By limiting the percentage of health insurance premiums that can be allocated to insurer overhead, minimum medical loss ratio requirements set by the Patient Protection and Affordable Care Act have shed light on broker compensation practices that had been largely invisible to employers.

Historically, commissions paid to insurance brokers placing group health business were embedded in premiums paid by employers and plan members. Because these commissions generally were a percentage of premiums paid, broker compensation grew with the increasing cost of health insurance.

By law, health insurers are required to furnish every employer with 100 or more employees with a Form 5500 that shows commissions and bonuses paid to the broker servicing the account. But many employers pay little attention to the information, sources say, and because employers with fewer than 100 employees and municipalities aren't required to file Form 5500, they generally don't know what their broker is paid unless they ask.

Employers in the middle market “often rely on brokers and other service providers to complete the 5500 Form for them and then they just sign it and send it in,” said David R. Marom, president of Marom Consulting in New York. “Shame on those employers for not paying more attention to what can be a large expense.”

Under PPACA, commissions are considered part of insurers' administrative expenses, which are limited to 20% of premiums collected in the individual and under-50 group market and 15% of premiums collected in the midsize and large group markets. Though industry trade groups have been lobbying Congress to pass legislation that would exclude broker commissions from insurers' administrative expenses, they have been unsuccessful so far.

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In response to these new minimum MLR regulations, some insurers began breaking out commissions paid to brokers after Jan. 1, 2011, requiring the brokers to seek compensation directly from their clients. In many cases, benefits brokers are offering additional services to justify charging their clients fees in lieu of commissions, industry sources say.

“Most insurance companies have been offering a separate form showing how much an insurance broker is making and requiring a signature of acknowledgement. For old-fashioned transactional agents ... this has caused a whole new era of tap dancing,” said Thom Mangan, CEO of United Benefits Advisors L.L.C., an Indianapolis-based alliance of 140 independent benefits advisory firms located throughout the United States, Canada and the United Kingdom.

“However, for professional advisers, this has created a new opportunity as they have long been transparent (and) provided a high degree of intellectual capital as well as tools and services to help manage their clients' benefit plans,” Mr. Mangan said.