On April 4, the Centers for Medicare & Medicaid Services (CMS) released the Contract Year (CY) 2025 Medicare Advantage (MA) and Medicare Part D Policy and Technical Changes final rule ("Final Rule"), which included revisions to the regulations governing how MA organizations and Part D plan sponsors (referred to collectively throughout as "issuers") compensate agents, brokers and third parties. In this rulemaking, CMS raised a number of concerns about third party marketing organizations (TPMOs) and, specifically, field marketing organizations (FMOs) having undue influence over beneficiary plan selection and competition among issuers. Despite some speculation that CMS would force an overhaul of issuers' contractual relationships with TPMOs, the Final Rule should only affect contract provisions that could interfere with agent and broker objectivity. This conclusion is supported by the final regulatory text, the underlying statutory authority, regulatory history, and sub-regulatory guidance, as well as CMS's own assertion that it "does not believe [the Final Rule] will have an adverse effect, either on TPMOs, FMOs or independent brokers."1
Overview of Changes
CMS made three primary changes to regulations governing relationships between issuers and independent agents, brokers and other third parties:
- Prohibiting contract terms between issuers and agents, brokers
or TPMOs that may interfere with the agent's or broker's
ability to objectively assess and recommend the plan which best
fits a beneficiary's health care needs. 42 C.F.R. §
422.2274(c)(13) and § 423.2274(c)(13) ("subparagraph
(c)(13)").
- Amending the definition of compensation to include
"administrative payments" and setting a single
compensation rate for agents and brokers that reflects the
inclusion of such administrative payments. 42 C.F.R. §
422.2274(a) and § 423.2274(a).
- Eliminating the separate treatment of "administrative payments" at 42 C.F.R. § 422.2274(e) and § 423.2274(e) ("subparagraph (e)").
Limitations on Scope
While at times CMS speaks in sweeping language, the scope of these changes is necessarily limited by the authority CMS asserts it is exercising: Social Security Act 1851(j)(2)(D) and 1860D-4(l). These provisions direct the Secretary (and, by delegation, CMS) to promulgate regulations governing agent and broker compensation that "ensure that the use of compensation creates incentives for agents and brokers to enroll individuals in the Medicare Advantage plan that is intended to best meet their health care needs." Compensation that does not create incentives for agents and brokers to enroll individuals into particular plans falls outside the scope of the statutory authorities cited and, therefore, falls outside the scope of the regulations issued under those authorities.
Analysis
1. The new limitation on contract terms at subparagraph (c)(13) should not materially affect TPMO contracts with issuers.
With the possible limited exception of reimbursement for expenses related to leads, TPMOs, generally, do not pass through payments or other financial incentives received from issuers to affiliated agents and brokers for MA or Part D enrollments. Payments that do not flow down to agents and brokers cannot "reasonably be expected to inhibit" agent and broker objectivity and, therefore, should not be affected by the new contract limitation. In fact, agents and brokers have limited or no visibility into the payment arrangements between the issuers whose plans they sell and the TPMOs they affiliate with. This way, TPMOs can help promote agent and broker objectivity and enable plan selection based on a beneficiary's health care needs.
2. The expansion of the definition of "compensation" and one time-increase to fair market value are designed to encompass payments issuers were already making to agents and brokers, such as reimbursement for expenses.
The expanded definition of compensation now encompasses what CMS considers to be "necessary" administrative expenses such as those related to "State appointment laws, training, certification, and testing costs"; "mileage to and from appointments with beneficiaries"; and "costs associated with beneficiary sales appointments."2 The one-time $100 increase to the FMV compensation rate for agents and brokers is designed to allow agents and brokers to continue to receive payments to cover these enumerated expenses and other expenses that CMS views as legitimate. In CMS's own words, the intent of the revisions was to "transfer[] funds currently being allocated to administrative to compensation in a transparent and uniform manner" and increase FMV in an amount consistent with current administrative payments agents and brokers are already receiving for legitimate activities.3 Under the revisions, agents and brokers are not expected to receive an increase in net payments.4
3. The expansion of the definition of "compensation" should not affect payments to TPMOs for services they furnish to issuers, such as training, customer service and agent recruitment.
The amended definition of compensation, on its face, applies to payments made to agents and brokers. Existing regulations fix the commissions that issuers may pay agents and brokers per beneficiary enrollment at an amount CMS has determined to be "fair market value."5 Notably, the regulations clearly state that these compensation limits "only apply to independent agents and brokers."6 The very definitions of "compensation" and "fair market value"—both the current and the newly expanded definitions—on their face apply to "payments" made or "compensation" paid to agents and brokers.7 This could arguably extend to indirect payments to agents and brokers, such as payments made to a third party like a TPMO, which then passes the incentives along to the agents and brokers as rewards or inducements for enrollments. However, there is no evidence in the regulatory text or structure that suggests the compensation limits apply more broadly to payments TPMOs receive for services that the TPMO does not pass through to agents and brokers.8
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Footnotes
1. Medicare Program; Changes to the Medicare Advantage and the Medicare Prescription Drug Benefit Program for Contract Year 2024-Remaining Provisions and Contract Year 2025 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, Medicare Cost Plan Program, and Programs of All-Inclusive Care for the Elderly (PACE), 89 Fed. Reg. 30,448, 30,802 (April 23, 2024) (hereinafter referred to as "Final Rule").
2. Final Rule at 30,829; 42 C.F.R. §§ 422.2274(a), 423.2274(a) (effective Oct. 1, 2024).
3. Final Rule at 30,802.
4. Final Rule at 30,783.
5 .42 C.F.R. §§ 422.2274(d)(1)(ii), 422.2274(d)(1)(ii).
6. 42 C.F.R. §§ 422.2274(d), 422.2274(d).
7. 42 C.F.R. §§ 422.2274(a), 422.2274(a).
8. Indeed, the primary problem CMS sets out to solve is the use by insurers of "financial incentives outside and potentially in violation of the compensation cap set by CMS to encourage agents and brokers to enroll individuals in their plan over a competitor's plan." CMS specifically calls out financial incentives such as "bonuses and perks (such as golf parties, trips, and extra cash) in exchange for enrollments" as problematic where the insurer accounts for these payments as "administrative" rather than "compensation" and therefore not subject to the regulatory limits on compensation. The solution, according to CMS, is to treat all financial incentives to agents and brokers—including those that insurers may have historically classified as administrative payments—as compensation. Thus, the clear import of the rule is that only those administrative payments that serve as financial incentives for agents or brokers must not be considered compensation.
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