The hidden fee inside every health premium

Employers with under $1 million in premium paid their brokers roughly $120 million over three years, just within the slice of the market these filings capture. Had they paid at the large-group rate instead, that bill would have run about $55 million. The extra $65 million, a little over $20 million a year, is what smaller firms paid for no additional coverage at all.

Three things turn this into a tax rather than a simple price. First, it’s regressive. The smaller you are and the less leverage you have, the more you pay. Second, it’s structural. Broker commissions on fully insured plans run on schedules tied to premium size, so a small account gets quoted standard rates while a large one negotiates them down, or drops commissions entirely for a flat fee, which the biggest buyers increasingly do. Third, it’s nearly invisible. The broker’s cut comes out of the premium itself rather than showing up as a line item, so the employer paying the most is the one least likely to ever see the number.

The staircase almost certainly understates how steep the climb really is. Form 5500 doesn’t require employers with fewer than 100 participants to file at all, so the true small end of the market, the 30-person contractor, the neighborhood restaurant group, barely shows up in the data. The smallest accounts that do appear already pay the most. The ones that don’t appear likely pay even more, off the books. What the chart shows is a floor, not a ceiling.

There’s a fair defense here, and it deserves airtime. Servicing a small account doesn’t cost proportionally less than servicing a large one. A renewal, a compliance filing, an open-enrollment meeting take about the same effort whether the premium behind them is $400,000 or $40 million. Spread that fixed cost over a smaller premium base, and the percentage naturally climbs. Some of the staircase really is just that arithmetic, and honest brokers earn every bit of it. Small employers often need more help, not less. But a near-threefold difference, buried inside the premium where the buyer can’t see it, is bigger than a cost-of-service story can comfortably explain. At some point, a reasonable markup becomes something closer to a toll. The real difference is leverage. Large employers can shop around, compare notes, and walk away. Small ones mostly can’t shop for something they’re never shown in the first place.

That’s where policy has started, tentatively, to catch up. Since the end of 2021, a provision in the Consolidated Appropriations Act has required brokers and consultants on group health plans to disclose what they’re paid, both direct and indirect compensation, to the employer who sponsors the plan. That’s the first-time federal law has tried to make this number visible to the people actually paying it, meaning you. Disclosure isn’t a price cap. Even if you ask for the number, you still won’t have the leverage of a Fortune 500 benefits department. But it does turn an invisible tax into a visible fee, one you can question, compare against a flat-dollar alternative, or take to a different adviser. The large end of the market already made that move, and its 2-to-3 percent rates are partly the reward for buyers who could see the number and push it down.