The Brokerage Blind Spot That’s Costing Employers Billions

Full Episode Transcript

Dan (00:05)
Welcome to another episode of Uninsured by Choice, the podcast where we help you navigate the health care system without insurance. I'm your host, Dan, and as usual, we are brought to you by our sponsor, Zion Healthshare, a nonprofit medical cost sharing community. Today I am joined by Donovan Bile who is a health insurance whistleblower exposing how the brokerage blind spot costs employers $300 billion a year and what executives can do to stop it. While working on the insurer and brokerage sides of the business, he discovered the tactics they use against employers and patients and now is leading the fight against health insurance and healthcare waste. As a CEO, author, and validation institute 2025 benefits adviser of the year. He empowers businesses to reclaim what's theirs and transform their employee benefits. So, Donovan, welcome to the show.

Donovan Pyle (00:53)
Wow, this guy better be good after an introduction like that.

Dan (00:57)
Right. Right. So, let's just dive right in. Always been stuck with this conundrum since I got into healthcare. With health insurance, you have a product that's absurdly expensive that people don't like. They don't understand how it works. Yet almost everyone has it. How did they get to this point? How is it that insurance has this hold over us that just seems to be that everyone hates it but feels like they need to have it?

Donovan Pyle (01:18)
Yeah, that's a very uh interesting question, but I think we need to take a step back and actually define what we're talking about. So, when we say insurance, you know, what does that mean? And so, I think there's a lot of misperceptions in the marketplace around this. So CFOs, HR professionals have been conditioned by the insurance industry to think that there are really only four ways, four different carriers, so to speak. And you either fully insure your plan or you self-fund it with those carriers and that's really all the market is. There's only four options. That is just categorically false. I mean, those are the options that pay brokers the most. But if you actually understand what the marketplace of strategies and solutions actually is, it's huge. It's vast. It's dynamic. It's dynamic in the sense that it's changing all the time. One of the real eye openeners for our clients when we first bring on a new customer, we take them through our our consulting services and then we get to our procurement services and we do a full market evaluation. They've never actually had a full market evaluation. They've never seen what the marketplace of strategies and solutions actually is. They are amazed that there are almost infinite ways to finance and procure health care for employees. That creates its own challenges and that there's almost too many choices. Creating a competitive and marketplace drives down costs for for consumers. And so that's that's a big part of our our process at health compass. As someone who worked on the carrier side of the business, worked on the brokerage side of the business, I can I can say with firsthand experience that the industry has been masterful in lowering expectations amongst the sea suite for their own financial benefit. Right? I mean, if you're told, Dan, hey, health care costs go up every year as a gravitational law physics, um, and there's really nothing you can do about it, Dan, as a CEO of my business, if there's nothing I can do about something, I don't need to be in that meeting anymore. HR, you go and deal with it. Tell me what you think, and we'll go from there.

Dan (03:10)
Yeah. So, it sounds like there's uh, mostly ignorance. Uh, generally out there, most uh, Americans are getting their healthcare coverage through their employer. With the employer plans, it seems to be they just don't know any better. And most I'd say of the larger groups, the 50 plus, it's pretty fair to say they're represented by a broker or agent or someone shopping the benefits for them. By and large, uh that seems to be the common uh the common thing there. So these these brokers are maybe just kind of guiding people towards the same handful of uh carriers and plans and just calling it a day. And is that what you're referring to is that they just have this tunnel vision on get one of these plans and and that's a wrap.

