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Broker & Consultant Disclosure Standards for Health & Welfare Plans


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Optimizing Transparency

Courtesy of Risk International Benefits Advisors

Published in: Healthcare
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Broker & Consultant Disclosure Standards for Health & Welfare Plans

  1. 1. *This document and any attached documents are not to be shared with any third-party without prior written consent from Risk International. Broker & Consultant Disclosure Standards for Health & Welfare Plans Optimizing Transparency
  2. 2. © 2017 RISK INTERNATIONAL BENEFITS ADVISORS BROKER & CONSULTANT DISCLOSURE pg .2 A CASE FOR CHANGE The health and welfare industry exists to provide comprehensive benefit options in a highly competitive environment. So often, qualified and effective solutions go unused due to underlying broker compensation arrangements and other conflicts of interest. This situation continues to prevent employers from seeing a clear picture of their benefits marketplace – optimal services, clear financial benefits and enhanced service to employees. Employers must demand more. There needs to be a standard that cuts through the fog associated with broker and consultant compensation, financial arrangements and obvious conflicts. Full Disclosure is Long Overdue The broker and consulting industry is more complex than ever. As the health and welfare benefits space continues to grow and evolve with more plan, carrier, vendor and broker/consultant options, now is the time to set standards for full and complete financial disclosure. The word transparent has been abused for too long. The industry has escaped the type of disclosure necessary for employers to fully understand the flow of all forms of revenue and business interests that exist. It is critical that employers no longer accept loose information that has intentionally told only a portion of the financial picture.
  3. 3. © 2017 RISK INTERNATIONAL BENEFITS ADVISORS BROKER & CONSULTANT DISCLOSURE pg .3 How to Proceed It’s not enough to ask for full disclosure and expect the full story. In the following pages, we’ve provided a comprehensive set of exhibits designed to enable employers to ask the right questions and obtain the right information. STANDARD COMPENSATION DISCLOSURES The crux of the issue is to identify all forms of compensation that come directly from an employer’s health and welfare plans. Compensation within the plans can come in many forms, but most commonly will materialize in the form of commission as a percentage of total premium for that particular coverage, fee for service, Per Eligible Per Month (PEPM) or Per Member Per Month (PMPM). While brokers frequently disclose some level of compensation, far too often the information is incomplete, inconsistent and cumbersome. Exhibit 1 on the following page was designed to illustrate the potential opportunities for compensation across an employer’s full benefits suite. ADDITIONAL/NONSTANDARD COMPENSATION DISCLOSURES In addition to commission and fee-based arrangements, brokers and consultants often are compensated by the industry in other ways. A sample listing of these types of arrangements appears in Exhibit 2. Brokers and consultants may have an enhanced position with a carrier or vendor through all-expense-paid trips, conferences, book-of-business and volume-based commissions, and even paid membership to preferred carrier panels. DISCLOSURE OF RELATIONSHIPS/CONFLICTS Conflicts can also arise from relationships rather than compensation. Exhibit 3 is an example of disclosures specifically designed to highlight non-monetary conflicts of interest. In many cases, firms are presenting clients with products and services for which they have a direct ownership or stakeholder position. Coalitions, administrative platforms and exchanges are commonly owned and operated by firms and are frequently positioned in the most favorable way without a thorough or fair assessment of the market.
  4. 4. © 2017 RISK INTERNATIONAL BENEFITS ADVISORS Lines of Coverage Insurance Company Effective Date Compensation Arrangement Compensation Multiplier1 Total Annual Commission or Compensation2 Medical XYZ 1/1/2018 2% $2.2M $44,000 Rx XYZ 1/1/2018 $0.25/script 10,000 $2,500 Dental XYZ 1/1/2018 5% $500K $25,000 Vision XYZ 1/1/2018 5% $300K $15,000 Stop Loss XYZ 1/1/2018 NA NA $0 EAP XYZ 1/1/2018 $0.50 PEPM 500 $3,000 FSA XYZ 1/1/2018 NA NA $0 Group Life XYZ 1/1/2018 4% $200K $8,000 AD&D XYZ 1/1/2018 10% $50K $5,000 LT Disability XYZ 1/1/2018 10% $100K $10,000 ST Disability XYZ 1/1/2018 $2.00 PEPM 500 $12,000 Cancer & Critical XYZ 1/1/2018 15% $50K $7,500 Wellness XYZ 1/1/2018 $1.00 PEPM 500 $6,000 Disease Management XYZ 1/1/2018 NA NA $0 Broker Fee NA 1/1/2018 Flat Fee NA $75,000 TOTAL $213,000 1 Number used to calculate total cost to employer. This number can be represented as total premium, # of eligible lives or any other applicable figure. 2 This should be the total amount of compensation by the applicable line of coverage – the method (commission, fee or PEPM/PMPM) multiplied by the count or amount in the adjacent Compensation Multiplier column. Exhibit 1 – Sample of Preferred Disclosure Table by Line of Coverage BROKER & CONSULTANT DISCLOSURE
  5. 5. © 2017 RISK INTERNATIONAL BENEFITS ADVISORS BROKER & CONSULTANT DISCLOSURE Compensation Type Insurance Company Actual or Valued Amount Contingent/Bonus Commission XYZ Company $14,000 Back-end Commission XYZ Company $10,000 Exhibit 2 – Sample of Preferred Disclosure Table by Additional Compensation Type Exhibit 3 – Examples of Broker Conflict Disclosures Type Business Product/Service Name Detail Wholly Owned Product/Service ABC Private Exchange Coalition/GPO XYZ GPO Wholly Owned Product/Service ABC TPA Stakeholder Interest Product/Service DEF Benefit Admin System 9% ownership in DEF Conference Attendance XYZ Company Preferred-vendor Panel XYZ Company PLANNING AHEAD Disclosures should be provided within the first 90 days following the end of the plan year. In addition to these disclosures for the previous plan year, your broker should be providing projected cost for each of these items for the upcoming plan years while under contract.
  6. 6. © 2017 RISK INTERNATIONAL BENEFITS ADVISORS BROKER & CONSULTANT DISCLOSURE pg .6 WHAT TO DO Employers must demand disclosure and true transparency in how brokers are operating. As covered within this document, there are a number of opportunities for employers to have pointed conversations and to mandate disclosure before entering into an arrangement with a broker or consultant. If these firms are especially apprehensive about disclosing all channels of revenue resulting from employer plans, it should immediately bring in to question who’s best interests are in mind when marketing and proposing benefits solutions. During contract negotiations with a representative, it is important to set expectations that the employer will request this level of disclosure. At the end of the plan year, the broker will be bound to disclose all forms of commission or fee-based compensation and demonstrate that in an easy-to-understand method. The Path to Change The health and welfare benefits industry continues to innovate to meet the increasingly complex needs of today’s members. As such, it is more important than ever that employers find a partner that will work to thoroughly assess the market in an unbiased manner and present the most fitting and impactful solutions. With the current landscape of broker and consultant representation, this can be a daunting task. Industry forces have made it highly lucrative to prioritize solutions by compensation, familiarity and other conflicts of interest.
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