California Health Advocates recently submitted comments, drafted jointly with various advocacy organizations, to the Centers for Medicare and Medicaid Services (CMS) on the proposed rules for limiting compensation to agents who sell Medicare Advantage and Part D plans. While the rules may help eliminate incentives for agents or brokers to move beneficiaries from plan to plan, a practice known in the industry as “churning,” the new rules actually encourage agents to focus their marketing efforts on a specific population. The rules mandate that agents receive twice the renewal commission1 for enrolling people new to Medicare Advantage plans versus enrolling those who were already enrolled in a different MA plan. This compensation structure creates a financial incentive for agents to seek out people new to Medicare or in fee-for-service Medicare. And this is exactly the trend demonstrated in a recent Government Accounting Office (GAO) report. According to the report, about 81% of beneficiaries who were new enrollees in Medicare Advantage private fee-for-service (PFFS) plans were in fee-for-service Medicare before enrolling in their plan, compared to 65% in other MA plans.
This more exclusive focus has some of the same negative consequences that churning did, which CMS rules and the federal law, the Medicare Improvements for Patients and Providers Act (MIPPA), sought to eliminate. The rules may encourage agents to push MA plan enrollment on beneficiaries for whom enrolling an MA plan may be unsuitable. This is often the case for people with Original Medicare who have a Medicare supplement plan (Medigap), employer or retirement coverage, or Medi-Cal, and who:
- are accustomed to the wider provider access, protection against catastrophic expenses and predictable monthly expenses of a Medigap supplemental plan;
- may have all Medicare cost-sharing and additional benefits paid by Medicaid, or
- may stand to lose supplemental coverage from a former employer if they enroll in an MA plan.
Some consequences that beneficiaries may experience from such inappropriate MA plan enrollment include:
- Individuals can no longer receive care from long-standing primary care doctors or specialists, because these providers are not in the plan’s network or do not accept the plan.
- Individuals must interrupt a course of treatment, such as chemotherapy or home health care, because the provider is not in the plan’s network or does not accept the plan.
- Individuals face interruptions in drug therapy because their medicines are not on the plan’s formulary or are subject to utilization management restrictions.
- Individuals face cost-sharing for medical services or prescription drugs that is substantially higher than they paid previously.
- Individuals find that, after 12 months in a Medicare Advantage plan, they have lost guaranteed issue rights for a Medigap supplement and face higher premiums because of their age or medical condition.
As the current commission structure encourages agents to focus on older adults who have recently aged into Medicare, they are often also the healthiest, lowest cost cohort of the Medicare population. Such incentives only exacerbate the pre-existing tendency of MA plans to cherry pick the healthiest and youngest beneficiaries, leaving Original Medicare and Medigap plans with a risk pool that is increasingly comprised of the highest cost beneficiaries with the most severe and expensive conditions. This trend again is demonstrated in the GAO’s report on PFFS plans where they found that beneficiaries in PFFS plans tended to be healthier and generally younger than beneficiaries in other Medicare Advantage plans and fee-for-service Medicare. Specifically, projected health care expenditures for PFFS beneficiaries were 7% less than the projected average for beneficiaries in other MA plans and 10% less than the projected average for beneficiaries in fee-for-service Medicare.
In sum, the compensation structure for agents selling Medicare Part C and D plans and the variability of commission rates, both among competing plans and alternative product types and among different categories of prospective enrollees, create incentives that work against choosing the most appropriate MA plan or PDP for an individual’s health care needs. Many independent agents and brokers provide valuable advice in selecting the most suitable drug and health coverage for people with Medicare. Yet, the objectivity of such counseling is best assured when agents’ financial incentives to target particular beneficiaries or to push particular plans or product types are minimized. This minimization would make the sale of these products less attractive to those agents who focus their efforts on their own income and not what is best for their client.
The argument put forward by CMS — that larger commissions compensate for the additional time required to educate beneficiaries who are new to the MA program or to explain the ramifications of both MA and PDP enrollment – is specious – and dangerous for beneficiaries. There is no evidence that paying higher commissions actually results in agents providing more thorough explanation of the consequences of enrollment, or that beneficiaries are better served and enrolled in the most suitable product. Indeed, volume-based incentives by their very nature encourage some agents to maximize the number of enrollments, rather than the quality of the service they provide.
For a full discussion on these proposed rules and our 4 specific recommendations to CMS, see our submitted comments.
For more a detailed analysis on the Medicare marketplace, new regulations and their shortcomings and recommendations for improvement, see our Issue Brief: The Price is Right: the Selling of Medicare – New Marketing Rules Fail to Cure Problems in the Medicare Marketplace (PDF)
For more information on the MIPPA marketing regulations, see our previous article Medicare Issues New Rules to Enforce MIPPA Marketing Requirements.
Also see our recent policy brief, Dual Eligibles and MA Plans: Do New Rules Make Them a Better Fit? (PDF)
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1 In the new 6-year compensation structure CMS introduced earlier this fall, agents will receive renewal commissions for up to 5 subsequent years for each beneficiary they previously enrolled in an MA plan who stays in that plan, or for each beneficiary they switch to a similar plan for the coming year. This renewal compensation is only half of what they receive for enrolling someone new to Medicare Advantage.