Donovan Pyle (03:46)
Yeah. So let's take a step back and provide some context for your audience here. US employers provide healthc care benefits for about $170 million Americans. In 2024, they spent roughly $1.3 trillion doing it. And 25% of what they spent was completely wasted. That equal roughly $4,000 per employee. That was completely wasted. Okay? So, but check this out. Most finance teams and most HR teams know virtually nothing about healthcare financing and procurements. It's not their core competency. They don't even want to be involved with it. They don't they don't want to go to the meetings. They don't want to be involved. And that makes perfect sense. You know, they're kind of dragged into this whole area. When when a business doesn't have internal expertise on something, what do they do? Well, they outsource it just like they out outsource, you know, legal services, tax services, yada yada yada. For example, I as a CEO of Health Compass, I don't want to have to keep up with US tax policy. And so, what do I do? I hire an accountant and I know that that accountant who specializes in in in US tax policy is going to protect my blind spots and make sure I only pay the taxes that I should be paying. The situation in healthcare is different. Most employers are 81% of businesses use a broker. And here's the disconnect. They expect the broker to help them maximize the return on their investment. If you press them and ask them that very unusual question, well, why do you use a broker and what do you expect them to do? Which by the way, most of the times they've never been asked that question, they come back to the same answer. We expect the broker to help us get the best deal. Okay, great. So, if you expect them to help you get the best deal, well, how how do you expect them to do that? Well, we want them to go to the market and come back with proposals and recommendations. Okay, cool. Well, do you think incentives matter? Meaning that do do you do you want them to make more money because health care costs go up or do you want them to make more money for actually doing what you want which is maximizing your investment of course we want them to be aligned with our interests well that's not what the history of the brokerage industry was designed to do and and there was so much you know misinformation on this topic in the industry that I actually dedicated an entire chapter in my book fixing healthcare to the history of the industry because it's quite instructive and so if you understand the distribution channel life gets a lot easier because you have clarity about who does what and why. So, let me just give you the the cliffnotes on it very quickly for your audience. Hospitals put up the seed money to create health insuranceers in the 1930s. They founded health insurance. There was no such thing as health insurance before 1929. Okay, they put up they founded health insurers to help stabilize their revenues and increase distribution of their services in the 30s. Okay, those became the first Blue Cross plans. They are partners. Health insurers are wholesalers of hospital services. Well, who does the retail? In 1938, when the federal minimum wage laws went into effect, up until that point, they had internal sales teams. They said, "We don't want to have to pay salespeople a minimum wage for people that don't really sell much. How do we get around having to pay them a minimum wage?" Well, we do something very logical. We reclassify them as independent contractors. And that led to the brokerage industry. So, here's the distribution channel. You've got hospitals and drug makers. They make the stuff, provide the service. Health insurers are the wholesalers of those services. Brokers are retailers of those services. That's the distribution channel. Every B everybody makes more money when costs go up. Okay? Especially in a saturated marketplace. As an employer, if you expect your broker to maximize your investment, what you're asking them to do is work against their own financial interests. And humans are not very good at doing that. And so this misalignment, this misunderstanding of who does what and why, it paves the way for US employers wasting over $4,000 per employee per year in healthcare on average.

Dan (07:29)
Where does the waste go? We talk about bureaucratic bloat and stuff like that, but from a practical standpoint, is it just going to commissions? Is it just too many people pulling out or where where do we see the waste?

Donovan Pyle (07:41)
I'm so glad you asked that question, Dan, because a lot of executives kind of get this a little bit twisted when they when they start hearing about fiduciary based management consulting firms that don't work for the insurance industry, and our job is to protect employers and patients from the insurance and medical industrial complex. They seem to think that like, oh, you're going to save us money because you're not going to charge as much as a broker. Broker's compensation is typically 5% of total spend. And so, yeah, sure, you might be able to whittle your broker down a half a point, but that's stepping over dollars to pick up pennies. Don't do that. 25% of what you're spending right now in most cases is being completely wasted. That's the opportunity. What's in that 25%? What's contributing to that 25%? So, think of it this way. You're an employer. You use a legacy broker. Guess who that legacy broker is going to recommend further down as far as your products, right? What vendors you use for your health plan. Are they going to recommend vendors who whose financial interests are aligned with yours or are they going to recommend the legacy distribution channel that they grew up working for whose financial incentives are diametrically opposed to yours? As you know, the answer is the latter. Okay? So, for example, think of it this way. Is it any coincidence that 81% of businesses use legacy brokerage firms and 80% of businesses use the big three pharmacy benefit managers? Is that any coincidence? These are the companies that pay each other. They're distribution partners. Okay? This is just how it's nothing personal. There's a lot of good people that work in these in in these businesses, but they're stuck in a model that doesn't align with the end users, the employers and and the employees and the dependents. You have to break open that that distribution channel and get rid of it. So basically to to put it stated it differently, what most employers do when they work with a legacy broker, the broker tells them and recommends that they use vendors that they outsource the management of their healthcare supply chain. People don't know what that really means. What is a healthcare supply chain? I'm talking about the hospitalizations, the the surgeries, the labs, the imaging, the drugs. That's a supply chain. How much are you paying for those things? What's the unit costs of those things? But if you're outsourcing the the management of that supply chain to vendors, brokers, PBMs, networks, TPAs, etc., whose financial interests are diametrically opposed to yours because they're wholesalers for hospitals and drug makers. Well, guess what? You're asking the fox to guard the hen house. It's not going to work. We have to stop thinking of this as a single line item expense and start thinking of it as a supply chain. And in any supply chain, there's supply and there's demand. Who sits on the supply side and who sits on the demand side. If you don't think of it in those ways, the light the world gets very confusing and you're going to continue getting what you always got.

