Employers should always know what their health insurance agent is paid. Generally, agents are paid commission through the insurance carrier. That commission is included in the premium paid by the employer to the insurance carrier. Without knowing this amount, you won’t know if you’re getting good value for your money.
Insurance companies pay us a percentage of the medical insurance monthly premium or a per person dollar amount each month (dependents are not included in this number).
Insurance carriers compensate agents based on the insurance policies the carrier wants them to sell. Insurance carriers generally increase the amount of payment based on the amount of business the agent places with the carrier. The more business an agent writes with one carrier, the higher the payout. Some carriers also offer agent bonuses.
What are these amounts?
With plans where Obamacare dictates the price, employers having less than 50 employees using a fully-insured product (where there is no underwriting and the insurance carriers are not always sure what risk they are absorbing) pay the agent between $20 to $33 per employee per month.
One carrier in the Atlanta market is moving away from small, fully-insured companies (employers with less than 50 employees). Nationwide, insurance carriers are losing money on this size company because they can’t underwrite the medical risk and therefore can’t price the product according to the amount of claims they expect to pay. What’s the answer? Pay the agents a very low commission, in this case $20 per employee per month. For a group with five employees participating in the insurance, the agent is paid $100 per month. Most agents will advise clients to use another health insurance carrier as they cannot provide the level of service at this income level.
Another Atlanta area insurance carrier that focuses on small groups, understands Obamacare and the risks in the fully-insured health insurance market (where the financial exposure is not known because they don’t know the medical conditions of the employees being insured). However, this carrier has found a formula that accurately projects these costs. This company pays agents between $28 and $33 per employee per month. The math is simple: Five employees at $33 per month is $165 in a month commission. What’s the difference between $28 and $33 per employee in compensation? The size of the agent’s business with the carrier.
The reduction in commissions and the amount of knowledge health insurance agents are now providing their clients results in an imbalance. To off-set the expenses, agents are providing consulting services. If a company asks an agency to look at its benefits and does not make that agent broker of record, the agency will ask for a fee. If a company has not previously offered health insurance, I would expect the agent to ask for a consulting fee. To often an agent will invest a great deal of time and intellectual property to have a company decide not to offer benefits or select a different agent to carry out the consulting agent’s suggestions. Companies where we have requested a consulting fee have been very complimentary of the analysis provided.
As a result of the adjusted fee schedule, insurance agents are increasingly looking for larger employers as the amount of time the agent expends is roughly the same as employers with less than 50 employees. Small companies generally do not have an HR person and therefore the person who is administering the benefits needs an agent who will work as the company’s back office, efficiently working with employee claims, understanding their benefits and finding doctors. These employers also need help with compliance, education and changes occurring frequently in the current environment.
To make the transition to Obamacare and ensure companies can operate with as few Obamacare requirements as possible, many agents are recommending level-funded products. Insurance companies are promoting these products as they are able to underwrite the medical risk, are not bound to an MLR (maximum loss ratio), pay lower state taxes, and share the risk with the employer. The highest commission payment we are currently seeing is $38 per employee per month. These products are only available to employers with 10 or more participating employees, although we have recently seen a trend down to five employees. The key to participating in this type of plan is the health of your employees. See Health Insurance Funding Options.
What services should a company expect from an agent?
The number and type of services to be expected varies from agent to agent and the size of the employer. If you are a small company, defined as less than 10 employees, you have 5 people on the insurance and the insurance agent is paid $20 per employee per month, that is only $100 a month or $1,200 a year.
I would expect the agent to look at plan options within the market and present you with competitive options from different insurance carriers. The agent will review these options and most likely make a recommendation on what insurance carrier and plan design best fits your company and employee needs. “Best” might be determined by monthly premiums, employee needs, maximum out-of-pocket (the financial exposure for each person who participates in the insurance), or other factors specific to the company. This information may be provided by phone and/or electronically.
ALL companies are required to provide employees with applicable legal notices. There are approximately 20 legal notices which must be distributed, including notices required when an employer is NOT offering health insurance.
If your company has 11 to 19 employees, you should receive the above benefits as well as some phone support, should you or one of your employees have a claim or billing issue that cannot be resolved directly with the insurance carrier.
Groups with less than 20 employees will often be serviced by an agent who may not provide or is not familiar with the required employee notices. Make sure you obtain and distribute these notices to avoid a DOL fine. You can pay a benefit consultant, an HR consultant, or other entity to provide and review the notices. The cost is minimal, on average around $500 for the basic notices and another $500 to $1,000 for the WRAP document.
Legal requirements change when a company has 20+ employees and again at 50+ employees. It is critical for companies of this size to have a knowledgeable, consultative agent and/or an HR person to coordinate the legal notice requirements. The liability for all size groups can be in employee claims, as well as DOL fines (which are generally $110 per day per employee). A quick calculation underscores the importance of staying on top of this: 20 employees x 45 days of noncompliance x $110 = $99,000.
Here’s what’s reasonable to expect from an agent working with a company of 20+ employees:
- Consulting to determine what benefits should be offered to provide the appropriate level of healthcare coverage for your company and your employees, and be competitive and affordable.
- Employee education: Employees need to know what medical procedures are covered and how to work with the insurance carrier to ensure they receive their full benefits. Additionally, legal notices should be distributed either as hard copies or electronically.
- Employees and administration should have a contact person within the agent’s office to be able to call with any questions or problems (including concerns with claims payment and billing issues). You should expect a return call within 24 hours and the issue to be resolved quickly and efficiently.
In today’s market, it is imperative that your benefit agent delivers these services. Now that you know what they’re being paid, make sure you are receiving comparable value.
These are the opinions of the author.