When your broker only has experience in one discipline, they can make recommendations that they may feel are the correct ones even when they do not make any sense. We recently had a former client hire a consulting firm who recommended a new broker to them. To put it in perspective, this same consultant recommended that they hire a CFO at twice the going rate as well (oddly the consultant’s associate…go figure).
At any rate, we had each of the employees in the company set up on a group health plan that covered all primary care visits, lab, xrays, diagnostics (MRIs, CT Scans, etc..), and generic drugs for free. But, only if they needed mental health services, surgery or hospitalization, the employee had a $1500 deductible.
The new broker put in the same plan with the same company, network, benefits, etc…except that, because that is what they knew, they put in the HRA version of the plan. So, instead of only seeing the deductible for hospitalization and surgery, the employee now was faced with a $1500 deductible for ALL services. The employer took on that risk of the first $1,000 (of the $1500), which with 40 employees is $40,000 of risk. And, since all services are now subject to the deductible, the employer is now paying for ALL ailments and medications that the employees have. The cost difference between this plan and the plan they had….$1 per month. The broker also told them that the plan was better, because they would get a bigger tax deduction. Yes, if you needlessly spend money, then you get a bigger tax deduction.
Lastly, we had layered in a hospital/surgical plan that paid for the deductible which only cost the employer $13/month per employee. The broker told them that they were wasting their money on that plan (mostly because they were unfamiliar with that type of plan). The truth is that the plan paid out to the employees twice as much as the company laid out in premiums in the previous year. While you never know what is going to happen each year (the point of insurance), that same scenario this year would cost them twice as much. And, that’s just for the surgeries and hospitalizations…not all of the other services that the employer is now responsible for.
One can only shake their head in disbelief. But, the takeaway is a few fold. Do not assume that just because you are paying for advice that it is going to be qualified advice. And, if you do get a recommendation, at least take the time to compare. Had we been given the opportunity to show them what they were signing up for, it would have been as easy as it was for you to determine the better course of action.
Insurance is about transferring risks, and clearly if you can transfer $60,000 of risk ($40,000 for the employer and $20,000 for the employees) for $1 per month, then you would hope that would be a no brainer.