ricky Jay, Penn & Teller, among others. One common rule that all legitimate magicians adhere to is quite simple:

NEVER reveal the magic secret.

The biggest magician we have today, is not really a magician, but certainly ‘appears’ to act like one.

The pharmaceutical industry – and many key middlemen side players, such as pharmacy benefit managers (PBMs) – are in the business of obfuscating facts from reality. In June, I wrote a piece about this problem on my The Health Autonomist blog. Like magicians, who know how to manipulate their audience into a false sense of free will, pharmaceutical players want the public to believe that efforts are being made to keep the medication costs as affordable as possible and, in return, ‘reasonable’ profits are justly-earned to keep costs down.

The chart below shows just how unbridled the costs of prescription drugs have become (found in the yellow line since 2013). Rarely do I repeat the same visual, as this one appeared in last week’s blog, but this chart demonstrates just how rampant drug prices have become when compared to other types of health services.

Yet, a host of games are being played that cause the patient to receive minimal benefit from their actions – with much of the financial gain being retained by the ‘altruistic’ players who tout their allegiance to the patient. One example is found on the Kaiser Health News webpage:

A very insightful report, “Getting to the Root of High Prescription Drug Prices,” was recently released by The Commonwealth Fund, that provides an in-depth description of the many problems inherent in drug pricing. More importantly, the report describes many possible actions that policymakers and stakeholders can agree on to find bipartisan solutions to many identifiable problems. By the way, regulating drug prices or purchasing drugs through Canada are not long-term solutions, just band-aid approaches to a persistent open wound.

A newly-published ProPublica article, “Take the Generic Drug, Patients are Told – Unless Insurers Say No,” reveals that pharmaceutical companies are increasingly cutting deals with PBMs and insurance companies to push more expensive name-brand drugs over their generic-equivalents. Such actions suggest that higher profits are being sought, often at the patient’s expense. ProPublica’s other new article about generic drugs serves notice that pharma continues to find innovative ways to make money at the public’s expense.

I enjoy infographics, as they can help make something that is very opaque appear a bit more understandable. Even within the insurance industry, the shenanigans that happen in the PBM world are often difficult to understand – leaving many of us to sort truth from fiction. Through Pembroke Consulting, SSR Health, Kaiser Health News et al., an infographic was produced that does a reasonably good job of exposing the secrets behind the curtain of obfuscation on drug pricing.

Like tricks performed by accomplished magicians, the drug-pricing profession profits from sleight-of-hand tricks that must never be revealed to the public.

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