Dan (10:27)
To throw into that mix, you get this this consolidation where United Healthcare owns Optum and and there's so many of these consolidated ownership things going on where you might go to the hospital, get the prescription, pay your insurance, and you're you're all you're just paying one entity that controls its its own pricing. Get real messy real fast. And I think there's a lot of that going on with the what you call the legacy groups. I like that term. The ones that have just kind of always been there, always done that. So your book's called fixing healthcare. So there's got to be some some solutions here. Why don't you hit us with some some common sense approaches that people are are taking right now that are maybe trying to fix this or or change it or provide alternatives or something along those lines.

Donovan Pyle (11:08)
Yeah. So so I have a shocker for everybody because everybody, you know, so many people in this space think that there's a silver bullet for fixing healthcare. Guess what? This is America. We have 500 different kinds of cereal for a reason because people value different things. And you know what? That's great. God bless them. There is no one product fix for everybody. It does not work that way. Markets do not work that way. We love competition. We love variety in this country and we should. Competition is great. The only thing that should be uniformly applied to all businesses is not a product. It's a process. What I describe in fixing health care, how executives can save their their people, their business, and the economy is the fiduciary process. And here's the six-step fiduciary roadmap for solving these problems. Step number one, establish governance. So many businesses don't even have a clear decision-making process about how to manage their second largest expense. They don't know who has a voice, who has a vote, how decisions are made. It's not documented. And so establish governance by creating a food fiduciary committee for your health and welfare plans just like you have for your 401k plans. And you know people take great pride in participating on the committee for those 401k plans. Do the same thing for your health and welfare plan. Having that housekeeping and governance in place opens the door for the rest of the process. Okay? It's a prerequisite. So step number one, establish governance. Step number two, get unbiased professional advice. The first two steps are actually required under federal law. Okay, most people don't know this, but it's actually required under federal law, and they're going to find out pretty soon as these lawsuits, you know, work their way through the court system. Unbiased professional advice. Stop relying on conflicted brokers, legacy brokers, to manage your second largest expense. Stop doing that. You need to get unbiased advice. How do you do it? Okay, two ways. Mark Cuban's been advocating for the past few years, and this, you know, works if you're a larger business, maybe 5,000 or more employees. You can hire a chief benefits officer. You can increase and bolster your in-house benefits team so that you're not relying on brokers for consulting or procurement services. You're not relying on them for recommendations because you now have expertise inhouse. So, it's the equivalent of bringing general counsel inhouse. But the challenge with that is that a lot of companies don't have the scale to accommodate that. And two, there's a talent shortage. Guess what? Federal law requires that there's a prudent expert standard. And guess what? There's only 600 people, give or take, in the United States that hold the highest designations in this business. What are they? Registered employee benefits consultant, the designation that's offered by NABIP. It's kind of like a master's degree in benefits, healthcare financing, and procurement. And then certified health value professional. There's only about a hundred people that have that in the United States. It's kind of like a PhD in health plan innovation. The likelihood of you actually identifying and being able to hire one of those people. It's not great. So, what's the what's the alternative? The other way to get unbiased professional advice is to work with a fiduciarybased management consulting firm. Okay, this is the new wave of benefits advisors who do not accept compensation from vendors and therefore they can they are are legally allowed to serve as a fiduciary in their contract with the employer which means that they sit on your side of the table now. Now they're not working on on for the for the supply side. Now they flip to the demand side. They legally sit with the demand side. I did a 4-hour workshop last week with 130 CFOs at 7:30 in the morning. One of them had already made this transition and they said, quote, "It this change has been life-changing for us because they no longer had to question the recommendations they were getting from their adviser. They know that they're not only financially but legally sitting on the same side of the table as them, getting unbiased advice. Those are the two ways you can do it. Okay? If if you need a if you're trying to find a list of fiduciary based firms, go to the validation institute's website. Full disclosure, I'm an adviser there. I actually created the program. That's why we did that. That employers can actually find these resources out in the wild. Otherwise, it's kind of hard. That's step number two. Step number three, you have to assess where you are. Prescription before diagnosis is malpractice in medicine and it's malpractice in consulting. And yet, our industry continues to push products because that's all they've known forever. If I only push the right product, then I'll I'll win the business by pushing products. That is professional malpractice. We have to stop doing that as an industry. You don't know anything about this company and yet you're telling them to go to RBP or whatever. It's ridiculous. We have to stop doing that. So, what is consulting in this area? Well, has anyone ever scored your organization in the seven categories of benefits value like strategic planning, cost control, employee satisfaction, employee engagement, benefits administration, benefits compliance, and then provider quality. Has anyone ever scored your organization? What I'm describing here is the value equation. And then once you once you've been scored in that value equation, then you can identify opportunities for improvement, you can set goals and develop road maps to improve them. This is what companies do in every other part of their business except when it comes to managing their second largest expense. They don't even know that's a thing.

