What to Pay Your Broker
Whether it is LinkedIn or conferences, we are inundated with conversations bashing benefits brokers. I wanted to take an opportunity to flip that around and help plan sponsors reconcile the relationship between sound advice and broker compensation.
The latest episode of our podcast, ClaimTalk, is the first half of a two-part discussion with brokers. If you are involved in the benefits space — as a business owner, in human resources, as a CEO or CFO — you really should tune into these episodes for an inside look at the broker role and the process they go through when considering alternatives. With your responsibility to properly hire and retain a broker, this is tremendous insight for you to understand how that side of the business works. When asked to offer his best advice for other brokers, Mike Kerns, a veteran broker from Ohio, said to always first think about your client and their employees. The fact this even needs to be said — much less is the best piece of advice from an experienced broker — tells you the primary concern plan sponsors should have is a broker’s motivations.
If you are reading this, you are likely using ClaimDOC as an alternative to a traditional network solution. Your broker, who believed in and presented this solution, is one of roughly 14,000 benefits brokers we have in our CRM system. While that doesn’t include all the brokers across the country, let’s go ahead and use it. Based on our book, along with competitor intelligence, we believe the number of brokers who actively write RBP is around 250 — one out of every 100 benefits brokers. For those doing math at home, that’s around 1%. I’m excluding those whose clients have RBP that was inserted by a TPA based on who that TPA has cut a deal with. In those situations the broker and the client aren’t being educated on alternative solutions, they are just taking what the TPA slaps in there for $10 PEPM.
I’m sure it’s eye-opening for a plan sponsor to be told their broker is special because they are doing what is right. The profile of companies utilizing ClaimDOC’s solution has changed over the years. The bulk of clients are still doing this because they NEED the financial impact. Saving 30% on medical cost not only improves their bottom line, it massively impacts the financial well-being of members, whether that savings flows directly into reduced premiums and richer plan designs or whether it’s redirected to higher pay and better bonus structures. ClaimDOC’s more white-collar clients aren’t necessarily operating on tight margins, however they have two motivations. The first is idealistic opposition to the lack of control and unexplained cost increases they’ve eaten year after year. The other is the recognition of the entry-level employees need a more affordable option. The point of all this is stating the obvious: a high percentage of plan sponsors could benefit from an alternative solution, but a low percentage are receiving guidance on it from their broker.
Brokers have a difficult job and, as Danielle Young said in a recent article, they have a lot of products on their plate to learn and only so much bandwidth. Like most professionals, they are also trying to make money. Anyone that read the old book, Freakonomics, understands that, for real estate agents, it’s all about ease and speed of transaction. Similar principles apply to the benefits broker space and the forces working against making the right decision are strong:
- Money
- Overrides from the carriers to write network business
- Incentives/pressure from the agency you work for to write network business
- Premiums on the stop loss policy are going to be significantly reduced with RBP, which means commissions will be reduced as well
- Time
- The time to educate yourself on another product instead of using that time selling
- The time it takes to go through the sales process educating clients on RBP versus just showing another quote from another carrier
- The time it takes to service clients once they adopt RBP
Even if a broker can get past all those hurdles what likely makes them most special is their ability to overcome their fears — fear there will be questions they don’t know the answer to; fear they didn’t properly educate their client through the process; fear something could go wrong; fear they could lose their client. The older, established brokers control the largest share of clients that would be right for self-funding and RBP, but they have the least amount of motivation to make a change. The most common thing we hear is “Why would I risk a client relationship that is comfortable?” We all know the answer is because some clients and their members need a meaningful change, but I understand the broker’s dilemma.
This past year, we worked with a broker who is in the cost containment community of brokers. They believe in the need and they believe in doing what is right. We went through the sales process on one of their clients and, at the end of the day, the broker didn’t want to risk the client being upset with them if something went wrong. They are a good person and a good broker, but they couldn’t do it. Believe me when I say your broker is a 1% relationship.
As people continue to talk about greedy benefit brokers, please take time to appreciate your broker. Ask them how they are getting paid. Ask them if they took a pay cut. Openly talk about why the solution is important to you as a company and to your employees. Plan sponsors generally like their broker and want to believe they are doing what is right, however, you need to know they are running a business. Most run a business to make money. One percent run a business to make a difference. When things get hard, please understand your broker didn’t work with you on this change for their own financial benefit, they did it for yours. Maybe they should be the ones getting paid more.