More Conflicts of Interest - Health Insurance Consultants Paid Both By Employers and Health Insurance Companies

The Wall Street Journal reported (available here free from the Stamford Times) on how some employee-benefits consultants may charge employers for their advice about picking the best health insurance for their employees without disclosing that they also are paid bonuses or commissions by health insurance companies.

The article included this anecdote,

When Kevin Grady took over as an employee-benefits consultant for the Columbus Public Schools District in 2001, he signed a contract promising to act "in the best interest" of the schools. The Ohio district agreed to pay him $35,000 a year to help it choose a health insurer. Officials thought that was all Mr. Grady was getting out of the deal.

It wasn't. After the district switched its health insurance to UnitedHealth Group Inc. on what it says was Mr. Grady's recommendation, he started getting payments and other compensation from the big Minnetonka, Minn., insurer. Thank you and United for the steaks,' Mr. Grady wrote....

All told, UnitedHealth paid Mr. Grady $517,138 for helping it get the district's business.

Last month, the Ohio Department of Insurance suspended Mr. Grady's license for three years, accusing him of 'deception.' He was ordered to pay $137,000 in restitution to the Columbus district and a $25,000 civil penalty. Earlier this year, UnitedHealth agreed to pay a $125,000 penalty to settle the matter without admitting wrongdoing.

The article included other cases, involving other insurance companies and pharmacy benefit managers, and summarized the practice thus,

The episode spotlights a widespread and largely invisible practice that critics say boosts the cost of health care. Many consultants and brokers who are hired to help employers get the best deal on health insurance or prescription-drug coverage have significant financial ties with the health vendors they are supposed to be scrutinizing. The ties may take the form of bonuses for bringing in business, commissions or consulting fees. Often they are disclosed only partly or not at all.

So,

Consultants and other middlemen are prospering even as employers struggle with spiraling health-care costs.

The complexity of the US health care system encourages the flourishing of various middlemen, as J D Kleinke might put it, the fourth, fifth, sixth, seventh, etc parties in health. Furthermore, as system complexity and assymetry of information increases, the opportunities to make more money by deception increase.

It seems to me for a consultant to accept bonuses or commissions from health insurance companies while being paid for disinterested advice by employers constitutes yet another important, but heretofore unrevealed kind of conflict of interest in health care. Like other conflicts of interest, it has the potential of driving up costs and leading to bad choices about health care insurance.