Horizon Benefits: nondisclosure, employer health steering

Horizon Benefits Group, a health insurance brokerage and benefits consulting firm serving employers that sponsor group health plans for their employees, was charged by the Department of Labor with failing to disclose compensation arrangements to employer clients as required under ERISA — specifically that the carriers Horizon recommended paid the brokerage materially higher administrative commissions, volume overrides, or contingent compensation than alternative carriers offering comparable plan designs, and that this compensation differential was not disclosed to employers before they relied on Horizon's recommendations to select coverage for their employees.DOCUMENTED

Employers who sponsor group health plans are ERISA fiduciaries required to act in the interest of plan participants. When they delegate benefits consulting to outside brokers, ERISA's framework requires those brokers to disclose compensation arrangements that could create conflicts of interest — so that employers can evaluate whether a recommendation reflects employees' interests or the broker's financial interest in a particular carrier placement.

How Broker Compensation Creates Conflicts

Health insurance brokers serving employer group health plans receive compensation in multiple forms that are not uniformly disclosed to employers. Base commissions vary across carriers and plan types. Volume override arrangements provide additional compensation when a broker places specified premium volume with a carrier annually. Contingent commissions depend on the loss ratio of the block of business placed with a carrier — how much the carrier pays in claims relative to premium collected. Each structure can create incentives that diverge from the interests of the employer clients the broker is advising.REVIEWED

When commission rates differ significantly across carriers offering comparable plans, a broker who recommends the higher-commission carrier without disclosing the differential prevents the employer from assessing whether the recommendation reflects plan quality and employee interests or the broker's financial interest in the placement. Employers who do not know their broker earns double the compensation for placing with Carrier A cannot meaningfully evaluate a recommendation to choose Carrier A over Carrier B.REVIEWED

Regulators found that Horizon's compensation from recommended carriers was materially higher than what it would have received from comparable alternatives, and that this differential was not disclosed to employers in the written format the law requires. In specific cases, the recommended carrier was not the lowest-cost option for equivalent coverage — meaning that undisclosed compensation steering increased plan costs for the employer and potentially increased premium contributions for employees.DOCUMENTED

The 2021 Disclosure Mandate

The Consolidated Appropriations Act of 2021 significantly expanded ERISA Section 408(b)(2) disclosure requirements to cover group health plan brokers and consultants, requiring written disclosure of all direct and indirect compensation before any services agreement is entered. The expansion was motivated by findings that broker compensation in the group health market was systematically undisclosed — employers frequently had no idea how their brokers were compensated or whether compensation differed across recommended options. The disclosure requirement creates at minimum the possibility that employers will ask whether a recommendation reflects employee interests or broker economics.DOCUMENTED

The employer paid for advice. The carrier paid the advisor more than its competitors did. The employer did not know either fact when it accepted the recommendation.

Employee Impact

When employer plan selection is influenced by undisclosed broker conflicts, the harm reaches employees through higher premiums, narrower networks, or lower-value coverage than a conflict-free selection process would have identified. Health insurance is among the most significant elements of employee compensation. Employees who receive lower-value health benefits because their employer's broker was steered by undisclosed commissions have no visibility into why the plan they received was chosen — the broker conflict is invisible to them even as its consequences affect their access to healthcare and their out-of-pocket costs.REVIEWED

What Employers Should Require

Under current law, employers are entitled to a written disclosure from any health plan broker of all direct and indirect compensation received in connection with the plan. This disclosure should be requested before any brokerage engagement begins and updated when compensation arrangements change. A broker who cannot provide a complete compensation disclosure should be treated as a serious red flag. If a broker recommends a carrier whose commission is materially higher than alternatives, the employer should ask specifically what analytical basis supports the recommendation independent of the compensation differential — and should expect a substantive answer.REVIEWED

The Department of Labor's Employee Benefits Security Administration accepts complaints from plan sponsors about service providers who fail to make required compensation disclosures. Employers who have not received the required disclosures from their current broker can file a complaint with EBSA, which may investigate and take action against the broker for the disclosure failure. This regulatory avenue gives employers a mechanism for addressing disclosure failures that does not require initiating civil litigation — an important option for smaller employers who lack the resources for protracted legal proceedings but who are entitled to the transparency that ERISA and the Consolidated Appropriations Act of 2021 require.

The Department of Labor's Employee Benefits Security Administration accepts complaints from plan sponsors about service providers who fail to make required compensation disclosures. Employers who have not received the required disclosures from their current broker can file a complaint with EBSA, which may investigate and take action against the broker for the disclosure failure. This regulatory avenue gives employers a mechanism for addressing disclosure failures that does not require initiating civil litigation — an important option for smaller employers who lack the resources for protracted legal proceedings but who are entitled to the transparency that ERISA and the Consolidated Appropriations Act of 2021 require.

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