By: Mike Schroeder, President
Your insurance broker should work for you. Unless you’re already working with Roundstone along with an advisor that approaches benefit funding as we do, it may not be clear how to make the most of your broker relationship. What can you do to make your broker meeting a more effective strategic session about reducing costs and improving the quality of care for your employees?
First, it’s helpful to understand what the process looks like from the perspective of the broker operating in the traditional fully insured market.
Being a Broker – What’s That Like?
Each year, a couple of months before your renewal period, your broker gets a renewal offer from your current carrier. You might imagine that offer comes with robust data that explains the new price. But if you are a midsize business working with a national carrier, then no. That data never makes it to your broker. If you have fewer than 100 employees, the carrier probably provides no data at all.
With the new premium in hand, your broker may shop the offer to the other three national insurance companies. They also have no data to base their offers on. But they can see the new cost from your current carrier, and they know they need to come in lower than that.
Your broker, having negotiated these lower bids, presents you with several options. Often, it’s a choice between multiple bad offers, the worst of which is from your current provider. You’re stuck with a tough decision. Is it worth disrupting your employees to switch carriers for this relatively small difference in rates?
That’s one scenario. Another is that your current insurance provider extends a no-shop offer to your broker. In which case your broker may bring you one and only one option this year. If that happens to you, it’s very likely that you are being overcharged. You are so valuable to your current provider that they don’t want anyone else to have a shot at winning your business.
Incentives – Who Does Your Broker Work For?
You should be aware that some brokers may have an incentive to steer you toward a particular insurance company, and to allow your insurance company to escalate rate increase year over year.
A recent NPR article details out the incentives problem. Some national insurance providers offer commissions of 3-6% of the total premium to brokers, in addition to bonuses, overrides and giveaways.
What seems like your broker pointing you to the most competitive health plan may actually be your broker pointing you to the insurance company offering the highest compensation. What’s more, the higher the premium, the more the broker gets paid. It’s a classic conflict of interest.
Not every broker is paid by the insurer. Many are paid directly by the employer and have a true mission to get you and your employees the best possible health benefits at the best possible price.
Cost Saving Strategies
If you ask your broker about cost saving strategies, they may suggest a plan with higher out-of-pocket costs to your employees. There are many other powerful cost saving strategies available to them, but only a limited number that are possible with traditional “fully insured” providers.
So, you may be offered a plan with higher out-of-pocket costs. Is that so bad?
Obviously, it’s not a great deal for your employees. But it can also be a bad business decision. According to recent Gallup data, 33% of American households delayed treatment in the last year due to high out-of-pocket costs. Delayed treatment is tied to more emergency room visits, higher long-term costs, and reduced workplace productivity.
You need a better strategy than that.
So, What Can You Do?
Your broker should be your trusted advisor with your best interests in mind. In the past, maybe your broker meeting has been a passive process for you. Maybe you felt trapped. Maybe you didn’t know what questions to ask.
Roundstone has prepared 7 questions you can ask your insurance broker that will help you take back control.
About the Author:
Since 2005, Michael A. Schroeder has served as President of the Roundstone organization. Roundstone develops, underwrites and manages captive/self-insurance solutions.
Mike offers more than twenty-five years of insurance industry management experience. Mike delivers a track record of building and leading fast growing, innovative insurance businesses.
Mike Schroeder received his Juris Doctorate from The Ohio State University College of Law and received his Bachelor of Science degree in Business Management from Tulane University.