Is your benefits broker working for or against you?

The financial fallout from the COVID-19 pandemic and the other unprecedented events of 2020 will surely force business owners to continue to reduce costs in 2021.

One unexpected way that business owners can take control of spend is to take a closer look at the compensation structures of their current benefits broker, and consider if their broker’s interests are best aligned with business success.

In this post, we’ll discuss:

  • Broker Commissions
  • Fee Only Brokers
  • How this impacts your business

What are Benefits Broker Commissions?

Some benefits brokers earn revenue by charging their clients a commission on a premium-per-member basis. In this case, as a company grows and adds new employees, costs will increase as each new employee is added to the plan. The exact amount of the commission can be affected by the contracts that are put in place with health care plan providers.

This arrangement can present a conflict of interest for brokers. The relationship between commissions and premiums could lead a broker to contract with healthcare plans that yield the highest commissions for themselves, rather than focusing on finding the plan that best meets their client’s needs.

What are Fee Only Benefits Brokers?

Other benefits brokers charge their clients on a fee-only basis. These agreements, in contrast to broker commission arrangements, are based on pre-determined fees that are not impacted by healthcare provider or plan selection. In this case, the brokers will generally receive the same, predictable fee regardless of the contract that is put in place for benefits plans.

Benefits brokers that charge on a fee-only basis share the same motivations as their clients: business success. The more successful their clients are, the more durable the relationship will become between client and broker.

Fee-Only Benefits Brokers are Better for Your Business

The difference between these two types of broker agreements is clear. Although the intentions of commissions-based brokers are not overtly malicious, they create an indisputable conflict of interest that can put your business at risk. Commissions-based brokers simply are not properly incentivized to help your busines control benefits spend while providing the best possible experience for your employees.

Working with a broker that has your business’ long-term success in mind will have the biggest impact on your business. Fee-only brokers have no conflicts of interest when it comes to healthcare providers or plan design, so they can build effective benefits plans that save your company money without sacrificing plan quality. As a business owner, a fee-only broker as your business partner. You are both mutually aligned for success.

Federal legislators also feel that the difference between commission and fee broker agreements should be more transparent. The Lower Health Care Cost Act, a bill that has not been passed but is garnering support, would require that health insurance brokers disclose all compensation associated with plan selection and enrollment before finalizing a contract with a client. This legislation has the potential to reduce confusion faced by employers and facilitate informed benefits decision making.

Key Takeaways

Benefits brokers generally charge fees through two compensation structures: commission or fee only.

Here are the most important things you should know about the difference between the two:

  • A dangerous potential conflict of interest exists with brokers who charge commissions. The relationship between commissions and premiums could lead a broker to contract with healthcare plans that yield the highest commissions for themselves, rather than focusing on finding the plan best meets their client’s needs.
  • Fee only brokers charge a standardized fee for their services, and this fee is NOT impacted by healthcare provider or plan selection. Fee-only brokers are motivated by the long-term success of their clients. The more successful they can help their clients become, the longer they can maintain a professional relationship. This is what will lead to increased revenue in the long term for fee-only brokers. Fee only brokers do not have a conflict of interest in how they design your benefits program.
  • Federal legislation could be passed in upcoming months in an effort to increase cost transparency between benefits brokers and their clients.
  • At Advantage Benefit Solutions, we operate on a fee-only basis. We’d love to talk to you about how you can reduce costs for your business by partnering with us as your trusted benefits broker.
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