You should know what your broker earns before you sign anything.
Federal law now requires it. Since the Consolidated Appropriations Act of 2021, a broker or consultant who expects $1,000 or more for services to your group health plan has to tell you in writing, in advance, what they will be paid and by whom. It is one of the first questions in our guide to choosing an employee benefits consulting firm.
Four ways brokers are paid.
None of these is wrong on its own. Each creates a different incentive, and you should know which one sits behind the advice you are getting.
Percentage Commission
A share of the premium, paid by the carrier. It rises automatically when your premium rises, which means the renewal increase you are fighting also raises the commission. That matters most when the same broker is the one negotiating the increase. Ask for the commission in dollars as well as a percentage, since the same rate on a larger premium is a larger payment.
Per-Employee Commission
A flat amount per enrolled employee per month. It does not grow with the premium, but it does grow with headcount and enrollment. That makes the pay easy to see: a fixed amount times enrolled employees gives an annual dollar figure. Check whether the amount differs by line of coverage, since dental, vision and life can be paid on separate schedules.
Fees
Paid by the employer directly, either in place of commission or alongside it. Common for larger groups and for self-funded plans, where there may be no premium to take a percentage of. A fee should come with a written scope of the services it covers, so you can judge whether the total is reasonable. If a fee and commission are both paid, ask for the combined figure.
Bonuses and Overrides
Carriers sometimes pay extra for volume, retention or new business. These count as indirect compensation, and they have to be disclosed along with everything else. They can be calculated on a broker’s total business with a carrier rather than on your plan, which is why they are easy to miss. The disclosure should describe how they are calculated, even if the amount tied to your plan can only be estimated.
The disclosure rule, in plain terms.
Who Has to Disclose
Brokers and consultants to ERISA group health plans who expect $1,000 or more in direct or indirect compensation. It applies whether the plan is insured or self-funded, large or small. The threshold counts compensation from every source combined, including carrier commissions and bonuses, not only what the employer pays the broker directly.
What Has to Be Disclosed
The services provided and all direct and indirect compensation, stated as a dollar amount, a formula, a per-employee figure or a reasonable estimate with the method explained. Direct compensation comes from the plan itself. Indirect compensation comes from other parties, such as a carrier, an administrator or a pharmacy benefit manager. A disclosure that lists services but gives no figure or formula for pay is incomplete.
When
Reasonably in advance of the contract, for any arrangement entered into, extended or renewed on or after December 27, 2021. Changes to what was disclosed have to be reported too. A renewal counts as an extension, so an arrangement signed years earlier still needed a disclosure the first time it renewed on or after that date. The disclosure has to arrive before you commit, not with the signed paperwork.
Who Receives It
The responsible plan fiduciary, which for most employers is the employer itself. Reviewing whether the compensation is reasonable is part of that fiduciary role. In practice, someone at the company, often the owner, CFO or HR lead, should be named as the person who reads it, rather than letting the document land in a general inbox.
What to ask your broker at this renewal.
A conflict of interest is not the problem. An undisclosed one is. These questions tell you which incentive is behind the recommendation in front of you.
Commission, Fee or Both?
And if it is commission, does it rise when your premium rises? Ask for the answer in dollars for the last plan year, across every line of coverage. A broker paid both a fee and a commission should be able to show how the two relate, and whether one offsets the other.
Anything Tied to Staying Put?
Ask whether any bonus or override depends on keeping your group with its current carrier. An arrangement like that does not make the advice wrong, but it is the one incentive that points directly at a renewal recommendation. If the answer is yes, ask to see the alternatives that were quoted before you accept a recommendation to stay put.
Who Pays for Everything Else?
Third-party administrators, pharmacy benefit managers and stop-loss carriers may pay the broker too. Those payments belong in the disclosure. This matters most on level-funded plans and self-funded plans, where several vendors sit around the plan. Ask for a single list of every party that pays the broker anything connected to your plan.
Where Is Last Year’s Disclosure?
If your plan renewed after December 2021 and you never received one, ask for it before you renew again. A renewal after that date should have triggered one, so a missing disclosure is a gap in your plan records, not a paperwork detail. Ask for the current disclosure and any earlier ones in the same request.
What employers ask about broker pay.
Is it normal for brokers to be paid by the insurance carrier?
Yes. Carrier-paid commission is the most common arrangement in group health. The law does not ban it; it requires that you be told about it. The question is not whether a carrier pays your broker, but whether you know how much and on what basis. A commission that is disclosed and reasonable for the work is a normal arrangement; one you learn about later is the problem the law was written to fix.
Does the disclosure rule apply to small employers?
Yes. It applies to ERISA group health plans regardless of size or whether they are insured or self-funded. Qualified small employer HRAs are excluded. A small, fully insured plan that renews with the same broker every year is still owed a written disclosure, because each renewal is a new trigger. Size does not change what has to be disclosed: the services and every form of direct and indirect compensation.
What if our broker never gave us a disclosure?
Ask for one in writing. Brokers who do not disclose lose the protection that makes their arrangement with the plan permissible under ERISA. The fiduciary also has a step to take. If a broker will not provide the information after a written request, the fiduciary is expected to report that to the Department of Labor and consider whether to end the arrangement.
Is a flat fee better than a commission?
Not automatically. A fee removes the link between premium and pay, but it is only a better deal if the total is reasonable for the work done. Compare the dollars, not the label. Ask what the fee covers in writing, including renewal marketing, compliance support and employee questions, so you are comparing the same work. A low fee that leaves out services you need is not the cheaper option.
Do we have to review the disclosure?
As the plan fiduciary, you are expected to consider whether the compensation is reasonable for the services. Keep the disclosure with your plan records. The review does not need to be elaborate: compare the pay against the services listed and against what other brokers disclose for similar work. A short note of the decision is what shows the review took place.
Will you tell us what you earn on our plan?
Yes. Ask us and we will put it in writing before you decide anything. The disclosure shows how we are paid on each line of coverage, whether by commission, fee or both, and the services that pay covers. If anything in it changes, we will tell you in writing.
General information, not legal advice. Your plan documents and counsel govern your specific situation.
Send us your renewal.
We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.
The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents — two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
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