A health insurance broker should help a small business lower costs and match employees with solid coverage. Yet many brokers earn a percentage of every premium dollar you pay, meaning higher rates lift their income. When commissions tie broker compensation to premium size, advice can tilt toward fully insured plans that lock you into rising costs instead of leaner options such as PEO health insurance, level-funded plans, or a Taft-Hartley plan. That commission bias often goes unnoticed until renewal season, when you face yet another rate hike with no alternative proposals on the table.
By asking for a written breakdown of broker compensation and demanding side-by-side comparisons with lower-cost models, you shift the conversation from what benefits the broker to what truly benefits your business and employees.
In this article, we will discuss the following topics:
- How Health Insurance Broker Commissions Impact Your Small Business Costs
- How Health Insurance Broker Commissions Really Work
- How Health Insurance Broker Commissions Affect Your Costs
- Alternatives Your Health Insurance Broker Might Not Mention Due to Commissions
- Common Objections When Questioning Health Insurance Broker Commissions
- How to Ensure Health Insurance Broker Commissions Don’t Limit Your Options
- Ready to Move Beyond Health Insurance Broker Commissions?
How Health Insurance Broker Commissions Impact Your Small Business Costs
A health insurance broker’s commission is typically a fixed percentage of every premium dollar you pay. When your premiums rise 8 – 12% at renewal, the broker’s annual income rises in lockstep, without any extra work on their part. That incentive nudges brokers toward fully insured plans with the biggest premiums, even if leaner options would meet your employees’ needs at far lower cost.
Over time, commission‐driven renewals turn a predictable business expense into a compound drain on cash flow: higher premiums squeeze wage growth and restrict funds for hiring or equipment. Because the broker controls plan proposals, you may never see lower‐commission alternatives such as PEO health insurance, level-funded plans, or a Taft-Hartley plan.
In short, the commission structure can quietly shift your benefits strategy from cost containment to commission preservation, unless you ask pointed questions and demand transparent compensation details.
How Health Insurance Broker Commissions Really Work
Health insurance brokers earn most of their income from the plans they recommend. Because compensation is tied to premium size, a broker can make far more on a rich, fully insured policy than on lower-cost alternatives. Understanding how those commissions are structured explains why certain plans dominate proposals, even when they cost your business more.
Understanding Health Insurance Broker Commission Structures
| Plan Type | Common Commission Model | Typical Broker Earnings per Family* |
| Fully insured group plans | 4 – 7 % of total premium (plus renewal bonuses on volume) | $1023-$1,790 per employee |
| Level-funded Plans | 3-7% of premium or flat per-employee fee. Premiums are generally lower* | $240 – $1,432 per employee |
| PEO health insurance | Paid based on a percentage of admin, employees enrolled in medical, or employees enrolled in the PEO | $300 – $750 per employee |
| Taft-Hartley plan | No commission, 1-3% of premium*, flat per-employee fee, or consulting model | $0, if not allowed; $180 - $720 per employee |
* Commissions based on the 2024 average family premium of $25,572/year. Level-funded rates are assumed to be 20% cheaper - $20,458/year. Taft-Hartley premium assumed to be $19,200/year.
- Percentage vs. flat fees: Fully insured carriers pay percentage commissions that scale automatically with premium increases. Alternative arrangements, such as level-funded or PEO health insurance, use lower percentages or flat fees that do not rise with premium growth.
- Override bonuses: Carriers often offer additional bonuses when a broker renews a block of fully insured business above a revenue threshold, further aligning broker income with high-premium plans.
- Ancillary stacking: Commissions also apply to dental, vision, life, and disability policies. Building each line separately can multiply broker revenue, even if bundling is costlier for the employer.
Why Your Health Insurance Broker Prefers Fully Insured Health Plans
A fully insured plan is the simplest product for a broker to manage and the most lucrative to sell:
- Higher percentage, higher base: A 5 % commission on a $600,000 premium delivers $30,000 a year in income, far more than the flat fees available through a PEO or the slim margins on a level-funded contract.
