Mass. AG Targets Health Insurance Brokers’ Pay

November 15, 2004

The Massachusetts attorney general’s office is scrutinizing the practice of health insurers offering lucrative commissions to brokers who are supposed to lock in the best deals for employers.

Insurers have for years paid cash bonuses, sometimes valued in the hundreds of thousands of dollars, for the largest brokerage firms. More recently they have offered exotic vacations to brokers who bring in deals with employers.

Brokers don’t typically disclose these incentives to employers, who use brokers to help them sort through health insurers’ products and make objective recommendations. Brokers can have great influence over which health plans employers buy.

“We’re actively investigating the ways in which brokers are compensated,” Alice Moore, chief of the public protection bureau for Attorney General Thomas F. Reilly, told the Boston Sunday Globe.

She declined to provide details, but said her office is examining brokers who advise employers on all types of employee benefits, including health, life, and disability insurance.

Employers hire brokers to recommend health insurance plans. Brokers receive a standard commission, generally 2 percent to 4 percent, which is taken out of employers’ premiums. These basic commissions are disclosed to most employers, as required by law.

Since the mid-1990s, when the number of employers using brokers began rising, Massachusetts health insurers began paying volume bonuses to brokers for enrolling large numbers of employers, and for re-signing them in future years. Brokers and insurers said they generally do not disclose these payments.

Blue Cross and Blue Shield of Massachusetts’ “Preferred Broker Bonus Program” promises bonuses to brokers who retain at least 90 percent of their Blue Cross business the following year, or who bring in at least $1.5 million in new premiums. The bonuses rise the more business the broker retains or brings in. Several brokers told the Globe these bonuses can reach into the hundreds of thousands of dollars.

In its “Broker Red Carpet Program,” Harvard Pilgrim Health Care offers brokers similar bonuses, called the ‘”Elite Producer Bonus,” and offers perks such as an annual broker golf tournament.

Tufts Health Plan this year promised brokers awards of $500 to $10,000 for the first two companies they enrolled in its new Liberty product, a health plan that employers have been slow to embrace, as well as bonuses for building volume. The two brokers with the most Liberty members by Jan. 1 will win a trip to an “exotic location” in April.

Moore declined to say whether the Massachusetts attorney general’s office her office is specifically reviewing these broker awards. So far, the attorney general’s inquiry is preliminary, and there are no known allegations of wrongdoing.

Attorneys general in numerous states are trying to determine the legality of the contingent commissions. No specific Massachusetts insurance laws prohibit them or require disclosure, according to insurance division officials, and they are deemed standard industry practice.

Many Massachusetts brokers say the bonuses are too small to influence decisions, and that because all insurers offer them, brokers are not pulled toward one insurer over another.

Insurers also defend contingent commissions.

“Their first duty is to the client, and we think they know that,” said Timothy O’Brien, senior vice president for sales at Blue Cross, which has agreements with more than 1,000 brokers.

O’Brien said Blue Cross paid $66 million in broker commissions last year, including $14 million in bonuses, but he declined to disclose how many brokers received the extra payments. The payments represent 10 percent of the insurer’s administrative expenses in 2003, and 1 percent just one percent of the premiums Blue Cross collects.

Harvard Pilgrim executives said they put their bonus plan in place three years ago to compete with other insurers. Last year, Harvard Pilgrim said, it paid bonuses to 29 brokers out of about 750 who received standard Harvard Pilgrim commissions.

Tom Hamel, Havard Pilgrim’s manager of broker relations, said the insurer is reviewing its program because of regulators’ growing focus on commissions.

Copyright 2004 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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