What is a health benefit broker's job?

At the most basic level, for a fully insured group, a health benefit broker is supposed to generate pricing quotes from insurance carriers to insure the group. For self-funded groups, rather than a carrier, the broker generates pricing from a network, and likely additional vendors including a third-party administrator (TPA), pharmacy benefit manager (PBM), stop-loss carrier, etc. Beyond simply generating quotes, clients leverage the broker's experience and expertise for strategic planning and guidance when designing the plan, altering the plan, and selecting service providers. That's important because the health insurance industry is notoriously difficult to navigate on one's own.

What is the carrier/network's job?

The carrier/network is responsible for negotiating with medical service providers across the country to ensure that participants pay appropriate fees for medical services. Assuming there is not a separate TPA involved, the carrier/network also processes claims for approval and payment. Very few employers have the bandwidth to direct contract with doctors and hospitals across the country, nor the expertise to know if they are negotiating good prices for each market, so clients leverage the carrier/network's experience and expertise to ensure they are offering a valuable benefit to participants.

Unfortunately, to date it has been difficult to measure how effectively either of these groups have done their jobs. Carriers and networks carefully guard their negotiated pricing as proprietary information and brokers withhold information about who pays them — and how much. Both brokers and carriers/networks have occupied positions of unchecked power for years, and we have trusted that morality and corporate ethics policies would protect us from abuse. Unfortunately, SBOC feels that trust was misplaced.

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According to the lawsuit, Gallagher recommended that SBOC select Cigna as their network, which SBOC calls "an unmitigated disaster." SBOC claims that Cigna did not negotiate competitive prices for medical procedures or prescriptions, citing two examples:

• Two heart surgeries that should have cost roughly $220,000 each were approved and performed for $2 million, and
• Prescriptions selling for less than $20 over the counter were approved for $250.

Furthermore, noting that Gallagher was "getting paid more from the carriers it was [hired] to scrutinize and supervise than from the School Board itself," the lawsuit highlights an inherent conflict of interest in the health benefits industry.

Conflict of interest

A "conflict of interest" is defined as:

Noun phrase

a conflict between the private interests and the official responsibilities of a person in a position of trust

By approving overpayments for procedures and prescription drugs, Cigna profited from increased administrative fees, recovery fees, and cross plan offsetting at SBOC's expense. By recommending Cigna, Gallagher received millions in undisclosed commissions, bonuses and overrides. Cigna and Gallagher were both trusted as "watchmen," and concealed their conflict of interest to profit at SBOC's expense.

After six months of legal wrangling, US District Judge Anne Conway recently denied Gallagher's motion to dismiss the case and stated, "the School Board's factual allegations provide a reasonable basis to believe that Gallagher committed intentional misconduct. These allegations of fraud are sufficient to state a claim for punitive damages."

The shifting market

New legislation requires increased transparency in the health benefits industry. Carriers/networks are now required to disclose their negotiated prices to clients, and the public is becoming aware that the carrier negotiated "discount" pricing is often higher than if participants walked in and paid cash! Brokers and consultants are now required to disclose all compensation associated with a client's plan and tie those fees to services. But transparency is a double-edged sword. With increased visibility comes increased responsibility, and employers are now responsible (as plan fiduciaries) to monitor the performance of their service providers, and ensure their compensation is reasonable.

Opinion

If you're an employer that offers health benefits, now is the time to review the performance of your own service providers! Are you prepared to attest to the DOL that you have received full and accurate disclosure of your service providers' compensation? As plan fiduciary you must "watch the watchmen."

Also: Dance to a new tune: transparency laws usher in new era

If you're a benefit broker, now is the time to get ahead of this conversation and provide each of your clients will a full and accurate disclosure of the compensation you receive in association with their plan. Tie those fees to services you have provided and the impact you have achieved to demonstrate your value.

The Department of Labor is gearing up to enforce these new rules, and we should all be keeping tabs on Osceola v. Gallagher to understand how punitive the ruling will be. This case may prove to be a watershed moment for the health benefits industry!

Jed Cohen is co-founder and COO of OneVision Analytics. Jed is a serial entrepreneur with successful exits in the fin-tech and health-tech industries.