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Should California Health Plans Pay Insurance Agents a Percentage or a PMPM Rate?

by John Hansen

At the CAHU Capitol Summit 2016, Don Cooper, President of Triflex, argued, “The best way to pay agents is PMPM.” PMPM payments refer to commissions paid to health insurance agents “Per Member Per Month”.

In the Per Member Per Month (PMPM) payment model for broker compensation, an agent is paid a certain dollar amount for each enrolled member per month. A California health plan might pay $20 per member per month. So, if an agent enrolled 5 members, the commission would be $100/month.

PMPM Payments Remove the Conflict of Interest

Cooper argued that PMPM compensation is better because “then you’re not incentivized to sell Cadillac plans because you get the same commission no matter what you sell.” He makes a good argument.

Percentage commission insurance agents deal with a conflict of interest. If the agent pushes richer California health benefits, he/she might get a bigger commission.

The agent should only be thinking about what health plan is in the best interest of the consumer. However, for percentage commission insurance agents, it’s hard not to think, “If I sell them the platinum plan, I’m going to make a whole lot more money than if I sell them the bronze plan.”

PMPM payments completely remove this conflict of interest. The agent makes the same commission no matter what plan they sell.

Percentage Commissions May Be Attractive for Agents and California Health Plans

However, some California insurance agents and health plans may actually prefer the percentage commissions. A 5% commission on a plan that costs $1,000/month is a $50/month commission. This gives the agent the opportunity to up-sell and make more money.

Also, the health plans often make more when the more expensive plans are sold. They usually don’t make as much off the bronze plans. So employing percentage commission insurance agents, rather than making Per Member Per Month (PMPM) payments, may create a conflict of interest that health insurance carriers don’t mind.