30 Second Insurance Tips©

Tip 254- Incentives Matter

Attending a gathering of business executives this week, the topic of health insurance commissions came up (again). Why, it was asked, should broker compensation increase merely because premiums are rising?

For that very reason, I explained, insurers stopped paying us a percentage of the premiums years ago. Instead, we are usually paid a fixed dollar amount based on the number of “member” contracts; the average is about $22 per covered employee per month (PMPM).

Think about that. If we (brokers) help you (employers) control your health care spend, you’ll prosper and add employees. If not, you’ll cut staff or worse, drop coverage.

In contrast to that, think about the way health care providers are paid; i.e., a discounted fee for every service. More volume, more revenue. If they keep us healthy, they go broke! Does that make sense?

Let’s review.

Agent compensation represents about 2% of every health care dollar spent. Delivery of care, about 85%.

And for which segment are the incentives properly aligned?