Why Medicare Advantage brokers are suing CMS

The Centers for Medicare and Medicaid Services' efforts to halt Medicare Advantage and Part D marketing practices it deems "predatory" have landed the agency in court.In April, CMS published a final rule that limits how, and how much, health insurance companies may compensate brokers, independent agents and other third-party marketers for guiding enrollees toward Medicare Advantage and Part D plans. The people whose pay got cut objected, and a growing number have sued to stop the regulation.

Why and how did CMS take action?

Citing public complaints, CMS concluded that Medicare Advantage and Part D insurers — especially the big, rich ones — were boosting compensation to marketers in ways that impeded competition and lured beneficiaries toward plans that pay brokers more but are not necessarily most suited to their customers.

"CMS is taking bold action to expand enrollee protections and taking unprecedented steps to address predatory marketing of the Medicare Advantage and Part D programs," the agency said in a news release April 4.

Prior to this regulation, which takes effect for the 2025 plan year, CMS already capped compensation for third-party marketers selling Medicare policies. For example, brokers and agents may receive up to $611 for new Medicare Advantage enrollments and up to $306 for renewals during the 2024 plan year.

Related: Marketing limits could shake up Medicare Advantage market

But CMS noted that insurers increasingly not only pay commissions to brokers and agents but also contract with field marketing organizations that pay the same marketers.

The rule aims to rectify that by establishing a standardized compensation limit that applies whether a field marketing organization is involved or not. The agency also disallows insurers from making separate payments for administrative expenses and prohibits them from requiring or incentivizing marketers to favor their plans.

In exchange, CMS increased the maximum payment for new Medicare Advantage enrollments by $100 above the yet-to-be-determined "fair market value" for these services in 2025, which will be higher than the 2024 rate and adjusted each year. The agency originally proposed a $31 add-on to the fair market value rate but increased it after receiving critical comments from the trade group AHIP and others.

In the final rule, CMS projects a $726 cap on new Medicare Advantage enrollments and a $313 cap on renewals for the coming plan year, but the agency has not made a final determination.

The Health and Human Services Department "issued a final rule intended to stop certain companies from circumventing the agency’s compensation limits in ways that funnel beneficiaries into higher-paying plans instead of the ones that are best for each enrollee,” an HHS spokesperson wrote in an email. “While we can’t comment on any ongoing lawsuits, HHS believes that compensation should be structured to create incentives for agents and brokers to enroll individuals in the plan that is intended to best meet their healthcare needs, as the law requires.” CMS declined to comment.

Who is suing CMS?

Recipients of health insurance company largesse naturally protested the new rules, and a handful have brought their complaints to federal court.

Brokerages Senior Security Benefits and Vogue Insurance Agency filed suit in the U.S. District Court for the Northern District of Texas in May. The Council for Medicare Choice and Americans for Beneficiary Choice also are plaintiffs, along with the Fort Worth Association of Health Underwriters, which is the local chapter of the National Association of Benefits and Insurance Professionals.

AmeriLife Marketing Group, a field marketing organization, brought a similar lawsuit to the U.S. District Court for the Middle District of Florida last month.

The Council for Medicare Choice represents online brokerages such as eHealth, e-TeleQuote and SelectQuote. Americans for Beneficiary Choice describes itself as a trade association representing “insurance industry leaders and workers, consumer advocates, and concerned citizens.” Field marketing organization Integrity Marketing Group owns the Americans for Beneficiary Choice website.

None of these organizations responded to interview requests.

What do the lawsuits say?

"Under the rule, members of the [Council for Medicare Choice and Fort Worth Association of Health Underwriters] could not receive market-rate payments for their services, eliminating a significant percentage of their business — in some cases, more than one-third of their total revenue," Vogue Insurance Agency, the Council for Medicare Choice and the Fort Worth Association of Health Underwriters wrote in their complaint.

The plaintiffs in all these cases assert that CMS exceeded its statutory authority by attempting to regulate field marketing organizations and that the final rule is unclear about how insurers may compensate marketers. They also allege that CMS did not disclose the data it used to set pay caps or provide sufficient evidence that the policies are needed.

The marketers and their representatives seek a court order suspending the regulation and decisions on their cases by July, to give insurers and marketers time to prepare for open enrollment in October.

Where does the insurance industry stand?

In comments on the proposed rule issued in November, leading Medicare Advantage insurers UnitedHealth Group and Humana expressed opposition to the marketing compensation limits and asked CMS to clarify how they will be permitted to pay field marketing organizations. Humana declined to comment and UnitedHealth Group did not respond to an interview request.

Nonprofit health insurance companies have a different perspective and believe the new rules are necessary to level the playing field between regional and national carriers, said Dan Jones, vice president of federal affairs at the Alliance of Community Health Plans, which represents nonprofit insurers.

“There's going to be some changes to the business practices that had escalated over the last four or five years. Folks can be upset with that, but we think it's going to be for the better,” Jones said.