Medicare Plan Marketing Proposal Would Overhaul Broker Payments

The U.S. Centers for Medicare and Medicaid Services (CMS) published a proposed rule on November 15, 2023 that would overhaul the regulations governing insurance agent and broker compensation rates and compensation agreements for Medicare Advantage plans (MAPs) and Medicare Part D plans (PDPs). The proposal follows CMS’ final rule revising the regulations governing marketing by MAPs issued on April 5, 2023, which we covered in a prior Sidley Update here. Comments to the proposed rule — which would take effect in contract year 2025 if finalized — are due by January 5, 2024.

For many years, CMS has set upper limits on the amount of commission compensation that agents and brokers can receive for enrolling Medicare beneficiaries into MAPs and PDPs, which are adjusted annually for inflation. Currently, the MAP commission cap for most states is $601 for an initial enrollment and $301 for a renewal; for PDPs, the cap is $92 for an initial enrollment and $46 for a renewal. MAPs in other states have slightly different caps. 

Importantly, although broker commissions are capped by regulation, administrative fees are not. Under the current rules, administrative fees can be paid based on enrollments and are not required to adhere to the compensation limits set by CMS, as long as the compensation is consistent with fair market value for the services provided. Other regulations, such as the personal services safe harbor under the Anti-Kickback Statute, may apply.

In the proposed rule, CMS expressed concerns regarding the following types of activities by MAPs and PDPs:

• compensating fixed costs (e.g., travel or overhead) on a “per enrollment” basis, so a single event could generate multiple administrative reimbursements
• paying up to $125 for health risk assessments (HRAs) conducted by a broker or agent, which CMS stated — without providing its underlying analysis — exceeds fair market value and are less valuable than assessments conducted by a healthcare provider
• competing on payments offered to brokers and agents for licensing, training, and testing
• purchasing leads from Field Marketing Organizations (FMOs), who then transfer them to FMO brokers and agents, generating further payments when beneficiaries enroll

CMS has expressed concerns that these payments could influence brokers and agents to act based on financial considerations rather than selecting a plan that is in a beneficiary’s best interest.

To address these stated concerns, CMS’s proposed rule would unify the compensation scheme for MAP and PDP brokers and agents, such that a single compensation cap would apply across a broader spectrum of payments, including commissions and administrative fees. Key aspects of the proposal include the following:

• Compensation would be capped and would represent a global payment for broker and agent services. Under the proposed rule, “compensation” includes all payments to agents or brokers related to enrollment, including but not limited to commissions, bonuses, gifts, prizes, awards, and other items previously covered by administrative fees, such as state licensing/certification and travel costs. Compensation caps would be raised by approximately $31 (the precise rate depends on the state or territory), with caps on renewal compensation remaining at half the rate of initial enrollments.
• Separate administrative fees would be eliminated. MAPs and PDPs would no longer be permitted to provide separate compensation for items such as travel, licensing, or other fixed costs, even if not based on enrollments. Only enrollment commissions would be permitted.
• Contract terms that interfere with objective advice to beneficiaries would be prohibited. In the proposed rule, CMS provides examples of specific contract terms that would be prohibited, including

1) contingencies that depend on higher rates of enrollment

2) enrollment quotas

3) bonuses based on enrollment volume

Essentially, any arrangement that could compromise brokers’ ability to provide objective advice would be prohibited under the proposal. However, the proposed rule is broader than these enumerated examples and would generally prohibit a contractual provision that would have “a direct or indirect effect of creating an incentive that would reasonably be expected to inhibit an agent or broker's ability to objectively assess and recommend which plan best fits the health care needs of a beneficiary.” It is unclear how CMS intends to enforce this prohibition on specific contractual provisions.

• The requirement to report broker and agent compensation would be eliminated. The proposed rule would eliminate the requirement to report broker and agent compensation as total compensation would be capped.

If finalized, this proposed rule could drastically alter the MAP and PDP enrollment market by lowering broker and agent compensation, decreasing marketing activity in the insurance marketplace, and removing a method that MAPs and PDPs use to compete for business. How CMS intends to enforce the prohibition on certain contractual provisions remains to be seen, but the proposed rule, if enacted, could become an important tool in CMS’s recent push to exert greater oversight over marketing by MAPs and PDPs.

CMS intends for this proposed rule to take effect in Contract Year 2025. Stakeholders should submit comments by January 5, 2024, and should prepare to revise their contracts with FMOs and other groups of brokers and agents in the event the proposed rule is finalized.