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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The administration announced another delay in the ACA today.  This is from The Hill.  This will allow avoid the cancellation of health insurance policies until after the mid-term elections.

Humana remains at an A- AM Best rating.  Here is a link to the news story.

Here is the story from Kaiser.  There was a considerable amount of proposed rule making devoted to changes to the Medicare Prescription Drug program (Medicare Part D and Medicare advantage with Prescriptions).  One of the changes involved limiting Plan Sponsor’s ability to offer more than 2 plans.  The proposal would tighten the rules around “meaningful differences” and make it almost impossible to offer 3 different PDP plans.  CMS rules currently allow for 3 plans, although not all companies offer 3.  Also, it tightens rules around Parent companies consolidating plans faster (in cases where a Parent company acquires another company’s PDP business).  It also limits the ability for plans to establish “Preferred Networks”, forcing them to accept any Pharmacy that accepts the terms and conditions of the plan.

The proposed rule would also eliminate immunosuppressive drugs as a protected class of drugs for PDP and MAPD plans.  Here is a link to an article from the American Society of Transplantation on this proposed change.  In addition to immunosuppressives, the proposal would also eliminate antidepressants as a protected class.  Here is a link to that story.  If a drug is in one of the six protected classes, a PDP or MAPD plan must offer all of the drugs available for that category.  If immunosuppressives and antidepressants were removed as protected classes, PDP and MAPD plans would only need to offer 2 drugs for each category.  Currently, PDP and MAPD plans only need to offer 2 drugs for each of the 148 categories of drugs that are not considered “protected” classes.

Critics say that it will eliminate choice and unnecessarily tinker with a successful program.  CMS and advocates say it will simplify choice for Medicare beneficiaries and save the government money.

Here is a report from AHIP which was written by the actuarial firm Oliver Wyman.  This goes into much greater detail on the impacts of the various proposals in CMS Advance Notice of Medicare Advantage payment rates for 2015.  Wyman pegs the overall rate reduction as 5.9% which includes averages for both Elimination of bonus for 3.0 and 3.5 stars for 2015 (-1.9%) and projected increase in insurer fee for 2015 (-0.8%).

It’s important to note that the insurer fee and the elimination of bonuses don’t impact all plans equally.  For example, a 4.0 star rated plan (or higher) will see no impact on the elimination of the bonus.  A 3.0 star plan will see an approximate 3% reduction and a 3.5 star plan will see an approximate 3.5% reduction.  Further, a non-profit plan will only see about half the impact of the insurer fee (-0.4%).  So, here is a grid that’s a little more granular (based on the Wyman calculations, adjusted for tax status and Star rating):

Average change:  -5.9% or approximately $50/member/month

For Profit Plans:

3.0 Star Plans:  -7.0% or approximately $59/month

3.5 Star Plans:  -7.5% or approximately $63/month

All other Plans:  -4% or approximately $33/month (Plans “Too new to be rated” will either get assigned a weighted average of other existing plans within the Parent organization or will be assigned a 3.5% bonus if the Parent has no other rated plans.)

Non Profit Plans:

3.0 Star Plans:  -6.6% or approximately $57/month

3.5 Star Plans:  -7.1% or approximately $60/month

All other Plan Ratings:  -3.6% or approximately $31/month

As you can see, although the average impact will be around $50/month, the range just when accounting for bonuses and loss of tax status goes from a low of $31/month to a high of $63/month which is a little more than double.

For those in double bonus counties, the impact is more extreme.  For example, a 3.5 star, for profit plan would lose approximately 11% funding or $94/month!  (There are approximately 342 double bonus counties!)

CMS has opened the door for SilverScript to accept auto assignments for Medicare beneficiaries with Low Income Subsidy.  CMS monitored their enrollment activity from January 1st, 2014 through February 20th, 2014 and determined that there was sufficient improvement to lift the sanction on auto enrollment and reassignment exclusion.

Here is a link to the CMS memo.


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