From the Feb 8, 2010 edition


OPINION

At some point as we put the health care cost puzzle together, we will come to a significant piece that doesn’t seem to fit easily into the picture. It is the estimated $24 million that Rhode Island employers pay to insurers to cover the fees and commissions they pay to brokers. As we have seen from recent comments in this very space, the broker community is organized and ready to defend its profitable place at the health care trough.

I have nothing against the brokers. Our company uses one who is a personal friend, and he makes a useful contribution to our effort to control this difficult expense. I think of him as a “benefits consultant,” and I would be happy to pay him for his work. The problem is I can’t, nor is it easy to figure out what he is paid on our behalf. Like all brokers, he is paid a commission by the insurance carrier. This cost is then passed along to all small businesses, even those that don’t use a broker, through a rating adjustment in our premiums. I am told that starting this year that cost will actually show up on our renewal invoice, but it won’t be our company’s specific cost, just our share of the total.

If you are a small business not using a broker, you may have been unaware of this “tax” you were paying to subsidize those that do. You may not even be able to add a broker now. No, once the rates for this segment of the market are set, paying brokers for a new account could disrupt the insurers’ budget, so they might not allow it without a very long waiting period. If and when they do allow it, it will add to the “pool” of commissions and affect everyone’s rate the following year.

Then there is the issue of conflict. If you are using a broker in hopes of pitting competing insurers against one another to offer lower rates, remember the insurers, not you, are the ones paying him. It isn’t like property and casualty insurance, for which you could call in several broker agencies to broaden the number of carriers participating. No, health insurance brokers should be treated as if they were commissioned sales agents of the insurance companies, plain and simple.

While individual brokers may have ethical standards governing what fees they will accept, insurers offer varying “bonuses” to brokers to encourage such things as “persistence” and “loyalty” to encourage renewals. And of course, commissions are a percentage of premiums, meaning that in general, the higher your premium, the higher the broker’s commission. Is that a conflict?

In the long run, we don’t necessarily need to eliminate the brokers. We just need to bring some transparency to the value they bring to the equation, because they have the potential to do just that. And if, in fact, they are consultants, they should be paid by their clients. If that cost goes through the insurance company, then the broker fees should be applied to each account for which they are paid. Subscriber groups that choose not to use them to save money, or for whatever reason, should be able to opt out and avoid the broker tax they pay now.

It may seem that I have painted the brokers into a tight corner here, but to assume that would be selling them short. They can be depended on to show up on Smith Hill to fend off any element of reform they see as a potential threat. Indeed, they already have started on that tack in their somewhat surprising attack on HealthRIght, a broad, grassroots reform coalition with representation from small business.

HealthRIght is a nonprofit advocacy group funded primarily by a grant from the Rhode Island Foundation. Its membership includes some of our state’s brightest health-policy minds, HealthRIght has worked closely with the lieutenant governor’s office on a comprehensive legislative package of reforms featuring a very strong central health insurance “exchange.” The exchange would be a marketplace through which all insurers could sell their products in ways that make it simple to compare different insurance plans in easy-to-understand language. The draft measure makes no mention of brokers or their fees, but it’s clear that demystifying the buying of health insurance for the average small business has at least some brokers very nervous.

The job of reforming the health care system requires the willingness to give up something so that no one will end up with nothing. Brokers are not alone in what they surely see as a sacrifice. To me at least, it will be a great disappointment, however, if our personal and collective greed prevents us from achieving this obvious common good.

Giving a clearer shape and image to this potential $24 million piece of the puzzle can only help us fit it into its appropriate place in the reformed health care system we are trying to build. •

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Ted Almon is president and CEO of The Claflin Co. and is an active participant in the debate over health care reform in Rhode Island.