Going for Broker? Intermediation in Health Insurance Markets

This paper studies how insurance brokers affect product choices, premiums, and welfare in the employer-sponsored insurance market. We compile a novel database of contracting relationships among employers, brokers, and insurers in New York State. Exploiting variations in commission schedules, we document two market distortions: First, brokers exhibit traditional agency frictions, steering employers towards more financially lucrative products. Second, commission levels affect ex-ante insurer-broker networks and, in turn, insurers' competitive pressure, leading to anti-competitive distortions. We develop and estimate a structural model of employer insurance demand, insurer pricing, and formation of broker-insurer contracting networks. We use the model to study a commission-cap counterfactual. A one-percentage-point cap reduces broker-induced steering and raises employer surplus by 3\%, but the resulting reduction in insurer competition lowers surplus by over 6\%, yielding a net decline of about 3\%. We also explore the impacts of fiduciary duties and network regulations for insurance brokers.