Dan (16:24)
Take the logic that and apply it to any other part of the business and it just makes no sense. So why do why are they doing it here? Well, they just don't know any better, right?

Donovan Pyle (16:32)
They don't know any better. Most brokerage firms, legacy brokers, don't do this. That's not what they do, right? They sell you a product. That's what they do. Selling services and selling products are two completely different value propositions. So, that's that's part of consulting. What else should you do? You should probably survey your employees, see what they actually want, right? They're the end user. You should probably ask them what they want. Okay. So, that's just a little little hint of what what consulting is. You can also develop your your multi-year strategy, right? We call it the health plan maturity model. We help businesses identify where they are in the maturity model. As your organ organizations grow and become more sophisticated, the way that they finance and procure healthcare should also become more sophisticated. And so there's a maturity model there. Okay, so that's your blueprint. Now we know what we want to build. How are we actually going to build this thing? Right? We've planned the work. Now we got to work the plan. So now we got to move into procurement. And again, this is what your adviser should be doing and leading is a thorough procurement process. And in that process, they serve as a general contractor. They're trying to help you find the best subcontractors, the best skilled craftsmen to actually execute on your vision, whatever that may be. That's going to be different for every business and that's okay. So, thorough procurement process and where you actually understand and get visibility and exposure to the marketplace of strategies and solutions. Okay, they come back, you pick your winners, boom, boom, boom, great. Now, it's time to move into the implementation phase. Again, this is where your advisory firm should be doing the majority of the heavy lifting because your team doesn't probably know a lot of this stuff, right? And they probably don't want to do it. Okay, so now we stood up the program. We created the asset. Now, it's time to protect the asset. And that's where you move into the management phase where your your advisory team turns into a property manager, metaphorically speaking, and they're protecting the asset. So, this whole maturity model is based on accepting the risk and then managing it, right? That's the whole like risk the whole risk management methodology here is moving to a place where you're accepting the risk and then managing it. What's interesting about what a company like yours does, Zion or any of the others is that it's a very uh affordable way to transfer risk. And so I think that's really fascinating. In fact, I've been on health sharing since 2019 as a cash pay patient and I absolutely love it. Most employers have never been exposed to these kinds of things. It's seemed as radical. It's different. It's very different. So, yeah, there there's a there's an innovation curve like there isn't anything. And so, that's that's just just inherent. That's the six-step process for reclaiming this waste, driving more value to your bottom line and your people.

