Greg’s Blog: When Are Employers Going to Hit Their Pain Threshold and Demand Vendor Transparency? To Start, Broker Transparency.

When Are Employers Going to Hit Their Pain Threshold and Demand Vendor Transparency? To Start, Broker Transparency.

Greg Kershaw, COO of Arevo Health

May 14th, 2019

As a former TPA (third party administrator) business owner, I was always surprised by the existence of hidden compensation paid to advisors that by their very existence created a conflict of interest with their clients.  Brokers went to great lengths to provide detailed spreadsheet comparisons of fees for all of the other, downstream vendors, however, from my vantage point, employers did not much understand their broker’s total cost. These included both direct and indirect compensation driven by their plan.

Before anyone flips outs, I’m not trying to denigrate all benefit consultants.  In the past, I worked closely with a number of great consultants that drove considerable value to clients.  As a claim’s payer, I experienced first-hand how professional consultants can help balance contracted deliverables with the sometimes-overreaching expectations of some clients.  They can also be extremely helpful in facilitating a resolution to a myriad of issues that arise in the plan implementation and claims administration process.

Unfortunately for every strong consultant with whom I worked, there was another that either provided limited value and/or significantly overcharged for services.  As with most TPAs that market services through brokers, I took the position that broker selection and compensation was between the employer and their broker.   I had no interest in upsetting what was and to this day remains a broker-controlled marketplace.

The market is broker-controlled because of all self-funded vendors, it is the broker that sits at the top of the food chain evaluating on behalf of employers all other potential plan vendors.  They are the nexus of all plan data and vendor proposals.  They alone, especially for mid-market employers, determine what is actually presented to the employer for consideration.  For their part, employers place a great deal of trust in their broker’s advice and assume the advice is independent, impartial and free of conflict of interest.

Is this level of trust warranted?  I would contend in many cases no.  A major reason is the plethora of commissions, override, retention bonuses and new business incentives that are paid to brokers, many of which are not visible to the employer.  While these undisclosed fees and commissions amount to a material amount of expense, the greater concern is they create a conflict between the broker’s compensation and what may be in the interest of the client.  Worst of all, as the Plan’s Administrator, the employer cannot fulfill its fiduciary duty of monitoring vendor expenses if fees are not disclosed.

This is not new information.  What remains surprising is that in light of all the headlines regarding the staggering cost increases in benefits, many employers have still not taken steps to demand greater transparency from their broker.  These hidden fees at the very least are adding to the escalating premiums paid by employees.  Even worse, they could be hindering your broker from presenting vendors and options with real promise simply because they don’t pay as well.

While there is a trend towards greater broker transparency, I am shocked at the number of employers that have no formal broker agreement with a detailed scope of work.  Further many that do have agreements, do not require complete compensation disclosure or a method to validate its accuracy.

So, I still find myself wondering when these employers are going to hit their pain threshold and take corrective action.  They have a fiduciary responsibility to their plan and covered employees to do better.