Interesting article from a raging Bull poster:
Sacramento Business Journal
Are health plan brokers paid too much?
Kathy Robertson Staff Writer
There's a quiet corner amid the nation's hue and cry about cuts in
healthcare budgets. There, firmly lodged, sit the health insurance brokers.
Brokers who help employers buy their health plans are perhaps the only
sector of the healthcare industry to have eluded the budget ax so far.
They continue to collect commissions, much as they always have. Those
commissions can range from as low as 2.2 percent of the premium amount spent
by extremely large employers, to as high as 20 percent of the premium spent
by individuals and small businesses.
The five HMOs most dominant in the Sacramento region spend an average of 4
percent of their revenue on broker commissions. Brokers say the typical
range is 4 percent to 8 percent.
Brokers don't like to talk about the pot of gold they continue to collect in
an era when revenue collected by hospitals and doctors has plummeted.
"They know they have a hell of a golden goose that won't stand up if anybody
knows about it," says Tom Elkin, former director of the huge health benefits
program run by the California Public Employees' Retirement System.
Elkin, who now works for Birch and Davis Healthcare Management Co., sees
broker commissions that start at 8 percent and scale down to 4 percent,
based on numbers of people covered.
"In the age of tight reimbursement, that's a well-concealed piece of the
healthcare dollar," he says. "I don't want to blast people who are
performing a service for a fee, but it certainly begs looking at.
"Premium dollars are viciously fought over by medical groups that are going
broke and hospitals that aren't doing so well. The 5 percent to 6 percent
should at least be on the table for people to consider. What are we
receiving for these fees?"
Brokers counter that they add value to employee benefits by helping their
clients wade through complicated policies.
"Every day," says Sacramento health insurance broker Dale Waters, "I get a
call that starts with, `I need a favor...' "
HMOs need brokers for sales: Blue Cross, Blue Shield, Health Net and
PacifiCare say between 80 percent and 99 percent of their business comes
from brokers.
Three years ago, the state's largest HMO, Kaiser Permanente, began using
brokers and saw a big surge in business after years of flat enrollment with
an in-house sales force.
Wellpoint Health Networks Inc., parent company to Blue Cross of California,
spent a total of $280.1 million on "selling" costs nationwide last year.
That was 4.3 percent of total revenue for a $6.5 billion company. It was up
12 percent from selling costs of $249.4 million on revenue of $5.6 billion
in 1997.
Both PacifiCare Health Systems Inc. and Foundation Health Systems Inc. spent
$1.1 billion on marketing, general and administrative expenses nationwide in
1998. If the industry norm of 4 percent went to brokers, that's $44 million
from each HMO.
That kind of money helps explain why brokers harbor antipathy to CalPERS.
The giant statewide purchasing pool covers more than 1 million people -- and
it doesn't pay commissions.
"We got some ugly letters at PERS," Elkin recalls. "Things like `stay out of
Pasadena' because we were taking a major account away from the brokers."
It's a touchy subject.
Locally this summer, brokers were atwitter when the Sacramento City Unified
School District switched to CalPERS after previously buying benefits from an
HMO, Health Net, for 2,800 employees. One local insurance brokerage lost
what an industry source calls "the sweetheart deal of all sweetheart deals."
The school district and the HMO, however, both deny that the district even
used insurance brokers. But the school district admits that a local broker
"did help service our employees."
The broker involved angrily dismissed questions with the comment, "Why is
this anybody's business?"
With medical dollars being stretched thin, however, it's everybody's
business where the money goes.
A cost of doing business: Health plans say broker services are valuable and
commissions are a necessary part of doing business. The money comes out of
the administrative budget, not the budget for medical care, and it has
remained a stable percentage of the premium dollar for years.
Blue Cross brokers get 2.2 percent of the premium dollars brought in for
large groups, said health plan spokesman Peter O'Neill. Large groups are
employers with more than 50 employees.
