BSI executive says cost transparency gaps remain

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Despite laws passed in 2021 regulating transparency requirements for employee health insurance benefits, broker issues continue with some taking hidden fees that are not disclosed to their employer customers. 

Shawn Hughes, executive vice president of client retention at BSI Corporate Benefits in Bethlehem, said there have been a number of high-profile lawsuits involving some of the nation’s largest employee benefits brokers alleging they collected hundreds of millions in undisclosed compensation from the very carriers and vendors they were supposed to evaluate objectively on behalf of their employer clients.  

Hughes said this can be a concern for many Lehigh Valley employers who work with national or regional brokerage firms without fully understanding how those firms are compensated. 

“Our job is to be very transparent, and the industry is really going that way with the new laws in place,” Hughes said. “You want to give them the best neutral data.” 

But, he said despite reforms, some problems remain and this should be of concern to employers because they do legally  have a fiduciary duty to their employees to get them the best deal on health care coverage and can face lawsuits themselves if they fail to do so. 

 The Consolidated Appropriations Act (CAA) Section 202, enacted in 2021, requires brokers to disclose all direct and indirect compensation they receive in connection with a client’s health plan.  

ERISA places a legal obligation on the employer — not the broker — to act in the best interest of plan participants. If a broker’s advice is conflicted and the employer follows it without independent oversight, the liability stays with the employer.  

So, what should an employer do when working with a benefits consultant? 

Ask questions, Hughes said. 

He said areas that are more prone to disclosure problems include contracts with pharmacy benefits management programs. 

There have been cases where deals with pharmacy management programs have led to hidden fees, because deals are made to go with certain programs that the broker should but may not divulge to its clients. 

For example, a PBM might have a deal with a drug company for rebates on certain name brand drugs. 

A drug that might cost $1,000 might come with a rebate of $150 to the PBM. 

Since that amount is negotiated between the PBM and the broker, there have been instances where the broker may keep $25 of that $150 rebate without telling the client the full amount it received. 

While that might seem like a small amount, Hughes said when spread out over thousands of prescriptions a PBM is paying for; it can end up being a huge profit from money that should be passed on to the employer paying for the coverage. 

“They’re controlling how the information is represented to a client and recommending plans they benefit from, when they need to be disclosing every dollar they make for more transparency,” he said. 

And again, while things are definitely heading in the right direction with transparency, caution should always be used. 

He compares the transparency issue with changes to retirement plan brokerage that began many years ago. 

Many brokerages became fee only to be more transparent about how they make their money because there were too many instances where brokers were steering clients towards plans where the broker was earning a higher commission rather than the product that was best for the clients. 

With health care benefits, a full disclosure of how a broker earns its fees can make sure it gives the best advice and date for the client. 

With the large cost burden employee health benefits can be to a company, making sure they have the best information is important in decision making. 

That’s why he said a second important question an employer should ask a broker is about their request for proposal process. 

He said employers should ask how often they do a market check and what data they use to determine what products they recommend to what clients as well as what their charges are. 

“Every employer needs to be able to go to employees and say ‘this was the process on why we made this decision,’” he said.