Judge halts CMS rule capping Medicare Advantage brokers’ compensation

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Brief description of the dive:

  • A federal judge has put a hold on a CMS regulation that caps compensation for brokers selling Medicare Advantage plans while lawsuits challenging the regulation play out.
  • Americans for Beneficiary Choice, an association representing brokers and the organizations that employ them, and one of its members sued to stop the rule earlier this year. The injunction to halt the government rule joins ABC’s case with a similar lawsuit filed by the Council for Medicare Choice and two Texas brokerage groups that also sought to overturn the compensation caps.
  • Although U.S. District Judge Reed O’Connor’s suspension is temporary, his decision, released July 3, suggests the judge will strike down at least part of the rule. In it, O’Connor argues that CMS failed to adequately justify its limits on broker payments and restrictions on the terms of contracts between health plans and brokers and agents.

Diving Insight:

In April, CMS finalized a rule that prevents insurers from paying additional fees to brokers and outside groups, such as field marketing organizations, that connect American seniors with MA plans.

Its purpose, regulators say, was to prevent brokers from steering beneficiaries to certain plans in exchange for higher reimbursements, while providing brokers and agents with more predictable compensation.

The rule expands the definition of Medicare compensation to include all activities related to the sale or enrollment of a beneficiary in an MA plan, including administration. As a result, insurers will no longer be allowed to pay brokers additional fees that are not subject to the government’s compensation limit, starting with the upcoming annual enrollment period this fall.

Medicare will increase fixed-award amounts by $100 in one lump sum to account for administrative expenses being counted toward the cap.

Currently, brokers earn $611 for an initial sale and $306 for a renewal.

The rule also restricts health plans from entering into contracts that include incentives for brokers to get people to use their plans, such as volume-based sign-up bonuses. It also prohibits marketing organizations from sharing beneficiary information with each other unless they get that beneficiary’s consent.

The rule was quickly criticized by the industry for threatening their business model and prompted lawsuits from brokers and field marketing groups. FMOs do not enroll beneficiaries in plans themselves, but use carrier payments to oversee independent brokers who do.

In addition to the lawsuits filed by AMC and CMC, another FMO, AmeriLife, also filed a lawsuit in Texas seeking to undo the regulations.

Under O’Connor’s ruling last week, AMC and CMC have a good chance of arguing in their lawsuits that the restrictions on fixed fees and contractual terms are arbitrary and capricious.

CMS has never backed its decision to include administrative fees in the brokers’ flat fee, O’Connor said. That’s despite comments from industry groups that the increase wouldn’t be enough to cover their costs, since carriers typically pay more than $100 per sale for activities like hiring and training agents.

O’Connor said regulators have not adequately informed industry representatives about what elements of contracts are prohibited.

However, “the Court finds that (plaintiffs) have not shown a likelihood of success with respect to the consent requirement” prohibiting data sharing, O’Connor’s ruling states.

O’Connor continues to find sufficient evidence that the provision would irreparably harm the brokerage business by granting the brokerage industry widespread relief from the restrictions on fixed fees and contractual terms contained in the regulation.

“The harms ABC, CMC, and their members face by failing to maintain the status quo are far more serious than those CMS faces,” O’Connor wrote. “The court is not persuaded that the current compensation framework—in place for more than fifteen years—is so flawed that it now requires these radical new requirements or that beneficiaries would be unfairly disadvantaged if they were granted a stay pending a final judgment.”

O’Connor has a history of rolling back health policy actions from liberal administrations. In 2018, a judge ruled the entire Affordable Care Act unconstitutional, though the U.S. Supreme Court upheld that law in a 7-2 decision in 2021. And last year, O’Connor struck down an ACA mandate requiring insurers to cover some preventive care for free. An appeals court recently overturned his ruling.