Employers Should Benchmark PPP and CPP to Evaluate Employee Benefits Broker and Plan Performance
As noted in Part 1 of this post, employee benefits broker commission rates are a poor—and sometimes misleading—measure of broker performance and plan value.
A more effective place to start is by evaluating what you actually pay in total dollars, including metrics such as Premium Per Participant (PPP) and broker Compensation Per Participant (CPP). These metrics provide a clearer, more accurate picture of plan cost, broker value, and fiduciary reasonableness.
PPP, CPP and CAA: Let There Be Light
Employers can begin by looking holistically at Premium Per Participant (PPP) and broker Compensation Per Participant (CPP) for their health plan, which typically accounts for 80% or more of employee benefits costs. Then, if necessary, they can drill down to premium, broker compensation, and participants on each individual line of coverage, taking into account demographics and plan designs.
Premium Per Employee (PPP). PPP measures the total premium paid on an employee benefits plan divided by participants. Comparing PPP to peer organizations with similar industries, plan designs, and demographics has long been a trusted method for evaluating health plan cost efficiency.
Compensation Per Participant (CPP). CPP measures the total compensation paid to brokers and other intermediaries on an employee benefits plan, divided by participants. Historically, this metric was rarely calculated because compensation was expressed as a percentage of premium—and often not fully disclosed.
That has changed.
The Consolidated Appropriations Act (CAA) extended ERISA’s 408(b)(2) compensation disclosure framework to employer-sponsored group health plans, including medical, dental, vision, and prescription drug plans.
Any broker or consultant providing services to a group health plan who reasonably expects to receive $1,000 or more or more in direct or indirect compensation in connection with the plan must disclose their compensation in dollar amounts (or reasonable estimates) rather than relying solely on percentages. These disclosures must include both direct and indirect compensation, such as commissions, bonuses, overrides, general agent fees, and volume incentives.
Group health plan fiduciaries, such as executives who exercise discretionary authority over the plan, are required to assess whether the total dollars paid for their health plans—including broker compensation—are reasonable in light of the services received. This is not a percentage-based test. It is a reasonableness standard grounded in facts, benchmarks, and documentation.
PPP and CPP are practical first-step metrics that can help employers begin to:
- Understand what they are truly paying,
- Compare costs to similarly situated employers, and
- Demonstrate prudent oversight of their benefits program.
Commission rates may be easy to see, but they rarely tell the full story. Evaluating broker performance and plan value requires looking beyond percentages to the actual dollars being spent.