Ritter Insurance Marketing

6/29/09 Editor’s Update:  Agents looking for Information on the Payment of Initial versus Renewal Commissions on Medicare Advantage Plans should click here!

I apoligize for the delay in posting this update!  CMS issued it’s “Interim Final Rule” which address changes to “Marketing” Medicare Advantage plans.  Here is a link to the entire document.

This post pertains solely to the commission issue. . .I’ll blog on the other parts of the regs later.

This is a lengthy document.  The section on MA Compensation is covered on pages 66-78.  Pages 66-76 give some commentary on how CMS weighed the feedback on it’s initial “levelized commission” rule to address salaried sales people and other issues.  The actual rule is found on pages 76-78.  I’ve copied just that text at the bottom of this post for your easy reference and put it in italics.  I numbered the paragraphs for purposes of reference (they are not numbered in the CMS regs.)

Paragraph 1 and 2 mandates that plans may pay first year commission of no more that 200% of the commission payable in the renewal years and that renewals must be paid for at least 5 years (6 years total) or for as long as the enrollee stays in the plan.  Based on the Plans desire to pay higher up front compensation, I believe that most plans will pay 2x first year, as opposed to level for 6 (although there is no rule here that I can see against strait level comp for 6 years, or even for comp after year 6, like a small service fee).

Paragraph 3 mandates that the plans may not pay greater than their renewal commission if the policy was replaced was a “like plan type”.  Examples are PDP to PDP, MA or MAPD to MA or MAPD.  New commission will be paid for PDP if it is added to an MA-only plan.  Replacements can occur during the FIRST YEAR and 5 renewal years.  CMS was indicated that by 2010, they will track the 6-year compensation cycle for every Medicare Beneficiary (sounds like quite an undertaking), so I’m fairly certain that “like for like” replacements that occur during 2009 OEP (Jan 1 – Mar 31, 2009) will be considered First Year and not replacement.  This will have some very interesting ramifications for how insurance companies structure their 2010 commissions, but I’ll blog about that next year–2009 will be interesting enough!

Also, since Original Medicare to MA is not mentioned as “like for like” (not sure if that was intentional), you could actually get paid more to replace Medicare w/Med Supp to MA than MA to MA (in 2010).  To me, that doesn’t make much sense.  What if someone moves from MA to Original and back to MA??  OK, now my head hurts. . . we can worry about that next year!

Paragraph 4 is pretty huge, in my opinion.  It mandates that 100% of commission must be charged back if disenrollment occurs in the first 3 months of the enrollment year (FY AND RENEWAL) for any reason, voluntary or involuntary.  That’s not much different than how things work today.  However, it goes FURTHER to say that commission is earned over months 4-12, so if disenrollment occurs during months 4-11, the plan MUST CHARGE BACK commission if they advanced the commission over the full year.  This will potentially create huge chargeback problems for Special Needs plans where there is no “lock in” if the plans advance 12 months of commission on SNP’s.  Plans will need to decide how much commission to advance and when to advance (3 - 12 months).  Oddly, it seems that you won’t “earn” your renewal until the policyholder makes it past OEP (since the language states first 3 months of enrollment year for both FY and renewals) which is kind of strange since renewal is generally earned in month 13 and goes month to month.

Paragraph 5 says the rules must be in place by October 1st, 2008, so the plans will need to get working on this!!

Implication for the agent:  Since PFFS plans face network requirements in 2011, there is a good chance that you may have to replace your PFFS block in the next 2 years whether you like it or not.  Seems like this year may be as good a year as any to do it.  Do your best to pick MA insurance companies with a STRONG commitment to their service area.  If a plan is selling PFFS, be sure that they have the commitment to establish a networked PFFS or a PPO or HMO in that service area.  The reality is that your compensation for replacing an existing policy (regardless of the reason) will be meager. 

Here is the CMS language:

1.  The aggregate first year compensation is no more than 200 percent of the aggregate compensation paid for selling or servicing the enrollee in each individual subsequent year, of which there must be five total renewal years

creating a 6-year compensation cycle..

2.  If compensation is paid in the first year, renewal compensation must be paid for no fewer than 5 renewal years (6-year compensation cycle), provided that the enrollee remains enrolled in the plan.

3.  No entity may provide and no agent or broker may receive aggregate compensation greater than the renewal compensation payable by the replacing plan on renewal policies if an existing policy is replaced with a like

plan type during the first year and 5 renewal years (6-year compensation cycle). “Like plan type” refers to PDP, MA or MA-PD, or cost plan. Examples of replacements with like plan type are–PDP replace with another PDP, MA or MA-PD replaced with another MA or MA-PD, and cost plan replaced with another cost plan.  If a PDP is added to an MA-only plan, then a new compensation is paid for enrollment in the PDP.

4.  Compensation (for both first-year and renewals) is to be earned for months 4 through 12 of the enrollment year. Plans may pay agents and brokers up-front or prorate compensation payments over 12 months or over

months 4 through 12, but when a beneficiary disenrolls voluntarily or involuntarily from the plan, the plan must recover all compensation paid–for months in which the beneficiary is not enrolled, and for months 1 through 3 if the beneficiary disenrolls during the first 3 months and compensation was paid in advance.

5.  Organizations and sponsors must establish a compensation structure for new and replacement enrollments and renewals effective in a given plan

year. Compensation structures must be in place by the beginning of the plan marketing period, October 1.