Employee Benefits Broker Commissions: How Do Brokers Make Money?
Employee benefit brokers’ compensation can reveal a lot about the value they bring to their clients. Many brokers receive commissions — and sometimes even perks — in return for bringing business to certain insurance carriers. This potential conflict of interest can sometimes lead brokers to recommend carriers that are not the best fit for their clients. But now the Consolidated Appropriations Act of 2021 (CAA) is lifting the veil, giving employers a clearer picture of how their brokers are being compensated.
When your employer hired its benefits broker, you put your trust in them that they’d build the best benefits plans for your needs. But there’s one thing you (and many others) probably aren’t 100% clear on — if we’re not paying our broker directly, how do they get paid? (And how much are they making from us?)
You deserve to know. Why? The way that brokers are paid can have a major impact on the way they do their job.
That’s because brokers can sometimes make some major cash by prioritizing their own needs — and not necessarily their clients’.
Read on to learn the basics of how benefits brokers are compensated, and how employers can leverage a new law to make sure they’re getting the value they deserve.
How do employee benefits brokers get paid?
Most benefits brokers are paid through commissions. These commissions come from the health insurance carrier. Carriers pay brokers a percentage of the total premium based on the number of employees enrolled in the plan — this percentage averages between 3-6% of the total premium.
This means that when premiums go up, the broker stands to make more money. (I’m sure you can see where this is going.)
On top of monetary commissions, many brokers also receive gifts and perks from carriers, like fancy dinners, vacations, off-site “training” events, and high-end car giveaways.
All of this aims to incentivize brokers to send carriers more business — even if they’re not right for the job.
Why does this matter?
We’ll be honest … this system isn’t the best. Think about it.
✅ Higher premiums = Bigger commissions
✅ Larger renewal increases for clients = Basically a raise for the broker
✅ The promise of bigger checks and fancy dinners = Temptation to recommend carriers (or plans) that may not be best for their clients’ needs
Don’t get us wrong — not all brokers take advantage of this system. There are a lot of brokers who do great work, take care of their clients, and are still compensated fairly.
But this system is still set up to incentivize brokers to follow the money, at the risk of their clients not getting the support they need. It may also tempt brokers to not go to bat for their clients to fight high and rising healthcare costs.
Brokers may also prioritize servicing their larger clients over smaller employers. After all, they’re paid by the number of employees enrolled, so they stand to make a lot more from a 2000+ life group than a 100 life group.
Right now about 49% of Americans receive their healthcare through their employer. So it makes sense that over time, the broker commissions system could end up driving healthcare costs higher — at the risk of a lot of small businesses going under.
But that could all change soon, thanks to new legislation called the Consolidated Appropriations Act of 2021 (CAA).
Under the Consolidated Appropriations Act of 2021 (CAA), brokers are now required to disclose their compensation to clients.
That means that employers like you now have a full view of information that may impact the quality of your benefits. And that could really shake up the broker-client relationship.
Using this info, you are much better equipped to determine whether your broker is recommending the best plans, or if they have any potential conflict of interest.
So how do you get that info? All you need to do is ask. Here’s a guide to the right questions to ask your broker about the CAA to kickstart the conversation.
(Heads up — Although the CAA ensures transparency around health insurance, there is some grey area about whether that protection extends to other benefits, like vision and retirement benefits. For some brokers, that may be a loophole for amping up the commissions for those plans.)
If you want a great benefits offering, you need a great broker (especially if you work at a small business).
You need a broker who works as a member of your team and will go to bat for you against premiums. They should be transparent about their commissions, as well as the value they bring to the table. Bonus points if their brokerage offers some sort of Performance Guarantee.
Looking for a broker who's aligned with your employer's needs? Schedule a free benefits audit with one of our benefits specialists today.
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