- Automatic annual raises: When premiums climb at renewal, the commission check climbs too, often without extra work. That built-in raise doesn’t exist on flat-fee models.
- Carrier bonus incentives: Carriers reward brokers for keeping business in fully insured blocks with override bonuses, trips, or marketing allowances. Those perks disappear when employers migrate to self-funded vs. fully insured alternatives.
- Less client education: PEO health insurance, level-funded plans, or a Taft-Hartley plan require an explanation of claims funding, stop-loss coverage, or collective bargaining rules. Many brokers avoid that deeper consultative effort, especially when it cuts their pay by half or more.
The net result: unless you ask pointed questions or engage an advisor paid on a fee-for-service basis, you may never see the lower-commission plans that could shrink your total spend and give employees greater flexibility.
How Health Insurance Broker Commissions Affect Your Costs
A health insurance broker’s pay structure can push your premiums higher than necessary. When compensation rises with every dollar you send to the carrier, the incentive is clear: recommend plans that keep rates and commissions upward. Understanding these incentives helps you spot advice that favors the broker’s income over your balance sheet.
Hidden Broker Commission Incentives Behind Higher Premiums
- Percentage-based pay: Most brokers earn a fixed percentage of the premium. A richer, fully insured plan means a larger check, so there is little motivation to negotiate smaller rate increases or suggest leaner funding models.
- Volume and retention bonuses: Carriers reward brokers who hit premium-revenue targets with cash bonuses, marketing allowances, or trips. These perks disappear if you switch to lower-commission options like PEO health insurance or a level-funded plan.
- Ancillary stacking: Brokers often quote medical, dental, vision, and life policies as separate contracts. Each line pays its commission, increasing broker income while inflating your total spend.
- Renewal inertia: A fully insured renewal requires little extra work, yet commissions rise automatically when the carrier adds five or ten percent to the rate. That built-in raise makes pushing back or introducing a Taft-Hartley plan less attractive to the broker.
Signs Your Health Insurance Broker’s Advice Is Influenced by Commissions
- No discussion of alternatives. If your broker never mentions PEO health insurance, level-funded contracts, or a Taft-Hartley plan, they may protect their commission stream rather than your budget.
- Evasive about compensation. Ask, “How are you paid on this plan?” A clear, written answer shows transparency. Vague responses suggest a commission structure you are not meant to see.
- One-page renewals, no data. A renewal that lists only the new premium, without claims trends or administrative cost breakdowns, hides the broker’s true earnings and blocks meaningful negotiation.
- Stacked ancillary products. If dental, vision, and life policies arrive from different carriers with separate invoices, you are likely funding multiple layers of commission.
- Pressure to stay fully insured. A broker who dismisses self-funded vs fully insured comparisons as “too risky” without providing numbers may be prioritizing the higher percentage that fully insured plans pay.
Alternatives Your Health Insurance Broker Might Not Mention Due to Commissions
Traditional brokers earn the highest commissions on fully insured plans, so they rarely highlight funding models that shrink premiums and, therefore, their pay. Three proven alternatives: PEO health insurance, level-funded plans, and a Taft-Hartley plan offer lower broker compensation but far better cost control for small employers.
PEO Health Insurance: Lower Commissions, Lower Costs
A PEO health insurance arrangement pools many small businesses into one large group, giving you access to big-company rates and broad national networks. Brokers are usually paid a flat referral fee rather than a percentage, so your premium savings flow back to the business. Employers also get bundled HR, payroll, and compliance support.
Level-Funded Plans vs Fully Insured: Fewer Broker Commissions, More Flexibility
Level-funded plans combine a predictable monthly payment with year-end refunds when claims run low. Because the broker’s pay is often a modest flat amount or a small percentage, they have less financial incentive to steer you away from this self-funded and fully insured hybrid. You gain access to claims data, can adjust benefits mid-year, and may recoup unused dollars.
