Broker Compensation Disclosure Requirements

Signed into law in late 2020, the Consolidated Appropriations Act contained a provision that required health insurance brokers, also referred to as covered service providers, to disclose both direct compensation and indirect compensation they receive. 

For service arrangements entered into or renewed on or after December 27, 2021, any broker, adviser, or consultant must provide the plan fiduciary a Services & Compensation Statement that describes the services to be provided to the plan. The Statement must also disclose all direct and indirect compensation, including compensation paid to any affiliates and subcontractors, who expect to receive $1,000 or more in direct or indirect compensation.

Virtual Benefits Enrollment

The ability to enroll and administer employee benefits virtually has reached a record high with the impact of COVID-19. While virtual benefits fairs present many challenges, such as educating employees on their options and helping them sign up for benefits, it's important that companies have the proper tools available to ensure successful enrollment. By combining existing technology with a process to assist those more unsure or uneasy using technology you can develop a strategy that aligns with every segment of your employees.

Most employers we encounter are offering some type of Employee paid benefits like Accident, Critical Illness, Disability, Hospital Indemnity, etc. These products are typically offered by an Insurance Carrier Representative or Enrollment Firm which causes a variety of problems during open enrollment.

Specifically, does the broker fee agreement align with the success of your health insurance offering, and help you hold your costs down while allowing you to successfully attract and hire the people you need to grow your company?

As a manufacturer, you likely have a procurement strategy for your raw material, overseen by a sourcing or supply chain manager who ensures efficient and effective use of that material, with the goal of increasing or at a minimum maintaining your profit margins.

Here’s a hard truth for most manufacturing firms. You’re not managing the supply chain when it comes to your employees’ benefits, which means you’re losing money. The question is not if you’re losing money in your health plan. It is, how much are you losing?

As the CFO of a manufacturing firm, we don’t have to tell you that companies are buying and selling their businesses based on a multiple of EBITDA, earnings before interest, taxes, depreciation and amortization. What you likely don’t know, however, is you’re leaving money on the table if you don’t take an analytic look at each firm’s employee benefit strategy in the process of evaluating your merger or acquisition.

Does it make sense to have a non-P&L manager in charge of a top-three business expense at your manufacturing firm? Most CFOs would say, “Of course not!” But, that’s what manufacturing companies are doing every day by giving HR departments carte blanche over the firm’s benefits expense.

When it comes to improving the performance of your manufacturing firm’s health plan, it’s not what you buy, but rather how you buy it. Are you managing your healthcare supply chain with the same efficiency and effectiveness that you use to run your business supply chain?

Employee benefits are a top-three line item for most companies, but many employers have given up on this category of expense. Accepting defeat, they plan on annual 10 percent, 20 percent, even 30 percent or greater rate increases as the inevitable reality of their benefit plan performance. But top manufacturers have a different perspective, managing the expense the same way they manage all other costs of doing business. Benefits are an asset — and they need to perform like one.

Most business owners do not look at insurance professionals as being able to help their business grow and produce free cash flow in the process. This is because, historically, insurance professionals have never been able to manage or reduce costs.

The National Association of Manufacturers and the Bureau of Labor Statistics have identified a need for several million qualified manufacturing employees over the next decade. Sounds like good news for people looking for a job, right? Unfortunately, there is a catch. The industry anticipates being able to only hire about one-third of these new workers needed, creating a huge employment gap which will likely increase labor costs.

Your benefits expense does not have to continue to grow at 10% or more each year. Once you take control of those costs that have been out of control for years and improve your employee healthcare benefits, you can take the surplus and invest in:

• People (wages, salaries, and better benefits to retain and attract talent);
• Property and Plants (building new, and/or renovating existing facilities to accommodate higher productivity); and,
• Equipment (replace depreciating capital assets with newer technology that allows your company to remain competitive and expand into new markets).

Manufacturers get healthcare benefits! The National Association of Manufacturers reports that 98% of its members provide healthcare plans for their employees. Some of the reasons why manufacturers invest heavily in providing healthcare benefits include:

• It allows them to maintain a healthy workforce, essential for productivity and growth
• It allows them to attract and retain qualified employees
• Providing healthcare coverage is simply the right thing to do

Stop if you’ve heard this one before: A manufacturing company walks into a health insurance benefits store, and by using technology and a third-party enrollment counselor they take their limited resources and create customizable benefits for their employees. The result? The company is able to lower its cost of coverage and create a suite of benefits specific to the health care needs of their employees. A suite of benefits that their competitors will struggle to replicate.

What is the #1 way you can improve your employee’s medical benefits? By offering what your employees want, customized options and benefits that add value to their specific situation. Your employees want benefits that meet their healthcare needs and those of their family. Benefits that are not complicated to use and that improve health care outcomes. They do not want to pay more for those benefits than what they deem is reasonable.

When is $0.25 earned worth more than $0.50 spent? This isn’t a riddle, but a real-life example of how employees evaluate wages and benefits received over what they spend. Let’s explain. Manufacturers in the Midwest (in Ohio in particular) spend on average $14,000 per employee per year in healthcare costs. For an employer of 100 - 499 workers, this can total $1.4 million to close to $7 million annually, a significant part of your budget. That’s the good and bad news.

A Look at the Numbers – National versus Regional Costs – How Do You Stack Up?

In the war for talent it is important to understand what hourly wages and medical insurance benefits other manufacturers offer in order to give your company a hiring advantage.

If you had a group of employees traveling on a business trip and you told them they’d only need to pay a $100 contribution toward the hotel room, what’s to stop them from choosing a Ritz Carlton over a Days Inn? Both provide a decent night’s sleep, but one will cost you, the employer, a significant amount more.

Here’s a familiar conversation. A manufacturer says, "We need to keep our costs down." Their broker responds, "No problem, we can do that. Let's bring in a high-deductible plan." DCW Group knows that is not a health insurance strategy. It’s a cheap parlor trick.

Manufacturing firms want to know, "why are our health insurance rates continuing to increase year after year?"

It’s simple. You're trusting the other organizations to manage the health care supply chain, and they have no incentive to reduce insurance costs. Whether your health plan is fully insured or self-funded, you're allocating a specific dollar amount or premium to pay out claims. As long as the insurance carrier charges enough premium to meet their targets, what business incentives do they have to reduce your claims cost?

When informing manufacturing clients of yet another annual premium increase, brokers will commonly reference industry “trend,” or the average percentage by which health plan costs are rising each year, as a benchmark to validate their performance. The problem is, health insurance trend a fake number.

We get asked this question all the time: “What’s everyone else doing?”

Manufacturers want to know, how do we stack up in a difficult labor market competing for qualified workers? Are our benefits good enough? Are we paying the right percentage of the premium?

When we ask manufacturers what they’re doing to control the 80% of their health insurance costs that are coming from four key areas in the healthcare supply chain — inpatient, professional services, outpatient and pharmacy — they do not have an answer.

Far too often, brokers working on annual health insurance renewals for manufacturers focus on negotiating a premium discount or lower admin fees, while ignoring the 80% of variable health insurance expense that is truly manageable. Knowing that your health insurance expenses are variable, you need to stop making buying decision based solely on price!

There's an easy way for you to switch to insurance advisers who offer more services without paying more. Contact your current insurance company (provider) and let them know you'd like to change the "Agent of Record" to a new adviser who'll look after your medical insurance benefit plan. Then simply sign a form.

Do you recommend price be the sole consideration for the products you manufacture? Probably not. So why do you shop for your company's health insurance and benefits plan based on price alone?