The Unseen Driver of Rising Health Plan Costs

As a business owner or HR manager, you’ve likely experienced the frustration of watching your health plan costs climb year after year, with no clear explanation as to why. While factors like medical inflation and utilization trends certainly play a role, there’s another often-overlooked driver that could be quietly working against your cost-saving efforts: the way your health insurance broker gets paid.

In this in-depth article, we’ll pull back the curtain on broker compensation and reveal how the traditional commission-based model can create misaligned incentives that incentivize brokers to prioritize their own financial interests over your organization’s long-term cost containment goals. We’ll also explore an alternative approach – the flat-fee “per employee per month” (PEPM) model – that realigns the broker-client relationship and empowers you to take back control of your health plan.

Understanding Broker Compensation: The Hidden Conflict of Interest

At the heart of the issue is the way most health insurance brokers are compensated. In the traditional model, brokers earn a commission – typically ranging from 3% to 6% of your total premium spend, and sometimes even higher. This means that for a $1.5 million health plan, a broker could be earning anywhere from $45,000 to $90,000 per year, before any additional bonuses, overrides, or kickbacks are factored in.

On the surface, this commission-based structure may seem like a fair way to compensate brokers for their services. But when you dig deeper, you start to see how it can create a fundamental conflict of interest:

• Your Broker’s Pay is Tied to Your Premiums – The more you spend on health insurance, the more your broker earns. This means they have a financial incentive for your premiums to increase, not decrease.
• Brokers May Prioritize Revenue Protection Over Cost Containment – When faced with the choice between recommending the most cost-effective solutions or protecting their own commission-based income, brokers may be tempted to opt for the latter.
• Lack of Transparency and Accountability – Many of the additional revenue streams brokers can earn, such as carrier retention bonuses, PBM kickbacks, and vendor referral fees, are often hidden from the client. This makes it difficult to assess whether the broker is truly acting in your best interests.

The end result is a system that quietly works against your organization’s cost-saving goals, even if your broker doesn’t have malicious intent. As Rich Westermayer, founder of BeneSmart, puts it, “The structure in and of itself invites misalignment. Ask yourself, is your broker motivated to drive your premiums down or to protect their revenue?”

Exposing the Hidden Revenue Streams

The commission-based model is just the tip of the iceberg when it comes to broker compensation. Many brokers also collect a variety of additional revenue streams that further contribute to the misalignment of incentives:

• Carrier Retention Bonuses – Brokers may receive bonuses from insurance carriers for maintaining a certain level of business with that carrier, incentivizing them to keep clients with the same carrier year after year, even if a different option may be more cost-effective.
• Carrier Override Bonuses – Brokers can earn additional commissions from carriers based on the overall performance and growth of their book of business, creating a bias towards recommending carriers that offer the most lucrative bonuses.
• Stop-Loss Placement Commissions – Brokers may earn commissions for placing stop-loss coverage, which can be an important component of self-funded health plans. However, these commissions can create a conflict of interest if the broker is incentivized to recommend more stop-loss coverage than necessary.
• PBM Kickbacks – Brokers may receive payments from pharmacy benefit managers (PBMs) for steering clients towards certain PBM services or drug formularies, even if those options are not the most cost-effective for the client.
• Vendor Referral Fees – Brokers may earn fees for referring clients to various vendors, such as wellness providers or third-party administrators, creating a potential bias towards recommending those vendors over others that may be a better fit.

The key point is that none of these additional revenue streams are directly tied to your organization’s cost-saving goals. In fact, they often create the opposite incentive, encouraging brokers to prioritize their own financial interests over your long-term cost containment efforts.

Flipping the Script: The Flat-Fee Broker Alternative

Fortunately, there is an alternative to the traditional commission-based broker model that can help realign incentives and empower you to take back control of your health plan. It’s called the “per employee per month” (PEPM) or flat-fee model, and it’s gaining traction among forward-thinking brokers and employers alike.

In this model, the broker’s compensation is decoupled from your premium spend and instead based on a fixed, transparent monthly fee per employee. This fee covers a defined scope of services, such as plan design, carrier negotiations, compliance support, and ongoing strategic guidance.

The key benefits of the flat-fee model include:

• Alignment of Incentives – With a fixed fee that is independent of your premium spend, the broker’s financial interests are now aligned with your cost-saving goals. They are incentivized to recommend the most efficient solutions and work proactively to drive down your overall health plan costs.
• Transparency and Accountability – The flat-fee structure eliminates the hidden revenue streams and commissions that can obscure the true value the broker is providing. You know exactly what you’re paying for and can hold them accountable to the agreed-upon scope of work.
• Predictable Costs – The fixed monthly fee makes your broker’s compensation predictable and easy to budget for, unlike the variable commission-based model where your costs can fluctuate unpredictably.

As Rich Westermayer explains, “When you shift to a fixed-fee, transparent model, your brokers are free to build the most cost-efficient plan possible. They can be incentivized to lower your costs, not inflate them, and you get accountability, not vague promises.”

Introducing the BeneSmart Cost Containment Blueprint

At BeneSmart, we’ve developed a comprehensive Cost Containment Blueprint that guides organizations through the process of transitioning to a flat-fee broker model and implementing other proven strategies to regain control of their health plan costs. This nine-step blueprint covers:

• Evaluating your current broker compensation structure and identifying hidden costs
• Negotiating a fair, transparent flat-fee arrangement with your broker
• Optimizing your plan design to eliminate waste and unnecessary spending
• Leveraging data analytics to uncover cost-saving opportunities
• Implementing effective cost containment strategies, such as direct contracting
• Aligning your health plan with your organization’s strategic goals and employee needs

By following this blueprint, you can break free from the constraints of the traditional commission-based broker model and take control of your health plan’s long-term trajectory. As Rich Westermayer puts it, “This is an easy problem to solve, and one that we’ve been solving. Imagine a model designed to work for you, not against you.”

Conclusion: Reclaiming Control of Your Health Plan

The way your health insurance broker gets paid can have a profound impact on your organization’s ability to control costs and achieve your long-term health plan objectives. By understanding the hidden conflicts of interest inherent in the traditional commission-based model and exploring the flat-fee alternative, you can realign incentives, increase transparency, and take back the reins of your health plan.

If you’re ready to break free from the constraints of the status quo and build a health plan that truly serves your organization’s needs, we encourage you to schedule a consultation with the BeneSmart team. We’ll walk you through our comprehensive Cost Containment Blueprint and help you navigate the path to a more sustainable, cost-effective health plan.

Remember, the key to unlocking long-term cost savings isn’t just about finding the right plan – it’s about aligning your broker’s incentives with your own. By making this shift, you can finally start to outsmart rising premiums and reclaim control of your health plan’s future.

To get started, connect with Rich Westermayer and request the BeneSmart Cost Containment Blueprint. It’s time to take your health plan to the next level.