Partnerships and preferred relationships are a critical piece of the business model in the group health care industry. The perception is that the relationships provide better value for clients.
That may well be the case. It is the duty of consultants and insurance brokers to provide the options that best fit clients’ needs and meet their goals.
However, the possibility that a consultant or broker may abandon objectivity when recommending client solutions is a significant concern.
Consulting firms and brokers have preferred relationships with insurance carriers, enrollment firms, pharmacy benefit managers (PBMs), and others. Insurance carriers and third-party administrators (TPAs) have preferred relationships with PBMs, stop-loss carriers, price-transparency vendors, and others. To best serve clients, it’s often necessary to integrate these relationships.
In recent times our firm has performed several consulting engagements where the objective was not to replace a broker or carrier relationship but rather to analyze a client’s current relationships, review its contracts, and provide recommendations.
We found some disturbing trends among preferred partnerships and vendors that did not serve clients’ best interest. Here are some examples:
Example 1: A consulting firm recommends voluntary benefits to a client. The client signs a sub-agreement under a master contract between the consulting firm and a carrier that offers voluntary benefits. A commission for the consulting firm is built in and disclosed in the sub-agreement.
However, the master agreement, which is not shared with the client, contains language that provides a volume-based override from the carrier to the consultant. This override is not disclosed.
Example 2: A health insurance carrier integrates with a national PBM as a pharmacy solution. A client wants to use a different PBM. The carrier charges a considerable integration fee to carve out its preferred PBM.
The carrier had contracted to receive a considerable amount of revenue from the PBM based on volume and claims mix. Removing this relationship for that particular client dramatically increases the client’s claims administration fee.
Not only is the revenue from the PBM to the carrier typically not disclosed to the client, in many cases the carrier raises the admin fee more than it would need to in order to be revenue neutral.
Example 3: A TPA has preferred relationships with three stop-loss carriers. The TPA offers clients a significant administrative credit to use those carriers in conjunction with its claims services. Should a client want to use an alternative stop-loss carrier, its administrative fee for claims would increase.
The stop-loss contracts reveal that the TPA receives a substantial override from each of its preferred stop-loss carriers. The increased administration fee for switching to a more competitive stop-loss carrier replaces the override revenue that the TPA loses. Here too, the flow of money may not be fully disclosed, and the admin fee may be hiked up above a revenue-neutral level.
In each of these examples, a recommendation was made that caused the client’s costs to increase when other options were available that would have served the client’s needs more economically and improved overall value.
These practices are not new, but they’re increasing prevalent ways to increase revenue streams for health care consultants and brokers or their preferred partners. The incremental revenue can come from direct fees, commissions, overrides, or integration fees. Sometimes it’s clearly disclosed, sometimes it’s disclosed in confusing contract language, and sometimes it’s not disclosed at all.
Clients should look more closely at their contracts with consulting firms and brokers and ask the right questions in order to understand how money flows through these arrangements and how value is created or destroyed.
Indeed, clients should demand true objectivity from the consulting and broker community and insist that consultants and brokers demand the same from the carrier community. If we are ever to begin repairing our health care economy, it must start with objectivity and transparency.
Michael O’Grady is a vice president with the Brieden Consulting Group, an employee benefit management company and insurance agency.