Dan (18:56)
That that's so so enlightening. And I think if you're in the benefit side, your broker, someone like that, this would be so useful to you thinking moving ahead to the future with the cost being what they are, like you say, the second highest line item. At some point, businesses are going to say, "We just can't do this anymore. We can't do it this way. You as the broker, you're stuck. What do I do? Where do I go? How do I help them now? What do I sell them? Well, let's invest now in understanding these alternatives. Understanding that maybe your role uh as a salesperson should be more of a consulting role and start transforming now because then you're really well set up for the future.

Donovan Pyle (19:32)
I agree. And and the challenge that these legacy firms are going to have is that they're built to sell products, not sell services. Two completely different value propositions. And so, you know, one of the things that we've been doing up front in our sales process is auditing um compensation disclosures from their current broker. Since 2022, employers have been required to get 408 compensation disclosures just like they get from their financial adviser for their their retirement plans. The government started requiring this for health and welfare plans in 2022. And of course, you know, employers are getting these disclosures in some cases. Disclosures are often times written in legal ease in fine print that the employer doesn't really know what it means. Okay? So we audit those for at we is a complimentary service that we provide to businesses. By the way, just a side note, Tony Robbins when fiduciary standards started being applied to retirement plans 20 years ago, businesses had the same problem. They're getting these compensation disclosures, but they didn't know what they meant. He built a whole company around helping businesses understand these what these disclosures mean so they could identify conflicts of interest and avoid fiduciary risk and not get sued. I took a note from him and I said, "Wow, we we have the same problem right now. These employers are getting them, but they don't know what they mean. So, we audit them. Here, I just want to give you a sample of what we're finding. Mind-blowing to to stakeholders. Legacy broker brokerage firms. I'm not going to name names here, but some of them are getting paid loans and lines of credit from the same insurance companies that you, this the CFO, expects to negotiate with on your behalf. It's a it's a it's a debtor creditor relationship that they have in some cases. In other cases, it says in the broker's compensation disclosure, quote, "We own equity in health insurers. They own the same company that you're asking them to negotiate against."

Dan (21:12)
Not

Donovan Pyle (21:14)
Not well. The these are these are the conflicts of interest that the government calls prohibited transactions under federal law. And that's why these legacy brokerage firms, large businesses are getting sued for fiduciary breach. And those the velocity and pace of those lawsuits is only going to increase. And so we don't want to see businesses getting sued. We want and we don't want their employees being you know upset about this stuff. Let's solve this problem. Take the right steps. Go through the fiduciary process.

Dan (21:43)
Right. So here's the question then. 81% I believe you said of uh companies or businesses have a broker representing them. What about the 19% who do not? What what's their maybe they're not even required if it's less than 50 employees. They don't even have to provide something. But what would you recommend to people who find themselves in that situation? You know, I got a business of 20 people. I don't have a broker. What should I do?

Donovan Pyle (22:05)
I mean, well, yeah. So, that remaining 19%, they probably have in-house teams. They're probably offering benefits, but they have in-house teams. They just don't use a broker. There's nothing saying you have to use a broker. I mean, you could go go take your insurance license test right now and probably pass and and be legally allowed to advise businesses on how to spend billions of dollars on healthcare every year. I mean, it's just insane. So anyway, they don't have to use a broker, but yeah, if you're a 20 life group, I would highly recommend doing a full market evaluation. And again, they're probably not going to understand a lot of this stuff. So get independent, you know, a fiduciary based advisor that works with small groups and they'll show you a full market evaluation. And sure, some sometimes health sharing might be a good solution for a group like that. Sometimes it isn't. It really just depends, right? But you got to get unbiased professional advice. That's what unlocks so much of this stuff because you just don't you what are you gonna spend the next 10 years learning this stuff? I mean, no, it's not going to happen. I'm choosing I'm never going to be an expert in US tax policy. I will happily make that choice and and spend the money to have a CPA be my expert for me because I know that I know that that CPA is not getting paid by the IRS. Right.

Dan (23:16)
Maximize your tax bill.

Donovan Pyle (23:18)
Exactly. If they were getting paid by the IRS, I'd fire them in a second.

