In April 2024, the Centers for Medicare and Medicare Services (CMS) finalized a rule that limited broker and agent compensation in Medicare Advantage and Part D prescription drug plans for 2025.
Industry groups challenged that ruling in court, specifically in Council for Medicare et al v. United States Department of Health and Human Services (HHS) et al. In early July, a Texas district court judge ruled against HHS and paused enforcement of the rule.
Here’s an overview of the so-called Fixed Fee rule, the court case, and what may happen next.
The Rule
CMS caps agent and broker commissions for enrolling Medicare Advantage and Part D prescription drug plans. In most states, brokers and agents earn more ($611 in 2024) for an initial Medicare Advantage plan enrollment and about half that ($306 in 2024) for a renewal. The caps are lower for Prescription Drug Plans ($100 for an initial enrollment and $50 for each additional enrollment in 2024).
CMS designed the caps to ensure that brokers and agents act in the interests of the enrollee and not the health plan. Plus, capping commissions ensures large plans with more resources don’t gain an advantage by paying more to brokers and agents than small plans.
How did CMS limit compensation in the April Final Rule if caps have existed for years? CMS allowed agents and brokers to receive administrative fees to cover business costs like travel, licensing, enrollment, training, and software support. These administrative fees are paid at fair market rates and are not subject to any cap.
The April Final Rule eliminated those uncapped administrative fees. Instead, CMS considered those administrative fees compensation and capped them. As a result, CMS sought to limit payment for those administrative fees – $100 for initial enrollments and $50 for renewals.
In justifying eliminating uncapped administrative fees, CMS highlighted practices it hoped to curtail. Among them:
- Eliminating plans from classifying bonuses and perks as allowable administrative payments.
- Limiting complaints from beneficiaries about high-pressure marketing tactics by brokers.
- Disincentivizing agents and brokers from acting in the beneficiary’s best interests.
The Court Cases
Americans for Beneficiary Choice and Council for Medicare Choice filed lawsuits and asked for a stay that would pause implementation of the final rule until the completion of litigation.
To grant a stay, the court must find that the plaintiffs:
- Show a likelihood of success on the merits.
- Show a substantial threat of irreparable harm
- Show the balance of hardships weighs in the plaintiff’s favor
- The issuance of a preliminary injunction will not disserve the public interest
The court found that a fixed fee for administrative services was likely to be “arbitrary and capricious” and, therefore, likely to be successful. The court found that CMS didn’t provide a detailed justification for the new policy. The judge also indicated CMS ignored comments and concerns that the rule could alter business practices and upend the industry.
It also found that plaintiffs could suffer irreparable harm if the court didn’t temporarily stay the Final Rule. Stakeholders must amend agreements “at a great expense” and alter how much to spend on marketing activities and agents. The court also was unconvinced that the current compensation requires these new requirements.
The court also found that the fixed payment rule was unlawful to the plaintiffs and all agents and firms in the Medicare Advantage ecosystem. As a result, it granted universal relief.
Additional CMS Guidance
In response to the ruling by U.S. District Judge Reed O’Connor of the Northern District of Texas Fort Worth Division that placed the stay, CMS’ director of the Medicare Drug & Health Plan Contact Administrative Group indicated that the language effective before the 2025 Final Rule would be in effect during the stay.
CMS also increased the cap to $626 nationally for an initial Medicare Advantage enrollment and $313 for renewals. For Prescription Drug Plans, the cap will be $109 for the initial enrollment and $55 for renewals.
What’s Next?
It’s hard to tell. 2025 will operate under the existing rules. However, CMS likely may broach this topic again in future rulemaking. CMS could overcome the arbitrary and capricious ruling with data it hasn’t yet presented.
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