The broker squeeze

As health insurers have to cut their overhead costs, they are also trimming broker commissions, which leads to an interesting question. Who do brokers benefit? Brokers have long been considered the sales force for insurers, which is why Independence Blue Cross and the others paid them commissions. But, if they are really consultants for the employers, then it certainly makes sense that the employers would pay the fee. Either way, of course, the companies are paying, but the question is who gets to set the rate. You can read my story on the issue in Wednesday's Philadelphia Inquirer.

To some extent, brokers have been cutting back on commissions to keep bigger pieces of business. Now, the insurers will make that more obvious in how they note the commissions  on premium bills.  Unfortunately, I ran out of space in the paper before I could include comments from Robert Petcove, president of Advanced Benefit Advisors in Cherry Hill.

He said brokers always say that they keep the best interest of their clients (employers) at heart, regardless of the commission structure. But, that was a pretty easy statement to make when the commission structure at most insurers was roughly equal, as it has been for quite awhile. His point is that as insurers and brokers are transitioning to new compensation structures, there will be major differences among insurers. And that may push unethical brokers to put their own interests ahead of clients. Even honest brokers -- all attributes being equal -- will steer business to the insurer that provides the best compensation. "That's why everyone should be on an even playing field," he said.

Petcove said his company, and many brokers, do more than assist companies with insurance buying decisions. He said he operates a mini-call center to help human resource managers and individual subscribers handle claims issues before they get to the insurer. "We are their advocates," he said. "When we can control the issue, we can manage the issue. We're doing a lot of in-house administration."

By doing that, the broker takes some burden off both the insurer and the employer. But, if commissions are cut, brokers may not be able to continue to employ as many customer service and admin people, since they don't directly generate revenue.

"With national health care," Petcove said, "I think most carriers are living for short-term goals. They are looking for any way to cut costs because they are being scrutinized by the government." 

How that will play out in the broker community remains to be seen.