Lawsuits are stalling the implementation of a Biden administration rule aimed at curbing insurance agents’ and brokers’ ability to inappropriately steer beneficiaries into private Medicare plans. For example, agents and brokers can be offered bonuses or vacations as an incentive to enroll beneficiaries in particular plans. The new rule was issued in April 2024 by the Centers for Medicare and Medicaid Services (CMS) to combat this practice by redefining “compensation” for agents and brokers, setting a fixed amount they can be paid regardless of which plan people are enrolled in, and closing loopholes that sidestepped compensation limits. The regulation was set to take effect in October 2024 but has been paused because of the litigation.
Brokers, Agents, and Possible Conflicts of Interest
Medicare relies heavily on private insurance plans to administer benefits — these include Medicare Advantage plans, Part D prescription drug plans, and Medigap supplemental plans. Beneficiaries must make difficult choices, including whether to enroll in traditional Medicare with a Part D drug plan and Medigap plan or in a Medicare Advantage plan. In 2025, a typical Medicare beneficiary may face a choice of 10 Medigap plans, an average of 42 Medicare Advantage plans, and between 12 and 16 stand-alone prescription drug plans. In addition to facing an overwhelming number of coverage choices, beneficiaries receive a barrage of marketing materials. For help cutting through the noise, about one of three beneficiaries used insurance agents or brokers to choose a plan, according to 2022 data.
Insurance companies contract with agents to enroll beneficiaries. The agents then receive commissions for enrolling or renewing beneficiaries in the insurers’ Medicare plans. Differences in agent compensation based on a particular plan or type of coverage may lead to conflicts of interest, with agents prioritizing their own financial interests over the health care needs of beneficiaries. Perks like bonus payments for meeting certain enrollment targets could lead to steering beneficiaries into plans that might not be the best fit their health needs. Insurers also make additional payments to third-party middleman agencies (also known as field marketing organizations, or FMOs) that provide administrative and operational support to agents and brokers, such as marketing and technology infrastructure. Before the 2024 rule, there was no cap on “administrative” payments other than fair market value, which created additional financial incentives for agents. CMS was concerned that purported administrative payments were in fact perks and bonuses that effectively circumvented limits on agent and broker compensation.
Rule to Curtail Steering
The rule generally disallows tactics that incentivize agents and brokers to steer beneficiaries into particular plans based on financial perks. For example, administrative payments would be capped by bringing them under the umbrella of “compensation.” In explaining the need for the rule, CMS cited advertisements for agents and brokers to sell particular plans that promised “golf parties, trips, and extra cash . . . in exchange for enrollments.” The rule also prohibits certain contract terms between Medicare Advantage organizations or Part D sponsors and FMOs that may affect agents’ or brokers’ ability to objectively assess and recommend plans best suited to enrollees’ needs. For example, the new rule prohibits contract terms that contain volume-based bonuses for enrollment into specific plans. These changes were due to be effective on October 1, 2024.
Ongoing Litigation
In the weeks following publication of the final rule, three lawsuits were filed by FMOs and trade associations. Two actions were filed in U.S. District Court for the Northern District of Texas, where the plaintiffs drew Judge Reed O’Connor, who has ruled against the federal government in several high-profile cases.
The consolidated Texas cases seek to nullify portions of the rule as invalid. The plaintiffs claim that CMS lacks the authority to regulate the payments in question, that the rule is arbitrary and capricious, and that certain required procedures were not followed when the rule was issued. The third case, filed in Florida, is being held in abeyance pending litigation in the Texas cases.
In July 2024, Judge O’Connor paused the implementation of certain provisions of the final rule, specifically those that cap compensation for administrative costs and restrict FMO contract terms. These are the very provisions intended to thwart anticonsumer incentives. The judge found that the rule violated the law that governs the procedures federal agencies must follow when issuing regulations. He found that CMS did not sufficiently respond to public comments, had failed to substantiate parts of the rule, and did not take the interests of business entities into account when it changed its position on administrative payments. The court is expected to make a final ruling on the consolidated cases in early 2025.
Looking Ahead
The final rule was an attempt to rein in broker and agent practices that act against the interests of Medicare beneficiaries. The rule noted that the Medicare statute requires CMS to develop guidelines to ensure that the use of agent and broker compensation creates incentives to enroll individuals in the Medicare Advantage plan that is intended to best meet their health care needs. Litigation has held up that effort. Looking ahead, the incoming administration may decline to defend the final rule in court. It also could issue its own rule, taking a completely different approach. Despite the clear potential for conflicts of interest, it remains to be seen how CMS will — or will not — regulate agent and broker compensation in the future.
