Insurance plans that pay higher commissions to brokers usually have higher premiums, which is contributing to rising healthcare costs, according to a new study.
Researchers from Johns Hopkins University said Wednesday that brokerages operating under fee-based models, as well as those that have no middleman purchasers, offer the most value for businesses of all sizes.
Under the current system, smaller plans often have higher commission-to-premium ratios than larger health plans, researchers said. They found a $1,000 increase in premiums correlated with an approximately $30 commission hike for the insurance broker. Dr. Marty Makary, who led the study, said the study's results quantify the conflict of interest facing many brokers across the U.S., since agents can be paid a bonus by insurers for selling a more pricey policy, even if it's not in the employer's best interest.
"This is one of the fundamental areas of healthcare waste in America, the way in which health insurance and pharmacy benefits are sold on the market," Makary said.
While most large employers hire benefit consultants to navigate their self-insured health plans, smaller companies often use insurance brokers to help them choose a plan for their employees. Those brokers are primarily paid through insurer commissions, which are tacked onto the final price of the policy. That cost ultimately comes out of workers' pockets, the study said.
"The average American utility worker, food service worker, postal worker will have approximately $4,000 of their earnings go to their company's broker to put him in a (pharmacy benefit manager) or health insurance plan," Makary said.
Researchers reviewed public Form 5500s filed with the Internal Revenue Service by more than 23,600 companies and found brokers received an average commission of $178 per enrollee for fully insured health plans, or $89,000 paid to brokers for a company with 500 employees. Businesses with fewer employees generally paid a higher commission per enrollee to brokers, according to the study.
The Johns Hopkins analysis, which was published in the "Medical Care Research and Review" journal, does not include any bonuses brokers received from insurance companies for selling their plan, employer retention bonuses, acquisition bonuses, or other "kickbacks," Makary said. Because of this, he noted brokers can receive even more incentives for pushing pricier policies.
"The benefits advisor should be paid for their work," he said. "But the way in which they are paid distorts their fiduciary role, and the result is we have bloated [pharmacy benefit managers] and insurance domination in the marketplace."
He said the study underscores the need for employers' interests to be aligned with their brokerage's interests.
Congress could fix some of the incentive issues, he said. In May 2019, the U.S. Senate Committee on Health, Education, Labor and Pensions introduced The Lower Health Care Cost Act, which would require health insurance brokers to disclose all compensation associated with plan selection and enrollment before the contract is finalized.
Businesses can also choose to work with brokerages that are paid with a flat fee. Makary recommended brokers who have received "Health Rosetta" certification, which he said means they adhere to strict principles regarding commissions, bonuses, kickbacks and other options for their employees.
"American businesses are getting ripped off on their healthcare by a profit of an order of magnitude of 30 to 40% of their entire healthcare spend," Makary said.