EP379: How Much Money, Really, Are Employee Benefit Consultants and/or Brokers Making From Plan Sponsors? With AJ Loiacono

This show with AJ Loiacono is different than others you may have heard with him because in this healthcare podcast, we are not talking about PBMs (pharmacy benefit managers). We’re talking about brokers and EBCs (employee benefit consultants).

So, say I’m a self-insured employer. Here’s the big question: Is my broker or EBC helping me make the right decisions, or is he or she helping me make decisions that will make them the most money?

While there are some amazing and totally above-board EBCs and brokers out there, unfortunately, caveat emptor is a thing. Buyer beware, that is. Too many self-serving and I’m sure very charming sharks are out there circling plan sponsors.

It is currently a fact that some EBCs and brokers and even TPAs (third-party administrators) or PBMs or others take hidden kickbacks or fees or percentages. They make a lot of money, maybe the most money, in these secret ways. All this money, money paid in secret backroom deals—let’s not lose track, these dollars increase the total prices paid by plan sponsors and employees.

Now, I say this to say that my guest today, AJ Loiacono, calls 2022, right now, a “magical moment” for plan sponsors—and for straight-shooting EBCs and PBMs and all the others who are actually doing the right thing by their clients also. It’s because of the Consolidated Appropriations Act (CAA), which states quite clearly that plan sponsors can ask their healthcare and benefits service providers to disclose the money that they are making off of the plan—all of the money, not just the direct fees.

The CAA went into effect last December (December 2021), and contrary to what some people have said or may believe, it is in force right now. The field memo went out on 12/31/2021. So, the CAA is the rule right now.

And in fact, the CAA makes it imperative under ERISA (Employee Retirement Income Security Act) to do what I just said: Plan sponsors must disclose the monies that they are paying out on behalf of employees and ensure that those fees are reasonable and free from conflict. If you’re the fiduciary of the plan, you gotta disclose all these indirect and direct compensations of the people that you are paying or the people that you are paying who may be kicking back dollars to other people you are working with, unbeknownst to you. The Department of Labor is putting as much emphasis right now on healthcare as they put on 401(k) plans in the early 2000s, so this is a big deal—or it should be—for plan sponsors.

So obviously, in order to comply with the CAA, self-insured employers should be requesting from their EBCs and brokers or others that they disclose, in writing, how much money they are making off the plan. You can see why this disclosure would be necessary if the plan sponsor is responsible to determine if those payments are reasonable and seem to be free from conflict, right? You can’t evaluate something you do not know about, and if you don’t know about it, the plan sponsor is the one at risk. Ignorance is not an excuse here.

Here’s one example: What if the EBC or TPA is collecting a $40 payment per prescription from the PBM? Wait … what? Some plan sponsor is paying $40 per script in, I guess you’d call it, a commission? Yes, that is a rumored example—$40/Rx. It is basically full-on arbitrage, and if anyone disagrees, let me know why and how it’s not.

Or let’s say the EBC is making, say, $6 per script payable by the PBM, and this sum should be mailed quarterly to a PO box in another state. This was a condition, by the way, for a PBM to win an RFP (request for proposal) that the EBC wrote and picked the winner of. Yeah, you as the plan sponsor really probably want to know that this is going on because it’s your butt on the line. Maybe they are happening right now to you if you haven’t gotten the disclosures from your EBC or broker.

So, in sum, the CAA is in effect right now. Penalties can be levied right now against plan sponsors. For a deep dive into the CAA, listen to the show with Christin Deacon (EP342) from last year.  

What’s the process if I’m an employer plan sponsor? Step 1: Request in writing the dollars that your EBC or broker is making off of you. Similar to the advice that you’ll hear often on this show, ask for actual dollars, not a percentage of this or that. Ask for how much money did you (broker or EBC) make off each program that you recommended to us, and what did that total up to. Once you make that request, the EBC/broker/TPA (whoever you’re asking) has 30 or 90 days to respond, depending on who you ask. But if they do not respond, then you, the employer, should report them to the Department of Labor.

Keep this in mind: Once that EBC or broker is reported for failure to comply by anybody, meaning likely some other employer, it is only a matter of time before that information becomes public. And the second that info becomes public, I guarantee you that there’s some attorney out there just waiting to file a class action lawsuit against every other self-insured employer who uses that EBC/broker because everybody else out there is now out of compliance. Right? I’m not a lawyer and I am certainly not a class action ambulance chaser, but even I can figure out that strategy.

AJ Loiacono has been on this podcast before talking about PBMs, and in this episode he delivers, talking about the shenanigans of some brokers and how the jig is now up. AJ is the CEO of Capital Rx, which is a PBM 2.0, as they call it.

To see how the CAA is playing out, you can read about one real-life example of a school district’s lawsuit against an insurance consultant.  

You can learn more at cap-rx.com and find resources through law firms.

Anthony J. “AJ” Loiacono is the co-founder and CEO of Capital Rx, one of the fastest-growing health technology companies in America. He has over 20 years of experience in pharmacy benefits, finance, and software development. AJ’s mission is to create the first efficient market for prescription prices and provide employer groups with the highest standard of patient care. AJ has spent his career studying the pharmaceutical supply chain and producing engineering solutions that have continually redefined the pharmacy benefit industry to achieve this goal.

Prior to Capital Rx, AJ was a co-founder of Truveris, where he served for eight years as CEO, CIO, and board member, leading the company to record growth (Deloitte FAST 500 and Crain’s Fast 50). Before Truveris, AJ co-founded SMS Partners, a joint venture with Realogy (RLGY), and in 2010 exited the partnership with a buyout. In his first venture, AJ started Victrix, a pharmaceutical supply chain consultancy, and successfully sold the company to Chrysalis Solutions in 2007. AJ is a graduate of Manhattanville College, where he studied finance while playing varsity soccer and rugby.

06:03 Who can get in trouble for mismanaging employee funds?
06:31 Who can begin the cycle for annual review?
07:53 “When you talk about conflicts of interest, they’re everywhere.”
13:17 “You’re paying for access.”
13:38 Why is it important to request that they disclose direct and indirect compensation?
14:08 What are the layers to these hidden fees and compensations?
18:17 What is a reasonable fee for a good plan admin?
19:32 “I think people need to step back and say, ‘How many different ways are they getting compensated?’”
24:57 “The compensation is not just unreasonable, but if they were to move it, they would lose access to an entire column of revenue.”
25:13 “For every good broker consultant, there’s a horrible individual lurking out there and it’s easy to figure out: Ask for them to disclose their fees.”
28:14 “You can’t win if you can’t even pay the house fee to come in.”
31:42 Why do you need to ask for disclosure, and what do you need to ask specifically?
32:27 What are some of the characteristics of a good plan consultant?

You can learn more at cap-rx.com and find resources through law firms.