The Centers for Medicare and Medicaid Services (CMS) recently published the Proposed Rule regarding changes to the calendar year (CY) 2025 Medicare Advantage (MA) and Prescription Drug programs.¹ Of note, CMS proposed changes to compensation for independent agents and brokers (agents), which CMS believes will encourage these groups to focus more on assisting beneficiaries to find the optimal MA or Prescription Drug Plan (PDP) rather than being influenced by their compensation. This compensation, commonly referred to as commissions, is currently limited to the fair market value (FMV) as defined each year by CMS.

Commissions are only a portion of the total sales-related compensation paid by MA and PDP organizations when a beneficiary is enrolled or renewed in a plan. For purposes of this report, we focus mostly on MA organizations (MAOs), given the significantly larger enrollment and revenue or commissions compared to PDPs. Beyond paying commissions, MAOs are also currently allowed to compensate field marketing organizations (FMOs) or other general agencies, which contract with agents by paying other administrative fees for marketing, customer service, recruitment, and other expenses. These administrative payments are referred to as “overrides” and are the payments that, as suggested by the new rules, CMS is trying to significantly reduce, if not eliminate. In our experience, overrides generally range from $100 to $300 per beneficiary enrolled, per year. These amounts could be higher or lower depending on the volume of enrollment generated by the FMO and the willingness of the MAO to pay overrides. Overrides are higher for initial enrollments and approximately half of the initial amount for renewals. MAOs typically pay overrides to FMOs on a tiered basis based on total enrollment generated. Thus, some FMOs and their contracted agents may be incentivized to enroll beneficiaries in a limited number of MAOs to maximize overrides and total compensation.

In the Proposed Rule, CMS states that all payments—commission and overrides—will be subject to a total FMV. Starting in 2025, this new FMV would be $31 higher than the then-current FMV rate, to account for these additional administrative services that FMOs provide. The $31 increase is significantly less than the $100 to $300 that MAOs are currently paying FMOs. Further, the $31 increase only applies to new enrollments and not renewals, thus reducing total compensation even further.

Thus, what effects could this proposed change have on agents, FMOs, MAOs, and beneficiaries? Below are some initial thoughts on each.

Agents and FMOs

As mentioned previously, agents and their FMOs currently receive a combination of revenue from MAOs for enrolling Medicare beneficiaries into their selected plans. Under the proposed regulation change, FMOs would see significantly reduced revenue due to the proposed reduction in total compensation.

Most MAOs pay agents, via their FMOs, the maximum allowed commission and the market average for overrides to FMOs. As mentioned previously, overrides usually range between $100 and $300 annually per enrollment. Because CMS is essentially reducing this override payment to a one-time payment of $31, total compensation from MAOs to agents and FMOs will be significantly reduced. But how will FMOs and their agents respond? They may follow a path that includes one or more of these responses:

• FMOs may reduce commissions paid to agents. Agents contracted with large FMOs that provide larger streams of leads and marketing support may be subject to larger reductions than others.
• FMOs and agents will lean more heavily on “self-service” solutions that reduce the need for in person meetings, such as more web-based and call center solutions.

CMS made a point of saying the change was proposed because it did not want agents to be influenced by compensation when considering what plans to suggest to a beneficiary.² However, this change could have unintended consequences, such as agents providing less support to beneficiaries and instead pushing the burden on to the beneficiaries to understand what each plan offers and ultimately which plan is optimal for them. Only time will tell whether this change has a positive impact on the shopping experience for Medicare beneficiaries.

MA organizations

If this change in compensation is implemented, then MAOs may see significantly reduced administrative expenses related to enrollment. The actual savings will depend on the levels of overrides they are paying and the mix of internal and external resources they use to enroll beneficiaries.

As an example, if we assume the average MAO has half of its enrollment tied to an agent at an average override rate of $150 per beneficiary per year, that yields an administrative cost savings of approximately $6.25 per member per month (PMPM). These organizations could choose to let these savings flow to margin—a margin increase of approximately 0.5% to 0.75%—or increase benefits and/or reduce premiums to offer more competitive plans, which may lead to increased enrollment. An organization may, however, have a different proportion of agents selling business, as well as a different average override. The table in Figure 1 shows the variation of administrative expense savings depending on these variables.

As can be seen from Figure 1, those MAOs that pay a higher average override will likely see a larger savings because of this proposed change. The percentage of business sold by agents varies considerably in the market, regardless of the size of an MAO. For example, many MAOs—large and small—have significantly expanded their web-based shopping solutions, which eliminates commissions and overrides.

As discussed above, CMS will increase the FMV by $31 to cover some of these overrides and, thus, it will offset some of these savings to the MAOs. However, this $31 increase only applies to new enrollments and thus significantly reduces their lifetime value, such that it becomes negligible relative to the cost savings to the MAO by not having to pay current overrides.

Beneficiaries

CMS’s intention is to make beneficiaries the biggest winner in this change, but it remains to be seen how the market will react and whether beneficiaries will truly benefit when shopping for Medicare options. As noted above, if an agent’s behavior changes to minimize their time and expenses, it may be to the detriment of the beneficiary. Beneficiaries may now need to take it more upon themselves to seek out advice or third-party shopping solutions to help navigate their plan options both initially and in renewal years. On the other hand, the proposed changes could ultimately lead to a more optimal matching of beneficiaries with benefit plans, yielding greater value, satisfaction, and persistency for members. Additionally, if MAOs push these amounts into enhanced benefits and/or premium reductions, it could improve member satisfaction.

Caveats, Limitations, and Qualifications

Andy Mueller, principal and consulting actuary with Milliman, Inc., is a member of the American Academy of Actuaries, and meets the qualification standards of the Academy to render the actuarial opinion contained herein. To the best of his knowledge and belief, this report is complete and accurate and has been prepared in accordance with generally recognized and accepted actuarial principles and practices.

This report represents the opinion of the author and is not representative of the view of Milliman.

This report should be reviewed in its entirety. The information in this report is intended to provide an opinion on the impact of the CMS Proposed Rule on agent and FMO compensation for Medicare plans, as well as the impact to various stakeholders. It may not be appropriate and should not be used for other purposes. We do not intend this information to benefit, or create a legal liability to, any third party, even if we permit the distribution of our work product to such third party.

¹ The full text of the Proposed Rule is available at https://www.federalregister.gov/documents/2023/11/15/2023-24118/medicare-program-contract-year-2025-policy-and-technical-changes-to-the-medicare-advantage-program.

² See https://www.federalregister.gov/documents/2023/11/15/2023-24118/medicare-program-contract-year-2025-policy-and-technical-changes-to-the-medicare-advantage-program.