The Real Costs of Misaligned Broker Compensation

In health insurance, there’s a common problem most employers overlook: broker incentives. The way many brokers are paid is working against the very employers they're supposed to be helping. If you're an employer footing the bill for benefits, understanding this misalignment is essential.

The Traditional Broker Compensation Model

Most brokers still follow the old-school compensation structure: they earn a percentage of the total premium you pay to the carrier.

That means the more expensive your plan, the more they get paid.

Here’s how it works:

• You, the employer, select a plan.

• Your broker earns, say, 4% of the total annual premium.

• If you spend $1 million in premiums, the broker takes home $40,000.

Sounds simple. But there's a catch.

The Misalignment You Can’t Ignore

This commission-based model creates a built-in conflict of interest. The broker earns more when your costs go up. That means the incentive to find lower-cost, high-value plans isn’t always there.

The Better Alternative: PEPM Compensation

A per employee per month (PEPM) model flips the script. Instead of being paid based on how much you spend, the broker earns a flat rate for every employee covered.

For example:

• You pay $25 PEPM.

• You have 200 employees.

• Broker earns $5,000/month, or $60,000/year.

It doesn’t matter if you go with Carrier A or B. The broker’s compensation stays the same. That means they can focus solely on finding the best value, the right benefits mix, and cost-containment strategies without padding their income.

Why PEPM Builds Trust

Flat-fee structures align the broker’s interests with yours. You both win when the plan works. There’s no temptation to steer you toward a pricier option just because it fattens their paycheck.

It also leads to better plan design, more transparency, and a stronger long-term relationship. You get a true advisor, someone who advocates for you, not their commission.

The Transparency Employers Deserve

Most employers don’t even know how their broker is paid. It’s buried in fine print or passed off as "carrier compensation."

But you have the right to ask:

• How are you compensated?

• Do you receive bonuses or overrides for placing business with certain carriers?

• Are there alternative compensation models we can consider?

If your broker dances around these questions, it might be time for a new one.

You deserve to know how your broker is compensated and feel confident that their advice is in your best interest, not driven by hidden incentives. If you ever want to talk through your options, we’re here to help.