Dan (23:22)
You're just going to apply that to uh the benefit side. And and it's interesting because what you're you're not necessarily on a crusade that's anti- insurance. There can be great insurance products. There can be great insurance carriers. Some situations might call for insurance. It's the way that we're going about it for the most part and using maybe an antiquated method that's not always got our best interest, especially for a larger group. That's what needs to be re-examined. And then we can find, like you said, there's, you know, 500 cereals. I literally just went yesterday to Target with my youngest, my 8-year-old. You're not kidding. It's a whole aisle, just a wall of it. And you're like, well, different tastes, you know, different different things. And so, it's not saying that one insurance plan or an alternative to insurance is the best. It's that this whole collection of options is available and very few people know about it. And it's just a matter of figuring that out to find out what's best for you.

Donovan Pyle (24:12)
Exactly. You got it.

Dan (24:14)
If anyone wants to get in touch with you, what's the best way for them to reach out, connect, and and find you?

Donovan Pyle (24:19)
Well, I'm one of those loud mouths on LinkedIn, unfortunately. So, um, you can find me on LinkedIn. It's Donovan, you know, linkedin.com donovan pile. Uh, you can also just email me. It's donovan pile healthcompass consulting.com.

Dan (24:32)
And then one plug for the book. It's fixinghealthcare uh on Amazon, Goodreads, Kindle, everywhere.

Donovan Pyle (24:38)
Yes. But I prefer you go to to fixinghealthcare.com and order it there directly.

Dan (24:43)
There you go. Buy direct. Fixinghealthcare.com. Yeah, that'd be great. I actually would love to read that. Um I remember when when I we reached out about having you on thinking I got to get my hands on this book. It's so uh interesting. So I that's where I'm going to be going.

Donovan Pyle (24:55)
It's a very different take on this. I mean mo most books on this topic just talk about all the problems and doom and gloom and they and they talk about products endlessly. This is the only book on healthcare that doesn't talk about products because we're not selling products.

Dan (25:07)
It talked about and it's solution framed. I It's called fixing healthcare, not why is healthcare broking.

Donovan Pyle (25:13)
When my book came out, my my uncle uh one of my uncles, he he was kind of skeptical, right? He's like this, you know, is my nephew just, you know, full of crap? And so he um he he he fed my my manuscript into chat GBT and he asked Chat GBT, you know, is is my nephew full of crap? And and and it had one huge criticism of my book. You ready for this? It doesn't talk about the systemic challenges and the uphill battle of what needs to be done from a legislative perspective. It only talks about what executives can do right now. And I was like, you know what, that's exactly right. That's why I wrote the book.

Dan (25:50)
Yeah, that's the criticism. That sounds great. I I don't know. Every other book talks about the other stuff, doesn't it?

Donovan Pyle (25:55)
I don't want to talk about things I have no chance of impacting. I cannot fix anything in Washington DC. No one in Washington DC is coming to save you. They probably don't even want to. It's not going to happen. And the point is, you don't, as an executive, you don't have to wait around for them. You can take actions right now. You have the power and the authority to take back control and lead the way right now. And you should.

Dan (26:18)
100% agree. That's a great great one to end on. Love it. Loved having you on, Donovan. This has been great. I hope uh the viewers have been able to gain a little insight into something that they probably don't know a lot. A lot of people have a job. A lot of people get their benefits through work and they don't really know why they have the benefits they do. They don't know where they came from. They don't they don't know that process. So hopefully it sheds a little light and maybe from the bottom up you can get a little change too is uh if you are an employee and you have questions about your benefits. Don't hesitate to ask those questions might not have been asked by the person in HR or the owner or whoever was

Donovan Pyle (26:52)
Yeah. In fact, I've got a little call to action. It's and it's free. If you go to fixinghealthcare.com, you can download the executive summary of my book and as if you're an employee, give it to your boss and tell them here's the road map. Here's what we can do to stop wasting money, right? It's the best thing for your bottom line and your people.

Dan (27:10)
Love it. Let's end on that note. Go get it. Go take it to your boss. Unless you're the boss, then just go get it. All right, Donovan, thanks for being on. Really appreciate your time today. Remember, you can find us on Spotify, Apple, YouTube. We'll see you next time.

Donovan Pyle (27:25)
Take care now.