Here are my notes on the proposed CMS rulemaking. See the original blog post here for background.
Page 28-29 – Executive Summary of the proposed rulemaking, recounts some of the history of the 6 year compensation cycle and describes current 3 tier system and proposes a 2 tier system with an initial amount and a renewal/replacement amount of 35% of the initial year.
Page 78-79 CMS recaps the 1-6 year cycle year compensation which started in 2009. Since they considered 2009 to be the first renewal year, 2013 was the final year of the 6 year cycle and 2014 begins the 7th year. Since CMS was silent on what to do in years 7 and beyond, they issued guidance on the Final Call letter on 4/1/13 that said that MA Organizations and Part D sponsors could pay renewal amounts in years 7 and beyond. (In fact, the vast majority of MA Organizations announced that they would continue paying what they called “Lifetime” renewals.) CMS indicated that this guidance was intended to be temporary, pending changes to their regulations.
Pages 79-80 recount the complexities of the commission payment in the existing system. For example, companies can have different commission amounts for every plan year from 2009 – 2014. Therefore, in order to pay renewal commissions, they have to track the plan year of entry.
Page 80 talks about the incentive for the agent to move a Medicare beneficiary for financial gain. For example, if the agent sold the beneficiary initially in 2009 when the renewal rate was $200, they could earn an extra $13 by replacing their plan with a plan with a different parent company.
Page 80-81 talks about the difficulties CMS has in monitoring and carriers have in implementing the current commission payment system.
Page 82 begins a description of the new system they are proposing. CMS proposes to replace the existing system (which they consider a 3 tier system: initial, years 2-6 and years 7+) with a two tier system which has an initial payment for new enrollments (based on Fair Market Value, FMV) and a renewal payment of 35% of the FMV. The renewal payment would be annually adjusted and ALL renewal payments (regardless of entry year) would be made at 35% of FMV (unless the carrier chooses to pay at a lower percentage).
Page 83 gives an example of the new system.
Page 83-84 goes into the legal jargon required to amend the CFR (sec 422.2274 and 423.2274) to implement the new rule.
Page 84-85 goes over some of the alternatives CMS had in mind for years 7+, including (1) not permitting residual payments entirely and (2) permitting a 25% residual payment for years 7+. CMS then states that the 35% residual would be equivalent to the 50% in years 2-6 with a 25% residual in years 7+.
Page 85-86 address the advancing of payments made by plans for mid-year entry business and reiterates the August 14th guidance that plans may not advance agent’s commissions beyond the calendar year. CMS may add some clarifying language.
Page 86 discusses the timing of AEP commission payments and proposes to forbid companies from paying commissions on any AEP business prior to January 1st of the plan year. This would be to avoid the situation where a company has to charge back an agent due to a Medicare beneficiary selecting another MA plan subsequent to the initial AEP election. This is due to the fact that a Medicare beneficiary has the option of making multiple elections during the AEP and the last election is the one that CMS recognizes as the Medicare beneficiary’s choice.
Page 87 addresses the requirement that companies recoup commissions paid on business that is enrolled for 3 months or less, but clarifies that if the disenrollment occurs within the first 3 months and the disenrollment was NOT due to an action of the agent (death, leaving service area, etc.), then the plan would only need to recover commission on the months the Medicare beneficiary was not in the plan and not the entire commission paid (as is the case of a “rapid”).
Page 88 covers finder’s fees or referral fees and proposes to cap referral payments at $100.