Is the Broker Model Broken?

If you ever squirm through the seeping underbelly of dastardly health insurance tactics like we do here at KBGH, you may have seen this report from The Hill last week outlining some alleged underhanded tactics being used by health insurance brokers.

The tl;dr (too long; didn’t read) version of the story is that the Government Accountability Office (GAO) performed an undercover audit of insurance brokers to determine if companies selling health plans exempt from the Affordable Care Act coverage requirements were being honest about the limitations of those plans. After all, ACA non-compliant plans tend to be cheaper, but they also tend not to cover preexisting conditions.

Out of 31 undercover phone calls to representatives in Alabama, Florida, Kansas, Pennsylvania, and Wyoming, during which GAO agents posed as customers looking for health insurance that covered their preexisting conditions like diabetes or cancer, about a quarter of the time (eight calls) sales representatives engaged in “potentially deceptive marketing practices.” Examples included:

1. Representatives telling the undercover agents that preexisting conditions would be covered, even when the agents claimed conditions that were explicitly excluded by the plan in question.

2. Representatives refusing to provide documentation of coverage prior to enrollment.

3. Representatives implying or asserting that the customer was being enrolled in a comprehensive insurance plan rather than, for example, a health care sharing ministry or membership in an association with a bundle of limited benefit plans.

4. Representatives suggesting that no other coverage was available.

5. Representatives intentionally falsifying the caller’s health status on the application.

 Examples of call recordings are available online.

In spite of its shades of its Dateline NBC-esque qualities, this doesn’t seem to have been a showy, “gotcha” operation. The investigation was requested by Democratic senators Robert P. Casey and Debbie Stabenow as a follow up on an investigative report on misleading online ads for non-ACA plans. But the GAO is a nonpartisan organization. The Hill, which reported the story, is well-known as a centrist or even center-right publication. And as Katie Kieth points out in Health Affairs, this isn’t even the first report of its kind. Many other instances of this kind of behavior have been documented.

What does this mean for you, the employer?

This news alone may not be very relevant to your company’s health coverage. After all, these agents were posing as individuals seeking a non-ACA compliant plan. If you’re in Human Resources this is very unlikely to represent your interactions with a brokerage or the greater health insurance industry. But this isn’t the first time the insurance brokerage industry has been stung recently. In early 2019 a Propublica piece showed that brokers working on commissions–usually three to six percent of the premium–routinely increased the cost of benefits to companies. This isn’t a personality flaw in the broker agents; it’s a feature of a flawed system.

To my knowledge no one has been able to mount a significant defense against these allegations. To the contrary: the 2019 Propublica piece led to senators calling for disclosure of perks and fees paid to brokers, a position enthusiastically supported by Michael Thompson, the president and CEO of the National Alliance of Healthcare Purchaser Coalitions, of which KBGH is a member.

What you can do to protect yourself

KBGH believes that brokers can be a vital part of the health insurance marketplace. Health coverage is confusing, and it is worth good money to make sure your company is getting the best value for its health care dollar. Ideally, we would like to see all brokerages work on a fee basis and take no commission off your premiums, since that commission perversely incentivizes the broker to increase your health coverage costs. To make this easy, Health Rosetta has created a “Benefits Advisor Compensation Disclosure Form” that you can download for free to use with your broker.

But at the very least, we believe in transparency. Your broker should be able to disclose all the ways it is making money off its work with you up front. If your broker refuses to do that, we recommend that you find a new broker.

As the Medical Director of the Kansas Business Group on Health I’m sometimes asked to weigh in on topics that might affect employers or employees. This was a reprint of a blog post from KBGH.

Transparency is Trust

As the Medical Director of the Kansas Business Group on Health I’m sometimes asked to weigh in on topics that might affect employers or employees. This is a reprint of a blog post from KBGH:

In 1963, Stanford economist Kenneth Arrow published the landmark paper “Uncertainty and the Welfare Economics of Medical Care.” He argued presciently that health care was an unfair system in which to bargain due to “asymmetric information.” The doctors, hospitals, and nurses simply know more than the patients, and this imbalance in information keeps the patient from being able to comparison shop or argue for fairer prices. If a doctor tells you you need a stent in your heart, after all, don’t you need it?

Equip patients with information and they usually make the right choice

There is data to suggest that patients, when given the right information to work with in a digestible way, make responsible decisions in health care purchasing. My favorite study on the topic looked at parents of children with appendicitis. Parents were randomized to see one of two videos: one group of parents saw a video that simply went over the difference between old-fashioned “open” surgery to remove the appendix and newer laparoscopic surgery that uses small “keyhole” incisions to put a camera and small instruments into the abdomen to remove the diseased organ. The video seen by the other half of parents explained the differences in the surgeries but also explained the price difference between the techniques (laparoscopic surgery is more expensive). Both videos stated that patient outcomes are similar with either procedure.

The parents who saw the video with the charge estimate were 1.8 times as likely to choose the open procedure. In fact, the effect of simply stating the charges in the video reduced the average price of the surgery from $10,477 to $9,949, a difference of $528, since more parents chose the open procedure when presented with good data. And more than a quarter of the parents choosing the open procedure said cost was the primary factor in their decision-making! This point is worth restating: parents, when confronted with a surgical choice in an emergency situation that, if handled incorrectly, could harm their own child, still took cost into account in their decision-making.

Things we’d hoped would work… but didn’t.

Many hoped the internet would solve the knowledge gap in medicine and empower patients. After all, in the business of buying and selling cars, some argue that information asymmetry is long-gone. If I were to buy a new Chevy Bolt today, I would simply choose my desired features on Edmunds.com, print the price sheet, and offer to pay my dealer a price in the ballpark of what Edmunds suggested was fair. But in spite of efforts from companies like Castlight, CashMD, and others, we haven’t seen a big dent in healthcare costs due to transparency alone. Some of this is due to the fact that doctors themselves–outside of the radical transparency of many Direct Primary Care physicians–aren’t always privy to the price of tests, drugs, or even their own services. And even those DPC doctors can’t necessarily share other outcomes we’re interested in, like rates of screening for cancer and metabolic diseases, mortality rates, and other quality indicators.

So the government has tried to step in. The Trump administration released an executive order in fall of 2019 requiring that by 2021 all hospitals must publish their “standard charges” online in a machine-readable format so that other software can begin to compare prices. This is a good start, but it is unlikely to work. Those “standard charges” are, in most cases, “chargemaster” prices that have little bearing on reality. Medicare, for example, pays about 31% of the chargemaster price. Second, patients mostly care about out-of-pocket payments, not insurance payments. To have an idea of their own liability, patients need the “bundled price” for the entire episode, which chargemaster prices do not provide. Instead, the chargemaster prices are for individual charges for materials and procedures

What CAN we do?

But we can’t just throw our hands up in frustration. As employers we should control what we can control. We can control state and federal policy as voters, but our power may be better wielded locally. We’ve pointed out previously in this blog that a lack of transparency was one of the big drivers of health care costs. That transparency extends beyond the operating room, exam room, or pharmacy. It reaches into the relationship between you and your partners, such as your broker, your PBM, and medical providers you may directly contract with. A good first step, if you weren’t able to attend our recent webinar with Dave Chase of Health Rosetta, is to ask for those partners to disclose all their revenue streams. Their undisclosed revenue streams may surprise you. Once everyone’s revenue is transparent, we believe that partners can work together in a more trusting relationship, to the benefit of both parties.

Note: KBGH works with Team IBX to introduce transparency in the insurance RFP process, but Team IBX was not involved in the writing and did not influence this post.