Healthcare Crisis: Step 3 Insurance Brokers
This week the country is beginning to create a new health care policy. A broad sweeping change is something that may be desired, but is nearly impossible to either accomplish or do well. I am proposing a multi-baby-step process to resolve the healthcare crisis. You can find steps 1 and 2 on this site or at my blog at http://lipspeak.blogspot.com/. Even if you do not like my steps or their order, consider whether trying to eat the whole apple in one bite is as wise as eating just one bite at a time.
The over-arching first goal of these thoughts is to create a national, highly competitive market for healthcare coverage where there are many sellers with many options creating growing supply and sophisticated buyers making wise healthcare and insurance decisions, all of which will drive health care costs down more than any government plan.
Step 1 (Tuesday): Remove State regulation. Eliminate oligopolies by the large insurers who can afford these regulations. Allow innovative players in. Create more options and lower costs. There should be one, unified federal set of regulations that applies to all insurers and plans. One layer. One level playing field.
Step 2 (Wednesday): Allow groups of people to band together, local or national, employees, companies, unions, associations, charities, or new groups set up precisely to negotiate, purchase or develop health insurance plans, including self-funded plans which are optimal. Self-funded plan drive wellness.
Step 1 and Step 2 alone will dramatically reduce healthcare costs within the federal government’s universal regulatory regime.
Step 3 has to do with how insurance brokers are compensated. Currently the insurance companies pay brokers a commission to sell their policies. This encourages brokers to encourage the highest cost option. The broker has a clear conflict of interest.
Far more troubling is the bonus practice. At the end of each year, insurance companies pay substantial bonuses to insurance brokerage firms for selling large volumes in their products. This encourages brokers to guide customers toward the firm that will pay the largest bonus, rather than to the one that may be best for the buyer.
I personally witnessed a proposal by a prominent brokerage firm presenting four options. United Healthcare was the preferred provider of this firm. If they focused on driving their clients in that direction they make the largest possible bonus at year’s end. Of course United Healthcare’s quote for the coverage was lowest.
We independently ascertained the real quotes from the other three providers. One was higher than United, but both of the others were actually lower for the same coverage. The broker intentionally marked up the quotes to make sure United Healthcare was the lowest option.
Theoretically the market should correct for this. The victims in this case were relatively small firms with limited resources trying to do the right thing by providing coverage for their employees. The broker was a friend of the head of HR who secured the quotes. These bonuses, at a minimum, should be outlawed.
These issues may correct themselves once Steps 1 and 2 are undertaken. Larger groups will negotiate better rates using professional insurance consultants and making brokers obsolete. Nonetheless, the bonuses are a factor in the rising costs of healthcare.
3 Responses to “Healthcare Crisis: Step 3 Insurance Brokers”
“The victims in this case were relatively small firms with limited resources trying to do the right thing by providing coverage for their employees. The broker was a friend of the head of HR who secured the quotes.”
Kind of demonstrates the problem here. More choices is touted to reduce costs, but here's why it's just not so. You imply that the problem above was due to “relatively small firms with limited resources,” so big companies with more resources would guarantee what? More scrupulous agents? Why?
A bunch of small coops as you imagine in step 2 means that it's an agent's market, not a buyer's market. To drive down prices, make the numbers of buyer groups smaller. And one group has the most power. It's supply and demand that favors the buyer's side. That's the last thing private insurance wants.
Your starting premise is that private, for profit, insurance is inherently superior. Private insurance lobbyists spend millions to push this myth, and current laws hamstring public insurance to make this appear as fact.
If you are uninsured and does not have insurance, you should check out the website http://UninsuredAmerica.blogspot.com – John Mayer, California
The brokers control access to decision makers so that companies that have innovative solutions to lower cost and increase choice are shut out because they will not pay the brokers ridiculous back end fees for doing nothing more than being a gate keeper. They are rationally self interested with what is going to take care of them not the client. They use the personal relationship with the executives in HR or elsewhere in the executive suite to push fear, uncertainty, doubt, and disruption to steer the client in the direction that they want them to go under the disguise of doing what is best for the client. Brokers should have fiduciary responsibility to the client which would then have them on the hook financially and criminally if they steer the client to products not in their best interest.