When it comes to choosing an insurance provider, a vast majority of business owners in the U.S. go the traditional route. In other words, they find a broker who seems like a good fit for their organization, and they choose the plan with that seems like a good value.
The status quo is often convenient. However, the status quo can cost your business hundreds of thousands of dollars a year.
There’s a lot going on behind the scenes in healthcare, which has a substantial impact on your bottom line. To make matters worse, your broker—the person who you trust to navigate the complexities of healthcare—is likely in on it.
What you don’t know can hurt you. These are the four things your insurance broker probably isn’t telling you about their services or your plan.
1. They’re actually a seller’s agent.
Many CEOs believe their brokers are buyer’s agents. In reality, however, their broker is actually a seller’s agent. Why? Because they receive financial incentives from insurance carriers and other health benefits vendors.
Benefits consulting is a $22 billion industry, and insurance companies are the source for the majority of that revenue. Insurance carriers often have programs that require a broker to maintain a 90 percent retention rate to receive a year-end bonus. These programs help carriers retain clients and can be $300,000 to $1,000,000 or more for each local office of a brokerage.
With this much at stake, carriers can heavily influence brokers who might otherwise advise you to move to a self-insured plan. They may try to persuade you to stick with your current carrier’s renewal option. Or, they may upsell you with a new plan, even if it doesn’t provide more value than your existing plan.
Because bonuses are based on the total business a particular broker brings to an insurance carrier, they typically aren’t included in the list of claims costs, commissions, or fees, unless the broker has a transparent practice—which most don’t. Benefits brokers rarely fully disclose compensation, such as cash bonuses for keeping 90 percent of their clients in disadvantageous arrangements with specific insurance carriers.
2. They may have a conflict of interest with local hospitals.
When your broker represents the hospital, there are additional forces working against you. , Some brokers get as much as 30 percent of their revenue from hospitals and other care providers. If this is the case, they’re more likely to recommend the hospital for all plans, regardless of the level of care provided.
Your insurance carrier may also have a hidden partnership with local hospitals. Hospitals are often one of the larger employers in a town or region, so the insurance carrier won’t risk losing them as a client. Since the hospital provides a large revenue stream, insurance carriers typically go easy on them when negotiating pricing on behalf of other clients—like you.
The co-dependent relationship between insurance carriers and hospitals is also evident with out-of-network charges. When health systems impose egregious out-of-network charges, insurers are happy to pay them immediately and with no review whatsoever (and with your money), because it generates more revenue for them in a number of ways.
In response to this profit incentive and an attempt to give you what your benefits managers ask for, they sell this as a benefit for you: You and your employees won’t be bothered by hospital collections departments! They follow this up with “repricing” that discounts charges to seemingly more reasonable levels—on your behalf, of course.
What may not be clear is that the insurance carrier gets paid a share of the repriced claim. This encourages the hospital to push the pre-discount prices ever higher, which pushes the discount up and, with it, the fee paid by the employer and net amount of each claim.
3. There are hidden fees you don’t know about.
You may think that you have a deep understanding of where your money goes in terms of health insurance. For many employers, however, this is far from the truth.
For one thing, contracts between providers and payers can include things like automatic escalator clauses, which stipulate that payment rates automatically increase each year. You may be unaware of these clauses until after a year has passed when you’re surprised with higher rates for the same coverage.
Another fee opportunity you may not know about is the “pay and chase” programs, in which the insurance carrier doing your claims administration gets paid 30-40% for recovering fraudulent or duplicative claims. This causes a perverse incentive to tacitly allow fraudulent and duplicative claims to be paid, get paid as the plan administrator, then get paid a second time for recovering the originally paid claim.
4. Insurance pricing may go above their heads.
Brokers receive a lot of heat for a lack of transparent pricing. However, their pricing structure pales in comparison to that of the insurance carriers they work with.
Insurance carriers want to avoid defending or explaining pricing and the various fees they bake in. This largely comes from the pressure insurance executives face to keep growing profits. Some insurance carrier reporting and data systems are so poor that they literally can’t share and others really don’t want to. If they release the data, a good actuary consultant could dive in and raise lots of questions they don’t want to answer.
If you ask your broker about pricing and they don’t seem to have an answer, chances are they’re just as uncertain as you are. Brokers are often left in the dark when it comes to insurance pricing.
Don’t Blame It On Your Broker. Blame It On The Healthcare Industry.
Your broker may be following shady practices, but these practices are merely a symptom of a much bigger problem.
The healthcare industry is broken. Insurance carriers are in business to make a profit, hospitals seem to care more about their bottom line than the care provided, and brokers have to switch employers to subpar plans to mitigate increasing cost. All of this is possible because the system is rigged. In the end, employers and their employees are the ones paying the price.
This is only the tip of the iceberg. There’s a lot more going on behind the scenes that you may not realize. If you’re ready to pull back the curtain and uncover the truth behind the healthcare industry, read Dave Chase’s book, The CEO’s Guide to Restoring the American Dream.
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