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Executives from Marsh McLennan talked, a little, last week about how employers pay the company to help them design, track and change their health benefits programs.
The New York-based company sells insurance and reinsurance through Marsh and Guy Carpenter. It's also the parent of Mercer, a firm that sells benefits and human resources services all around the world.
Mercer's health revenue increased to $594 million in the second quarter, up 9% from the total for the second quarter of 2024.
John Doyle, Marsh McLennan's chief executive officer, said Thursday, during a conference call with securities analysts that was streamed online, that he's pleased with Mercer's performance.
"We had a terrific quarter of growth at Mercer," Doyle said.
But Patrick Tomlinson, Mercer's CEO, said Mercer's compensation mix means that escalating medical cost inflation does not necessarily drive up Mercer's health revenue at the same rate.
"The key thing to remember is that, around the world, we have different models around fees and commissions," Tomlinson said. "We do have some clients that are commission-based, but I would say, especially in the U.S., the majority are fixed-fee."
Related: Big benefits brokers see rising prices boosting demand for expertise
When medical costs rise, "it clearly drives demand for work, because medical inflation is a major challenge for clients," Tomlinson said. "They're going to think about how to do more projects and do more planned design work to control those costs."
But, because a majority of the clients are paying fixed fees, rather than premium-based sales commissions, "you really can't draw the correlation between 5.8% or 7.2% or 10% medical inflation and commissions on the majority of our client base," Tomlinson said.
Marsh McLennan posted a recording of the call on its website.
What it means: Now that health benefits firms are emphasizing fee-based consulting services and commission-based insurance brokerage services, they may have a stronger stake in helping clients hold health benefits costs down.
The earnings: Marsh McLennan as a whole is reporting $1.2 billion in net income for the second quarter on $7 billion in revenue, up from $1.1 billion in net income on $6.2 billion in revenue for the year-earlier quarter.
Marsh McLennan helps clients with property and casualty insurance as well as health and wealth benefits, and Doyle said the uncertainty of the global economic outlook creates opportunities for the firm as well as risks.
"We're advising clients on near- and long-term strategies and guiding them on growth and building resilience during this dynamic period," Doyle said.
The backdrop: Aon is set to post its earnings Thursday; Brown & Brown, July 28; and Arthur J. Gallagher and Willis Towers Watson, July 31.
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