Many midsized employers rely on outside professionals to help them purchase and renew their employee benefit package. What many employers don’t realize, however, is that employee benefit professionals fall into two different categories, and the type of professional they choose could have a significant impact on the quality of the service and advice they get. Employers need to ask if they’re better served by relying on a benefits broker or a benefits advisor to develop their health and welfare group benefits package that will maximize the value of the offering, control costs, and ensure their attractiveness in a competitive job market.
A benefits broker buys or sells things on behalf of others
An employee benefits broker facilitates insurance renewals and purchases of employee benefit plans. The broker’s role is transactional and typically focused on negotiating the costs and benefits of the current year’s plans.
To understand a broker’s motivation, businesses must consider who pays brokers and the factors that influence how much brokers earn. Brokers typically are paid through commissions from insurance companies. Commission amounts are tied to the rates and volume of business with an insurance company — as the rates and volumes increase, so too does the broker’s compensation.
Insurance companies are also eager to retain business and may offer additional incentives to brokers that deliver renewals and bring more business into a particular insurance company. This means that while a broker negotiates rates on a client’s behalf, they have a financial incentive to keep the rates higher. In effect, they’re working for the insurance companies that pay them, not for the businesses that they serve.
Because of the financial incentive structure, brokers may also be less interested in exploring alternative funding arrangements and cost containment initiatives. In fact, many brokers never develop the expertise or skill sets to do so, nor are they interested in true cost containment. Because cost containment may mitigate rate increases, it could reduce future commissions and threaten the broker’s compensation. While some brokers may suggest that an employer can save money by changing deductibles or copay structures, these actions are merely cost-shifting tactics, not cost-containment strategies.
Because brokers have a transactional role focused on the annual renewal of benefit plans, employers must react annually to the renewal options presented. Employers’ options are typically limited to requesting that the broker negotiate more strenuously on their behalf or shop for an alternative plan. Changing plans can be disruptive and time-consuming for an organization, and while it may buy a year of more favorable rates, it’s likely that next year, the employer will be in the same reactive mode, once again facing limited renewal options presented by the broker.
What does a benefits advisor do? Provide expert employee benefits consulting and support
An employee benefits advisor offers strategic consulting services for their clients along with facilitating the procurement process and transactions required to offer health and welfare group benefits packages. Advisors work for the employers that hire them on a fee-for-service basis. Their compensation is tied to the services they provide to their clients, not to commissions or incentives from insurance companies. An advisor is incented to deliver value to the client in the form of the professional services promised in the engagement agreement. An advisor’s fees are transparent and increase per an agreed-upon schedule with the employer/client.
Advisors not only understand the benefits marketplace, but they also offer creative and thoughtful strategies and solutions. They work with employers to set a longer-term benefit strategy that looks beyond just the current year’s needs and aligns with each business’ total rewards strategy. An advisor educates leadership on ideas, strategies, and tactics to support the overall employee benefits strategy and makes recommendations accordingly.
Employee benefits advisors leverage data, expertise, and the power of choice to bring transparency and cost containment opportunities to their clients. Some programs, including efficient funding arrangements and cost containment programs, are only available to certain high-performing advisors because of their commitment to transparency, cost containment, and long-term strategies.
A midsized employer that engages an advisor can expect their plans to perform better than the marketplace. In many cases, these benefits solutions will also provide better returns in recruitment and retention and set employers apart from their competition — not only in cost but also in employee experience.
Plante Moran Group Benefit Advisors (PMGBA) is an affiliate of Plante Moran that provides independent health and welfare benefit consulting services. PMGBA delivers customized solutions and cost-effective strategies to meet the unique needs of our clients and their employees.
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