Health benefits brokers would have to reveal the fees and other enticements they’ve received from the insurance industry under bipartisan legislation proposed Thursday in the U.S. Senate.

The brokers are supposed to independently help employers select benefits for their workers. But a ProPublica investigation in February found that the insurance industry often uses undisclosed money and gifts to influence which plans the brokers favor. The payments and perks include healthy commissions, six-figure bonuses and exotic island vacations. Critics call the compensation a “classic conflict of interest” that drives up costs.

ProPublica’s findings prompted Sen. Lamar Alexander, R-Tenn., chairman of the Health, Education, Labor and Pensions Committee, and Sen. Patty Murray, D-Wash., the committee’s ranking minority member, to include new requirements for brokers in a sweeping health care legislation proposal. The draft bill, known as the Lower Health Care Costs Act, also takes on surprise medical bills, high drug prices and public health problems among other issues.

The section on brokers proposes revising the Employee Retirement Income Security Act of 1974, better known as ERISA, which sets minimum standards for most private health and retirement plans. Brokers would have to disclose compensation from insurers and other vendors, in writing, at the time an employer signs up for benefits. The recommendation is similar to regulations for retirement benefit advisers.

“The goal of this provision is to provide employers with information about their brokers’ incentives,” said Taylor Haulsee, spokesman for the committee.

The proposal has the support of Michael Thompson, the president and CEO of the National Alliance of Healthcare Purchaser Coalitions, which represents groups of employers that provide health benefits. Thompson said employers often don’t recognize the biases at play when they purchase benefits. Even large companies, with experienced human resources managers, may not understand all the ways their brokers could be getting industry cash, he said.

ProPublica found that brokers cut a variety of side deals, from sending employers to a preferred vendor for a fee to sharing a slice of the revenue with a benefits provider. Brokers may also earn bonuses based on volume or retaining clients.

“Requiring disclosure and greater transparency will lead to a system that’s more accountable to employers and other purchasers,” Thompson said.

Matt Eyles, president and CEO of America’s Health Insurance Plans, said in a statement that the trade group looks forward to reviewing the senators’ proposals in detail. “We support transparency that allows consumers and patients to get information that is clear, helps them make informed decisions about their care and leads to lower costs for them,” he said.

The National Association of Health Underwriters, which represents health benefits brokers, declined to comment.

Despite the widespread payments, the industry has not made their disclosure a standard part of the process when employers sign up for benefits, putting companies and their workers at a disadvantage, critics say. “Imagine you’re in a lawsuit and the other side is paying for your attorney,” industry reformer Dave Chase said. “That’s the way it’s been working in health care.”

Chase, who founded a group called Health Rosetta to accredit health benefits advisers, applauded the Senate proposal as “an important first step, shifting from an industry that’s insurer-centric to one that’s human- and patient-centric.”

Rosetta-accredited advisers must disclose all their sources of income to the employers they serve, Chase said. But some, he said, have stopped accepting industry payments and have arranged to be paid directly by employers. Some brokers now design less-expensive benefit plans that are just as comprehensive but bypass the big box insurers, he said.

Eric Campbell, director of research at the University of Colorado Center for Bioethics and Humanities, also praised the draft bill. Disclosing the income doesn’t eliminate the conflict of interest, he said, but it would help employers evaluate a broker’s advice. “You can’t manage what you don’t know about,” he said.

This isn’t the first proposal that would require brokers to reveal industry payments. The administration of President George W. Bush tried to require it through regulations in 2007 and President Barack Obama tried again in 2010. Both efforts met with industry opposition and died.

The Senate committee is seeking input on its draft legislation and is planning to hold a hearing the coming weeks.

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For more coverage, read the Health Insurance Hustle.

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