Helping Employers Understand How Insurance Brokers Are Paid
Some business owners and employee benefits managers understand health insurance well. Others, not so much. Many believe that health insurance brokers charge a fee for their services. In fact, most do not.
What frequently is the source of confusion is that fees are often – some might say regularly – are paid for other professional services. A mortgage broker may earn a fee of up to three percent for researching and finding a good lender for a commercial or residential property acquisition.
A typical real estate agent charges a commission of 5% to 6% on the sale or purchase of a home. The total commission paid is often shared equally by the buyer’s agent and the seller’s agent, although this arrangement can vary by agent and location. In recent years, flat fee and lower percentage commissions on real estate sales have drawn a lot of interest.
A Different Approach for Insurance
With most employee benefits, brokers earn a commission based on the premium for the coverage selected. Commissions vary by carrier. The amount may be X% up to a specified dollar amount, then a different percentage for premium above that level. Major Medical coverage typically pays the same percentage commission on the initial sale and each renewal. However, there are some carriers that offer a higher percentage commission in year one, with lower rates paid over subsequent years.
Group size and product offering may also affect the commission. For example, Dental sold as standalone (not in combination with Medical) to a group of 51+ may offer a commission of Y% for all years. Dental sold alongside Medical may offer a higher percentage in the first year only. Some carriers offer a negotiable commission percentage on ancillary products like Dental, Vision, and Life Insurance.
Why a Difference?
Health insurance and employee benefits can be confusing. There’s a lot to understand. Premium. Underwriting. Provider networks. Deductibles. Copays. Coinsurance amounts. In-network. Out-of-network. Medical Loss Ratio. Prior authorization. Out-of-pocket limits. And the list goes on. Really understanding the ins and outs of insurance is not an easy job. Carriers know that, and they want to provide brokers reasonable compensation for the broker’s work in selling, enrolling, and servicing group health, ancillary, and supplement plans.
A client might wonder whether you could steer them toward a more expensive product to earn a higher commission. However, that should not happen. In your role as a licensed insurance professional and a fiduciary, you are committed to act at all times in the best interests of your clients.
Under the Consolidated Appropriations Act (CAA), brokers must disclose commissions for contracts entered into, on or after December 27, 2021. The law applies if a broker reasonably expects to earn more than $1,000 in “direct compensation” and/or more than $250 in “indirect compensation” from a health plan or insurance carrier.
The disclosure requirement generally applies to all types of health insurance plans. It affects all market segments: Small Group, Large Group, Individual & Family Plans (IFP), self-funded plans, fully funded (traditional) plans, Flexible Spending Accounts, Health Reimbursement Arrangements, etc.
Brokers are required to keep disclosures accurate – and to update disclosures within 60 days of any changes in commissions. For more information on the Federal Broker Disclosure Requirements in the Group Market, read Paul Roberts’s 2022 article in the Word & Brown Newsroom.
We’re Here to Help
Word & Brown works with a diverse roster of Small Group and Large Group carriers. You can view state-, market-, and product-specific lists on our website. We also offer innovative technology to help you find the right product for your client.
You can build a quote with the most advanced Small Group quoting engine in the industry – or we’ll do it for you. If you’re market focus is Large Group, we have a team dedicated to that niche, too.
We make it easy for you to compare carriers and plans, view rate differences, and select the coverage that best fits your clients’ needs. Contact your Word & Brown representative today. Or, if you’re not yet doing business with us, fill out our online form or contact one of regional offices in California or Nevada.
Health Insurance Broker
For a sneak peek at what you can expect to earn as an insurance agent, get a copy of our “Insurance Broker Salary Guide.”