Health Insurance Consultant’s Best Kept Secret

bribe1“All (insurance) companies offer bonuses” to consultants. “It’s a way to sell the product and saves them from hiring 20,000 agents,” – Joe Grady

Many Health Insurance Consultants Do Not Disclose Financial Ties With Clients

Many consultants hired by businesses to find the best deals on health insurance or prescription drug plans receive “significant” bonuses, commissions or consulting fees from the companies they are hired to consider, the Wall Street Journal reports.

These financial arrangements are often disclosed “only partially or not at all” to employers, the Journal reports. The Journal profiles a case involving the Ohio-based Columbus Public Schools District, which starting in 2001 paid a consultant $35,000 per year to find the best insurance deal. The consultant recommended UnitedHealth Group and ultimately received $517,138 from UnitedHealth, allegedly without disclosing the financial relationship to the district. Upon learning about the arrangement, the school district cancelled the consultant’s contract, and the Ohio Department of Insurance suspended his license for three years.

The consultant paid more than $150,000 in fines, and UnitedHealth paid a $125,000 penalty without admitting wrongdoing. The Columbus schools case “spotlights a widespread and largely invisible practice that critics say boosts the cost of health care,” the Journal reports (Martinez [1], Wall Street Journal, 9/18).

Some consultants do not charge employers and instead receive their entire compensation from insurers and pharmacy benefit managers, the Journal reports.

The Journal looks at a deal that consultantPharmaceutical Strategies Group brokered between the United Brotherhood of Carpenters and Joiners of America and Medco Health Solutions. PSG does not charge UBCJA a consulting fee and instead receives 25 cents from Medco for each UBCJA prescription. The three-year deal could be worth more than $1 million for PSG. Under the contract, “when union members fill a prescription they sometimes must pay an out-of-pocket charge that exceeds the cost of the drug being prescribed,” and the contract “limits the union’s rights to audit its drug bills to see if it is getting a good deal,” the Journalreports.

UBCJA officials said they are “extremely satisfied” with their contract with Medco and expect to save more than $30 million over the three-year deal. Tim Watson, a principal at PSG, said clients choose how they want to pay for his firm’s services. “Some clients wait a straight retainer, some want the administrative fee paid by the PBM,” Watson said (Martinez [2], Wall Street Journal, 9/18). Joe Grady, president of the consulting business that brokered the Columbus school deal, said, “All (insurance) companies offer bonuses” to consultants. “It’s a way to sell the product and saves them from hiring 20,000 agents,” Grady said.

A spokesperson for health insurer Aetna, which gives consultants a “retention bonus” for keeping clients with the insurer, said the company requires consultants to disclose the bonuses to businesses. Aetna also makes its brokers’ fees public on its Web site, the spokesperson said.

Many other insurers do not detail their financial arrangements with brokers on their Web sites, the Journal reports. Tamar Frankel, a professor at Boston University School of Law, said employers that hire consultants must ask, “Are you recommending me someone who is now paying you?” Frankel said that if the answer is yes, employers should find a different consultant (Martinez [1], Wall Street Journal, 9/18).

This is part of the KHN Morning Briefing, a summary of health policy coverage from major news organizations. Sign up for an email subscription

Additional Reading:

Insurance Consultants Are Biased

Health-Care Consultants Reap Fees From Those They Evaluate – WSJ