Federal court blocks Medicare Advantage compensation rule

The U.S. District Court for the Northern District of Texas issued a stay earlier this month preventing the Centers for Medicare and Medicaid Services from implementing a new rule changing compensation rules for professionals providing products and services related to Medicare Advantage and Medicare Part D programs.

The CMS rule would classify fees agents and brokers receive for providing services beyond simple enrollment to Medicare Advantage plan enrollees as “compensation” under an existing compensation cap while only modestly increasing the cap. Opponents of the rule said it would limit the ability of agents and brokers to be paid at fair market value for such things as training, customer service, agent recruitment, operational overhead and assistance to clients completing health risk assessments. The result, opponents said, would be that these services would be reduced or eliminated, harming consumers.

This decision follows two lawsuits filed against CMS and the Department of Health and Human Services by Americans for Beneficiary Choice, a trade association, and the Council for Medicare Choice, a nonprofit corporation made up of insurances agencies, brokerages and field marketing organizations. The lawsuits argued that the CMS rule exceeds the agency’s statutory authority, is arbitrary and capricious, and was promulgated without complying with procedural requirements.

The final Medicare Advantage rule

These lawsuits were initiated in response to three major changes made to MA and Part D regulations on agent, broker, and other third-party requirements. These changes were set to take effect on Oct. 1, for the 2025 calendar year. The change were:

1. Contract-terms restriction: Medicare Advantage organizations and Part D sponsors must ensure that no contractual arrangement with an agent, broker, or other third-party marketing organization includes a provision that “has 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.”

2. Compensation: The definition of “compensation” was revised to include administrative payments – a type of payment previously excluded from the definition and previously not required to comply with the fair market value cap on agent and broker compensation. Under the CMS rule, “compensation” includes all “payments made to an agent or broker that are tied to enrollment, related to an enrollment in an MA plan or product, or for services conducted as a part of the relationship associated with the enrollment into an MA plan or product.”

The proposed national agent/broker fixed compensation amount for Medicare Advantage is $642. This is an increase of $31 over the existing national compensation cap of $611, which CMS has stated would eliminate the current variability in payments and improve the predictability of compensation for agents and brokers. This cap on agent and broker compensation applies regardless of the plan a beneficiary enrolls in. This new cap would encompass all payments that plans can pay agents and brokers. This proposal would generally prohibit insurers from paying volume based "bonuses" to third-party marketing organizations, now defined to include any field marketing organizations  or individual, including independent agents and brokers.

3. Fixed fee: CMS implemented a one-time increase of $100 to the fair market value cap for new enrollments to account for administrative payments now being included under the compensation rate.