Let’s say you are insured with your employer. The deal between the employer and the insurance company is facilitated by an insurance broker. That insurance broker gets paid a fee that’s sort of transparent to your employer but probably not to you.
That insurance broker however also gets paid some bonuses that are not disclosed to the employer. The insurance broker also gets threatened with losing access to some insurance companies if they don’t recommend the insurance company when the insurance company wants it.
The insurance broker is subject to a bunch of incentives that the employer does not know about as they are hidden from the employer.
Apart from the things that are hidden from the employer, the fact that the insurance broker takes their cut of the transaction is also intransparent to most people, which makes them think about healthcare money going to doctors and not insurance brokers.
Functionally, the payments from the insurance company to the brokers that are in addition to the fee that the broker gets for the transaction (which is disclosed to the employer) are essentially bribes.
I would guess that this specific example is less and less a problem each year, as people and companies buy more directly their insurance (and other things).
For brokers serving small employers (e.g. firms with under 50 employees) a commission rate of around 4% to 6% of premiums (so likely not including extra incentive payments) is typical (numbers again from ChatGPT). It’s less for bigger employers, but it’s real money in the system.
People and companies buying insurance directly is helpful.
You have pharmacy benefit managers that got recently quite unpopular with politicians, so there’s also progress, but the system is really big and complex and at every point someone has an interested to take their cut.
Generally you have a system where a lot of money is flowing. Both patients and doctors often don’t even now how much money is flowing for a simple healthcare service.
One interesting aspect: The government does not set the prices for individual services in medicare. They are instead set by the AMA which is an advocacy organization. So inter-AMA politics determine which services get reimbursed how much and I would expect that there’s also plenty of non-above the board actions going on there.
In which senses is it not transparent or not above the board?
Let’s say you are insured with your employer. The deal between the employer and the insurance company is facilitated by an insurance broker. That insurance broker gets paid a fee that’s sort of transparent to your employer but probably not to you.
That insurance broker however also gets paid some bonuses that are not disclosed to the employer. The insurance broker also gets threatened with losing access to some insurance companies if they don’t recommend the insurance company when the insurance company wants it.
The insurance broker is subject to a bunch of incentives that the employer does not know about as they are hidden from the employer.
Apart from the things that are hidden from the employer, the fact that the insurance broker takes their cut of the transaction is also intransparent to most people, which makes them think about healthcare money going to doctors and not insurance brokers.
Functionally, the payments from the insurance company to the brokers that are in addition to the fee that the broker gets for the transaction (which is disclosed to the employer) are essentially bribes.
Thanks! Interesting example.
I would guess that this specific example is less and less a problem each year, as people and companies buy more directly their insurance (and other things).
For brokers serving small employers (e.g. firms with under 50 employees) a commission rate of around 4% to 6% of premiums (so likely not including extra incentive payments) is typical (numbers again from ChatGPT). It’s less for bigger employers, but it’s real money in the system.
People and companies buying insurance directly is helpful.
You have pharmacy benefit managers that got recently quite unpopular with politicians, so there’s also progress, but the system is really big and complex and at every point someone has an interested to take their cut.
Generally you have a system where a lot of money is flowing. Both patients and doctors often don’t even now how much money is flowing for a simple healthcare service.
One interesting aspect: The government does not set the prices for individual services in medicare. They are instead set by the AMA which is an advocacy organization. So inter-AMA politics determine which services get reimbursed how much and I would expect that there’s also plenty of non-above the board actions going on there.