Late last year, the new Broker Compensation Disclosure law went into effect to add transparency to the broker/client relationship. It’s part of the 2021 Consolidated Appropriations Act, which included the No Surprises Act, among many other things.
What is the Broker Compensation Disclosure?
The CAA requires brokers and consultants who provide employee benefits services to disclose their compensation from sources such as insurance carriers, including commissions, fees, and non-cash compensation. This is similar to the rules that went into effect for the retirement plan industry about 10 years ago. Brokers must now disclose direct payments such as bonuses and fees that equal $1,000 or more, and any non-cash compensation that equals $250 or more.
The goal of these new requirements under the ERISA law regulations is that employers can make more informed decisions when selecting a health benefits broker to provide their employees with coverage. With the CAA, employers can now better understand how much their brokers are being paid by insurance carriers to provide health plans. This will also ensure brokers are more transparent when it comes to their compensation, improving trust between employers and brokers.
This step forward for transparency is needed, as brokers and consultants are paid by third parties who often have different interests than employers and employees. In a commission-based system, brokers make more money as costs go up. It’s why many groups are switching to forms of broker compensation that are flat and/or based on performance.
With more transparency around pay and a greater awareness of services to receive, employers can make more informed decisions around their benefits broker and service providers. I can’t tell you how often I’m talking to a group and I’m just shocked how little service they are receiving for their account and their employees.
In the large group space, which is over 100 employees in CA and 50 in most other states, broker compensation is variable and can be negotiated and set with carriers. But in small group markets, the commission is set with the state and not adjustable. So it’s in your best interest as a small group to maximize the value you get out of your benefits broker.
How do you determine reasonable broker compensation for employee benefits?
When selecting a health benefits broker to provide employee coverage, it’s important to consider what constitutes reasonable broker compensation.
What’s reasonable and how would a HR director or CFO determine whether their broker is earning reasonable compensation? Some considerations include:
- Market pricing for similar services and products
- Scope of monitoring benefits (do they show up once a year at renewal time, or are they involved year-round?)
- Complexity of the products involved (self-funded is more involved than fully-insured, for example)
Employers should consider factors such as the broker’s experience and expertise in the health benefits field.
What services should an employee benefits broker provide for compensation to be reasonable?
Eployers should ensure that the broker is providing excellent customer service and is up to date on the latest regulations and industry trends. A sample of the services a broker can and should provide include, but is not limited to:
- Product selection and design
- Enrollment and implementation, including technology tools such as online benefits administration
- Procurement of stop-loss insurance, if any
- Selection of third-party administration services for medical management, pharmacy (PBM), COBRA, and more
- Sourcing and implementing vendors such as wellness services, transparency tools, disease management, and more
- Compliance services such as ACA reporting and COBRA administration
- Employee assistance programs
- Employee services such as claims support and billing inquiries
By looking at all of these factors, employers can make sure they are getting the best value for their money when selecting a broker. With the CAA, employers now have the tools they need to ensure they are getting fair and transparent broker compensation.
Here’s my takeaway: if you don’t know what you’re paying your broker, and you don’t see them very often, their compensation probably isn’t reasonable.
Your broker should be present, should be providing you cost containment solutions, should be enrolling your employees, and providing online enrollment and a helpful benefits guide. But all too often, we come across groups with no existing COBRA administration, no online benefits enrollment (they fill out enrollment forms every year), and a lackluster benefits program missing some no-brainers (No FSA? No life insurance?).
The broker compensation disclosure requirement now means every group will know how much their broker is making. The next step is for groups to expect full service and support from their broker.