HOW ARE AGENTS COMPENSATED FOR MEDICARE PLANS
This is a question we get asked a lot – and understandably so! Since we do not charge our clients for services, they often wonder how we are compensated. Agents and brokers who sell Medicare plans are either acting independently with many insurance carriers (independent agents) or directly with one insurance carrier (captive agents), which is where they get their compensation. The exact commission is based on which policy is sold and is tied to the enrollment and retention of the beneficiary. It is usually a flat dollar amount or a percentage of the policy premium.
Let’s take a closer look.
Medicare Advantage and Part D Agent Compensation
An agent who sells either a Medicare Advantage or Part D prescription drug plan is paid a flat dollar amount for each application. They will receive an initial commission payout and then a renewal compensation for every year the beneficiary stays enrolled in the plan or a plan that is similar to the initial plan. (And assuming that the client stays with the same agent and does not have a new agent submit a new policy.) These payouts come from the insurance company.
The Centers for Medicare and Medicaid Services (CMS) sets maximum commission amounts for Medicare Advantage and Part D plans each year based on the fair market value. After CMS sets the maximum amount, the individual insurance companies can choose their own rates, which could be lower than the rate set by CMS. Commissions will also vary depending on the product and agent’s contract with the insurance company. Also, some states may allow commissions for MA and Part D plans to be higher than the amount set by CMS due to the cost of living or other conditions. For example, the commission is often higher in California, a state known for its high cost of living expenses.
In 2022, CMS has set the national maximum commission for initial Medicare Advantage applications at $573 per Medicare beneficiary. (It’s $715 in California.) The maximum for initial enrollment applications in a Part D plan is $87. MA renewals (or switches to a similar MA plan) are paid at $287. (Or $358 for those in California.) Finally, the renewal rate for a Part D plan is $44.
Medicare supplement commission rates are not set by CMS or the individual state.
Medicare Supplement Agent Compensation
Unlike the Medicare Advantage and Part D commissions, Medicare supplement commission rates are not set by CMS or the individual state. Instead, the commission is typically a percentage of the plan’s annual premium. Generally speaking, that percentage falls somewhere around the 20% mark, but of course, that varies by state and plan type.
After the initial commission, the renewal rate is 10% of the premium. As long as the beneficiary continues their current plan, their agent is paid 10% of the premium for all subsequent years.
To give you an idea of how the numbers work out, the average annual premium for a Medigap plan in 2020 was $1660. In this case, the agent would have been paid $322 for the initial year and then $166 for every subsequent year. As you know, premiums can increase over time, so renewal commissions can increase each year.
Agent Rules and Regulations
In order for an individual to sell a policy, they must be licensed in the state in which they conduct business. They must complete annual training that keeps them up-to-date on Medicare health and prescription drug plans, and they must follow all marketing rules set by the CMS.
The insurance companies that allow the agents to offer their plans also oversee the agent. They can revoke their contract with the agent if necessary. Agents may also lose their licenses if they do not comply with the strict rules that regulate Medicare plan sales.
How to Choose an Agent
It’s important to know how your agent gets compensated for their services. You may find agents who prefer to sell one type of plan – financial incentive may be the reason why. When you choose an agent, you should find someone who educates you on all the plans available to you, regardless of the commission they receive. At Bobby Brock Insurance, we do just that. Yes, we have a business to run, but our clients are our top priority. We know that if we provide a great service to you, the rest will follow.