How do benefit brokers get paid? For most employers, the broker is paid a commission by the insurance company, which is built into the monthly premium. You won’t see a separate bill, but you are paying for your broker’s services every month.
That’s worth knowing, because it changes the question you should be asking. Since the cost is already part of your premium, the real question is whether you’re getting the service you’re paying for.
Below, we’ll walk through how broker commissions work, when brokers charge fees instead, whether a better broker costs more, and what you should expect in return.
A real example
A business owner came to us frustrated about a group health renewal with a premium increase of about 15%. It followed several years of double-digit increases.
Their brokerage had been bought by a larger firm, and during the transition, attention faded. There was no renewal meeting, no shopping of the market, no plan comparisons, and no options. Just a higher bill.
We shopped the market and found better coverage with a different insurance company at more than 40% less than they were paying before the increase.
When we talked about how their broker was paid, the owner hadn’t realized that payment had been coming every month, whether the service did or not.
How benefit broker commissions work
In insurance terms, “small group” means employers with up to 50 employees. That includes a 5-person dental office and a 45-person manufacturer alike, even if the manufacturer doesn’t think of itself as small. In New Jersey and New York, most businesses that offer group health insurance fall in this market.
For small group plans, the broker is usually paid a commission by the insurance company. The commission is included in the premium the carrier charges, so it’s already part of what you pay each month.
Commissions are typically paid in one of two ways:
- A flat amount per employee per month, often called PEPM. The broker earns a set dollar amount for each enrolled employee.
- A percentage of the premium. The broker earns a share of the total premium, so the payment rises when premiums rise.
Which method applies depends on the carrier and the plan. Either way, the employer doesn’t receive a separate invoice for the broker’s work.
Do benefits brokers ever charge a fee?
Sometimes. Some brokers charge a fee instead of a commission, or in addition to one. Fee arrangements are more common with employers that have more than 50 employees, and with level-funded or self-funded plans, where the employer has more say over how the plan is priced and paid for.
Some brokers also receive bonuses from insurance carriers, usually based on the total amount of business they place with that carrier.
Does it cost more to use a broker, or a better one?
For most small group plans, no. Because the commission is part of the carrier’s pricing, the premium for the same plan is generally the same whether you work with one broker or another. In most cases, switching brokers doesn’t change what you pay for the same coverage.
That means you’re already paying for a broker. The question to ask is whether yours is doing the work.
What should a benefits broker do for you?
Service levels vary widely from one broker to the next. If the cost is built into your premium, here’s what you should expect at a minimum:
- Shopping the market at every renewal. A good broker compares options from multiple carriers instead of passing along your current carrier’s renewal number.
- Side-by-side plan comparisons. You should see real options, with costs and coverage laid out clearly enough to make a decision.
- Answers during the year. Questions come up outside of renewal season, and you should be able to reach someone who knows your plan.
- Help solving problems. When a claim is denied, or an employee can’t find an in-network doctor, your broker should help you navigate the situation.
- Enrollment and administration support. New hires, terminations, life events, and plan changes should be handled promptly and correctly.
- Employee communication. Your employees should understand the benefits you’re paying for, so they value them.
Think of a good broker as an extra department in your business. They sit between you and the insurance company, advocate for you when issues arise, and help your employees get the most from the benefits you provide.
Questions to ask your benefits broker
It’s fair to ask your broker how they’re paid. A broker who’s earning it should be comfortable answering.
These questions will tell you even more:
- When did you last shop our plan with other carriers?
- What options did you compare at our last renewal, and why did you recommend the one we chose?
- Who do we call when an employee has a claim problem, and how quickly do they respond?
- When was the last time you reached out to us before we contacted you?
If the answers are vague, or you can’t remember the last time your broker called you first, it may be time to reevaluate your broker.
Frequently asked questions
Is it free to use a benefits broker? For most small group plans, there’s no separate charge, because the broker’s commission is already built into the premium. So while you won’t get a bill, you are paying for the service.
Does a benefits broker work for the insurance company or for me? The broker is paid by the carrier, but an independent broker represents the employer. A good one quotes from multiple carriers and recommends what best fits your business.
Can I change brokers in the middle of the year? In most cases, yes. You can usually appoint a new broker by signing a broker-of-record letter with your carrier. Your plan and coverage stay the same, and only the broker servicing your account changes.
Will switching brokers change my premium? For most small group plans, no. The premium for the same plan is generally the same regardless of which broker you use.
Get the service you’re already paying for
Spencer & Spencer is a third-generation, family-owned employee benefits firm based in Cedar Knolls, NJ, serving businesses in New Jersey, New York and Pennsylvania since 1947.
We quote every carrier, assign a dedicated advisor to your account, provide year-round service, and shop the market at every renewal.
If your last renewal arrived with no call, no comparison, and no options, we’ll review your current plan and show you what else is available, at no cost. Contact us to schedule a renewal review.