Taft-Hartley Plan: Cost Savings, Health Coverage Brokers Rarely Recommend
A Taft-Hartley plan is a multi-employer trust that spreads risk across many participating businesses and unions. These trusts pay brokers little or no commission and instead direct funds toward benefits. Rate stability is high because large pooled assets absorb claim spikes, making this model attractive for industries with mobile or seasonal labor. Brokers seldom raise the option because it offers a minimal payout for them.
Choosing any of these alternatives aligns your health plan costs with actual employee needs rather than broker commission formulas, letting you protect cash flow while improving coverage.
Common Objections When Questioning Health Insurance Broker Commissions
Small-business owners often hesitate to challenge a trusted advisor. Yet commission-driven incentives can quietly raise costs. Addressing two frequent objections helps you move the conversation from loyalty to clear financial logic.
“I Trust My Health Insurance Broker, Why Question Commissions?”
Trust and verification are not opposites. A reputable health insurance broker should welcome transparency. Ask for a written breakdown of their compensation on your plan and on lower-premium options like PEO health insurance or a level-funded contract. If the broker’s income drops sharply when premiums fall, you have objective reason to seek a second opinion, just as you would with any other vendor whose fees rise when your expenses rise.
“Aren’t Alternative Plans Like PEO Health Insurance or Taft-Hartley Plans Risky or Complicated?”
Complexity is often overstated. A reputable PEO bundles HR, payroll, and compliance with large-group health rates, managing the administration for you and, consequently, increasing simplicity. Taft-Hartley trusts use pooled reserves and professional trustees to stabilize costs year after year. Both models are regulated, ACA-compliant, and widely used by thousands of employers. What feels “risky” is often just unfamiliar, and unfamiliarity benefits a commission-based broker who profits from keeping your plan exactly where it is.
How to Ensure Health Insurance Broker Commissions Don’t Limit Your Options
Brokers who earn a percentage of premiums can unintentionally steer you toward higher-cost plans. Protect your bottom line by making compensation transparent and by knowing when to bring in an impartial advisor.
Key Questions to Ask Your Health Insurance Broker About Commissions
- How are you compensated under my current plan?
Request the exact percentage or flat fee, and medical, dental, vision, life, and disability are all included. - What would you earn if we moved to a PEO health insurance plan?
Clarifies whether lower-premium options would cut their pay and explains why they may not have surfaced. - How do you get paid on a level-funded or self-funded arrangement?
Confirms whether commissions drop to a modest flat fee, aligning their income with your cost control. - Do you receive carrier bonuses for renewing fully insured business?
Some carriers offer extra bonuses or trips; knowing this reveals hidden incentives. - Will you provide side-by-side quotes that include Taft-Hartley and PEO options?
A broker confident in their advisory role should present all viable models, not just the highest-commission plan.
When to Seek a Second Opinion from Another Health Insurance Broker
- Compensation answers are vague or delayed. Transparency should be immediate.
- Only fully insured renewals are presented year after year. Lack of alternatives signals commission bias.
- Ancillary lines are always quoted separately. Stacked policies amplify broker income at your expense.
- Premiums rise faster than payroll, yet your broker never suggests PEO health insurance, level-funded, or Taft-Hartley options.
- Broker dismisses alternative funding as “too risky” without data. A true consultant supports advice with numbers.
Ready to Move Beyond Health Insurance Broker Commissions?
You don’t have to accept plans that serve a commission schedule better than they serve your balance sheet. Smarter options, such as PEO health insurance, level-funded plans, or a Taft-Hartley plan, can lower costs, widen networks, and return control to your business.
Schedule Your Free Consultation to see if hidden broker commissions are increasing your health insurance costs, and explore better alternatives like PEO health insurance, level-funded plans, or a Taft-Hartley plan.