For small groups, brokers get 10 percent of the first $30,000 in annual
premiums paid to Blue Cross; they get 6 percent for the next $30,000. Those
who sign up individuals collect 20 percent the first year and 10 percent a
year after that for renewals.
"For large groups, the brokerage community is highly important," O'Neill
says. "Just as specialists exist in law and accounting, specialists exist in
our industry because of its highly technical nature. Brokers have firsthand
knowledge about service levels, difficult renewals, favorable renewal
activities and competitive information over time."
"For individuals and small groups, the value of independent agents and
brokers is even more pronounced," he adds. "Health insurance purchasing for
these customers is relatively infrequent. It is so personal to an individual
consumer or employees of a small company that they are willing to pay
extra."
Value-added services: Brokers do agree that their commissions have escaped
scrutiny. And they say there is wiggle room in the industry to sign up
companies with a health plan, collect a nice monthly fee and relax.
But for most, it's a competitive field that requires a lot of hand holding,
over and above the actual selling of a health plan.
Buyers of health plans are more savvy than they used to be. They want to
comparison shop, and they don't want to have to deal with the health plan
after the deal is closed.
Jack Seibert, a 24-year veteran broker, says that between 60 percent and 70
percent of his fee goes back into the cost of taking care of the client.
"We establish the business," he says, "and then put a lot of the income back
in, in services."
Among other things, brokers:
Offer health plan comparisons, explain options and sign up buyers with their
plan of choice.
Serve as a liaison between the client and the insurance company when
problems arise about benefit coverage, coordination of care and access to
physicians.
Explain regulatory requirements for special benefits like 401Ks and
cafeteria plans.
"There was a day when there were fewer brokers and one could make a good
living at this with minimal effort," broker Waters says.
Then the property-casualty insurance companies found out that employee
benefits were a good profit center, he says. They brought value-added
services to the field.
"Now the broker is more of a healthcare consultant who shows up with
employee handbooks, graphics and free cafeteria plan administration."
Meanwhile, he says, broker commissions have dropped from a typical 8 percent
down to about 6 percent, depending on the size of the account, Waters says.
"You have to look at the back end, too. Now some $100,000 premium accounts
generate as low as 4 percent to the broker -- and we need value-added
services to do the business."
Ultimately, he adds, some of the value provided by a broker comes in
intangibles.
"You can now buy health insurance over the Internet," he says. "The
difference when you buy from us is we'll be there, almost as employees,
instead of Mary one week and Amy the next."
An employer's perspective: "I believe it's worth it," says Ron Berger,
general manager at the Sheraton Hotel in Rancho Cordova. His company has
worked with Seibert for about five years and opted to stay with him this
year despite a choice of tapping into another option offered by his parent
company. Sheraton provides medical, dental and other benefits for between
150 and 160 local employees.
"The key to all this is a broker who will show me how to get the best deal.
Jack breaks it all out for us, shows us how to shop plans and determine
which is the best for our company. That's the main reason we stay with him.
We typically get two or three bids, but hope he'll come in best because
there is a certain loyalty there.
"Jack comes out and provides information about the carriers," Berger adds.
"We added Kaiser this year, and he explained what they offer. He does it in
both English and Spanish.
"Service is really the key. Jack resolves issues in a timely manner, while
others are quick to book the business and you lose all sign of them until
enrollment time comes around again."
Time for reform? Mike DiManno, co-founder of a successful local benefits
firm called DiManno Hansen, which merged last year with Accordia Inc. of
Indianapolis, agrees something needs to be changed.
"Just like all arts of the healthcare system, there is fat in the broker
piece, but it is not consistent across the market," DiManno says. "The
question is whether someone working out of their house who runs quotes and
gives out the number of the carrier should be paid the same as Accordia,
with 60 people in house who provide services."
All the doctors and hospital administrators contacted for this story refused
to comment.
For his part, Elkin -- who gained a reputation as a hardball negotiator with
health plans in his career at CalPERS -- thinks it's time brokers are held
accountable for the money they take out of the industry.
"A few hundred million a year," he says, "would be very helpful." |
