UnitedHealthcare relies upon a large network of independent insurance agents and consultants (collectively referred to as "producers") to present our products to our customers. We believe it is important that our customers understand how these independent producers are compensated, so we offer this overview of our producer compensation programs. UnitedHealthcare's compensation arrangements change from time to time and may vary by region or program. All of our producer compensation programs are operated in accordance with applicable law.
UnitedHealthcare uses base commissions as the primary means of compensating producers for selling, renewing and servicing our products. Commissions on medical cases having 50 or fewer eligible employees are paid on a standard basis according to published schedules. Base commissions are built into the premiums or fees paid by our customers, and are paid as a percentage of the premium or set amount per employee. The commission rates in larger cases are negotiated with the producer at the time of the proposal request, unless state regulations establish set rates. Base commissions are by far the predominant type of compensation we pay to producers, generally representing more than 85 percent of the total money paid to producers. Base commissions are paid to the current "agent of record" for as long as the customer remains with us. Cases where no base commissions are paid are called "non-commissionable," or "consulting fee-based" cases (see below for more information on this topic).
Certain producers are able to accumulate large numbers of customers. We reward producers who have high volumes of customers with us by allowing them to receive extra compensation in the form of bonuses and overrides. A bonus is usually a lump sum payment available to any producer who meets the bonus program's qualifying criteria. An override is typically additional compensation available to selected producers in recognition of high volumes of sales production. These extra payments are usually based on the number of covered employees or amount of premium sold or renewed by the producer over a specified time period. UnitedHealthcare will occasionally enter into a limited number of marketing and distribution agreements with some larger firms. Compensation paid to producers under these agreements is usually based on growth and persistency of a producer's overall book of business. The costs of these programs are not directly included in the premiums or fees for the producer's customers, but are included in our general distribution costs.
Producers who have the greatest number of customers with us may also have access to enhanced service programs and the opportunity to meet with our senior leadership by attending conferences. The "United Advantage" program is open to qualified producers who attain specific levels of business based on the growth and size of a producer's book of business with UnitedHealthcare. United Advantage agents receive benefits and services including business support, recognition, training and education. From time to time, UnitedHealthcare may also establish contests for producers to encourage the introduction of new products, stimulate sales of existing products, or similar goals. Contests may offer top producers the chance to win a non-monetary prize, such as a trip, products, a donation in the producer's name to the charity of the producer's choice, etc.
Some customers prefer to pay their insurance representative directly, and therefore no base commissions are included in their medical premiums or fees, or in their stop-loss premium. We include such cases in our bonus and override programs only with written customer permission. We exclude certain non-commissionable cases from bonus and override programs, including governmental cases, and customers in states where such payments are prohibited by law or regulation.
UnitedHealthcare requires written acknowledgment and approval from governmental cases with 51 or more employees before paying any bonus or override compensation to a producer for that entity's health insurance business. Non-commissionable governmental cases are excluded from bonus and override programs.
A percentage of cases are sold through the assistance of a "general agent" who organizes and manages a network of sub-agents responsible for sales promotion and marketing of UnitedHealthcare products. General agents provide an additional distribution system for UnitedHealthcare's products. The general agent performs duties related to managing the agency and distributing products in the marketplace. General agents provide expertise on medical and ancillary products, answer questions, and provide contacts for enrollment and claim issues. We pay overrides to compensate the general agent for providing certain administrative services in supporting these producers. These overrides are not directly included in the premiums, but are included in our general distribution costs. We may also make payments from time to time to other producers for services unrelated to the sale of policies.
Most employers with 100 or more employees are required to report the compensation paid to their producers by them or their insurance companies under ERISA using Form 5500 Schedules A or C. (Some governmental, church groups and certain other types of groups are exempt from reporting.) In compliance with law, UnitedHealthcare includes all base commissions, bonuses and overrides in the information supplied to customers to support this reporting. For compensation based on a producer's block of business, UnitedHealthcare reports an amount to each customer in proportion to the case's contribution to the compensation. The allocation of more complex bonuses is dictated by the bonus structure. For example, if a bonus pays $10 per fully insured employee, and $5 per self-funded employee, a fully insured case having 100 enrolled employees will be allocated $1000 and a similar self-funded case will be allocated $500. Some non-cash compensation is also included in information supplied to customers for 5500 reporting.
The best source for information related to the compensation being paid on your policies is your producer. Feel free to discuss the compensation paid for your policy and any of our bonus and recognition programs with your producer.