What is the Difference Between an Agent and a Broker Relationship?

by John Hansen

Steve Young Addresses Health “Agent” vs. “Broker” Agreements and Speaks to the Issue of Charging Fees

Steve Young, at the CAHU Capitol Summit 2016 addressed the issue of whether or not health agents can charge fees. He began with a discussion regarding the legal differences between the designations “broker” and “agent” relationship.

In the health insurance industry, often these terms are used interchangeably. However, the law makes a huge distinction between broker and agent relationships. And, there are different liabilities depending on whether an individual is relating to a client as a health agent or as a broker.

The concept of “agency” affiliations goes all the way back to feudal England. “If I am his agent, I can only take actions he commands, and he is liable for the wrongs I do,” said Young.

The 80-6 Bulletin Clarifies Health Agent vs. Broker Relationships

In 1980, the 80-6 Bulletin was written to clarify the differences between agent and broker relationships. According to the bulletin, if someone is a health agent, he/she may not charge fees unless he/she has the authority of the insurance company to charge fees.

However, no insurance company would allow a health agent to charge fees. Reason being, this adds to the rate tax for the health plan. Also, it can result in the insurance company being guilty of rate discrimination.

If an individual is affiliated with a client in a broker relationship, that person may charge fees as long as he/she has consent beforehand.

The McGraw Letter Opinion

Young pointed out though that 80-6 is a bulletin and not a law. In 1997, further explanation of the health agent-broker relationship was given with the McGraw Letter Opinion, which was provided by the Agent Advisory Committee.

According to the McGraw Letter Opinion, normally health agents may not charge fees. However, if certain criteria exist, the agent may charge fees. All of the following must apply:

  • The agent is giving services outside the normal scope of what agents do.
  • There is full disclosure regarding the fees.
  • The consumer has given consent to the fees.

Crummy vs. Marker

In the Crummy vs. Marker case, Mercury Insurance allowed their independent sales force to act as agents or brokers. They left the choice of the designated relationship up to the agent/broker. Mercury Insurance had two health agent-broker agreements, a “broker agreement” and a separate “agent agreement”.

These broker/agent agreements were almost identical. Steve Young said, “You could lay the contracts on top of each other, hold them up to the light, and the words would be in the same place.”

Mercury allowed for those with a broker-connection-to-client to have binding authority. And, those with a health agent association with a customer were permitted to charge fees just like brokers. A lawsuit ensued saying that these agent–broker agreement situations violated California law regarding the definitions of the relationships of agent and broker. Ultimately, it was determined that Mercury Insurance was calling people “brokers” when they were acting as “agents”.

California Insurance Code Section 1623

“The bottom line is that brokers are under attack,” said Steve Young. Section 1623 of the code for health insurance in California defined the terms. The old definition of the agent relationship is that a health agent is a representative of the insurer, and if the insurance company files agency appointments, then that person is an agent of the company.

However, if there is no action note on file that says the person is acting on behalf of the customer and the nature of the agreement is not defined and signed by the consumer, then that person is acting as a health insurance broker.

According to Young, “The bottom line is that if there’s an action notice on file, then you’re an agent of the company. If you’re acting as an agent, you can charge a fee if you are providing services not related to health insurance, or if you are providing services above and beyond the typical duty of a [health] agent.” He added a bit cryptically, “Where a contract says you can’t charge a fee, you have to be very mindful of that.”

Young continued the enigmatic charades by saying, “If an insurer is giving a 0% commission, is the consent to charge a fee implied?” He didn’t say a for sure yes or no, but simply threw out the idea for consideration.

Later after a warning by Jon Tomashoff against health agents charging “sham fees” for the selling of California health plans, Young became much more clear about the agent-broker relationship and the possibility of charging fees. He then said, “The mere inadequacy of commissions is not justification of quote unquote ‘policy fees’ that really go to brokers.”

Steve L. Young’s Experience and Role in the Health Insurance Industry

Steve L. Young is a lawyer, and the Senior Vice President and General Counsel for the Independent Insurance Agents and Brokers of California. According to the California Association of Health Underwriters (CAHU), Mr. Young represents agent interests at hearings conducted by the California Department of Insurance. He has served on the Insurance Law Committee of the State Bar of California. Also, he was a charter member of the Agent and Broker Advisory Committee to the California Insurance Commissioner. He is an expert on the health agent broker relationship and agent contract agreements. Also, he is a frequent speaker and author on legal and regulatory developments affecting the business of insurance.


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