Ritter Insurance Marketing, Craig Ritter

Craig’s Comments on CMS Proposed Rulemaking

I filed my comments with CMS regarding their proposed rulemaking which would reduce the renewal commissions from 50% of initial commissions to 35%.  I have comments on the rulemaking with regard to agent’s commissions here and here and comments on the changes to the Part D drug benefit here.

Here is my comment:

These comments are in response to the Proposed Rule Making regarding compensation to external agents and brokers, specifically, the calculation of “Fair Market Value” of Medicare Advantage and Medicare Part D broker compensation.  As noted in the proposed rulemaking, Section 103(b)(1)(B) of MIPPA charges the Secretary with establishing guidelines to “ensure that the use of compensation creates incentives for agents and brokers to enroll individuals in the MA plan that is intended to best meet their health care needs.”  My understanding of CMS’ three primary goals of agent and broker compensation rules are (1) to ensure agents and brokers receive Fair Market Value compensation for the services they provide, (2) to ensure that there are not financial motivations for an agent or broker to “churn” their Medicare beneficiary clients and (3) to simplify the compensation structure to reduce the administrative and regulatory cost of implementing and monitoring the system to provide the maximum value to the Medicare beneficiary.  I appreciate the opportunity to give my comments to assist CMS in achieving these goals.

CMS is proposing to set the replacement and renewal compensation for all years at 35% of the initial compensation rate.  This would change the system from a 3-tiered system to a 2-tiered system which would simplify the administration of commission payment.  Additionally, this would ensure that there are not financial motivations to churn business.  However, the 35% rate for replacement and renewal compensation relative to initial commission rates does not reflect Fair Market Value.  In fact, there is empirical evidence to prove that the 35% rate is below FMV.

By definition, Fair Market Value is the price that a buyer of services is willing to pay (MCO’s) and what sellers of services (agents and brokers) are willing to accept for their services in an efficiently functioning market.  Given the size of the Medicare advantage market with over 100 entities acting as MCO’s and tens of thousands of insurance agents offering services, this market has sufficient competition to believe that the market is efficient and neither the buyer nor seller has monopolistic pricing power.

As noted in the proposed rulemaking, when CMS issued its 2014 Final Call Letter on April 1st, 2013, it addressed broker compensation for years 7+ by giving MCO’s the temporary option to pay renewal amounts for years 7 and beyond.  This action created a window into the Fair Market pricing of agents services.  Of the 15 MCO’s that my organization represents, 13 of the 15 companies set their renewal compensation for years 7+ at 50% of the initial rate.  The other 2 companies set broker compensation at 50% of the initial rate for years 7-10, so even in this minority of cases, the actuarial value would be higher than the 35% CMS is proposing.  For those minority companies that don’t feel it maximizes their efficiency to pay brokers at CMS maximum rates, they, of course, have the option to set their initial compensation at lower rates and even not to use brokers at all.

Additionally, the Affordable Care Act put into effect a Minimum Medical Loss Ratio (MLR) for MCO’s of 85%.  Given the fact that MCO’s are mandated to spend at least 85% of their revenue on the cost of care for Medicare beneficiaries, reducing the compensation to agents would have little or no benefit to the Medicare beneficiary.  In fact, Medicare beneficiaries could be harmed by setting agent compensation too low as agents would have less incentive to service their existing policyholder’s needs as Medicare advantage plans change benefits from one year to the next.

In summary, reducing the agent’s compensation from 50% to 35% does nothing to create incentives for agents and brokers to enroll individuals in the MA plan that is intended to best meet their health care needs.  It is less than the Fair Market Value that the Fair Market of MCO’s and agents dictated as Fair compensation for external agents.  It does nothing to improve the value proposition for Medicare beneficiaries (due to minimum MRL).  It may harm beneficiaries in reducing their access to agents who can assist them in finding plans to meet their needs.  For all of these reasons, I respectfully ask CMS to reconsider reducing broker compensation on renewals to 35% and instead allow MCO’s to pay brokers 50% of their Initial Rates for all years.

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