December is here and with it good news for the 150M+ Americans with employer-sponsored benefits and healthcare plans, top insurance advisors, and insurance carriers. Groundbreaking legislation will take effect on December 27, 2021, which will offer new transparency into over $100B in employer spend each year.

 

Below are the six steps to better understand the profound impact:

 

1. Background

 

Employers spend ~$1.3 trillion each year on benefits–­about 5% of the nation’s G.D.P.– the majority of that in healthcare. Brokers, albeit indirectly for the most part, receive about $100B of that employer spend in compensation, and the majority of that spend does not have to be disclosed to employers. That is about to change.

 

2. How Broker Compensation Works 

 

Insurance brokers and advisors help employers purchase insurance. The broker is then, for the most part, paid by the insurance company that is chosen as the winner. Broker fees are then packaged with the insurance cost and charged back to the employer. Broker payment can vary in structure and amount from carrier to carrier.

 

Brokers can receive incentives for the number of new employers they place with a carrier, the number of products purchased, or employers retained. The comp arrangement also applies to key vendors (think PBM vendors, medical management platforms, etc.) and how they compensate brokers.

 

3. For Example 

 

A 250-person manufacturing firm is self-funded. The employer works with a broker to set up the following: 1. stop-loss insurance, 2. use of an insurance carrier’s network and TPA, 3. for medical management, and 4. a PBM vendor. The broker is paid by each of those four entities but does not have to disclose any compensation for these services the vast majority of the time.

 

4. New Transparency and Obligations

 

The Consolidated Appropriations Act of 2021 (CAA) requires: Brokers providing services to ERISA-covered group health plans to disclose in writing any compensation they receive for providing services to the plan. This covers any arrangement where a broker or advisor can reasonably expect to receive at least $1,000 in direct and indirect compensation for the services, including non-cash compensation.

  • Employers (plan fiduciaries) must obtain and review this compensation information to ensure the plan’s arrangement with the broker or consultant is reasonable

5. Who Wins?

  • Employers and employees. Greater transparency benefits all industry participants. Because employers spend $1.3T annually, this additional disclosure will directly benefit both cost and quality.
  • Great brokers. Talking to a partner broker earlier this week, they championed the legislation saying that it creates a more even playing ground. This has been a long-standing point of contention, but the federal government has finally taken action to require more fee disclosures to employers from brokers.

6. What Will Disclosure Look Like?

 

Broker compensation disclosures will likely mirror disclosures provided today by ERISA governed 401K providers. Specifically, look at the first few pages of a proposal and the footer of documents that cover all compensation-related information. Make sure to read the small print, ask questions, and compare.

 

It will probably take 24 months for the industry to get into a good groove, with brokers providing information and employers digesting it. If you are an employer or a broker and have questions about the disclosures, please reach out, and we will be happy to connect with you.

 

Looking for related content about the No Surprises Act? Our recent webinar "No Surprises Act: Employee Impact & Broker Fee Disclosure” is available for on-demand viewing, and be sure to check out the Mployer Advisor blog for more exclusive content.