Individual Market Commissions

On June 7, 2022, the Centers for Medicare & Medicaid Services (CMS) issued guidance in the form of Frequently Asked Questions (FAQs) on broker compensation for the sale of plans in the individual health insurance market. The guidance is in response to some health insurance carriers who have eliminated or reduced commissions for health insurance plans that are sold during a Special Enrollment Period (SEP).

Of particular importance is the following FAQ and the response from CMS:

Is it permissible for an issuer to differentially compensate agents or brokers who assist consumers with enrollments in individual market coverage in the same benefit year based on whether the enrollment is completed during an SEP or during the applicable benefit year’s Open Enrollment period (OEP)?

No. Arrangements that pay reduced (or no) commissions and other forms of compensation to agents and brokers who assist consumers with enrollment in individual market coverage during an SEP and pay higher amounts for OEP enrollments for the same benefit year violate the guaranteed availability provisions of the Affordable Care Act.

The guaranteed availability provisions in section 2702 of the Public Health Service Act (PHS Act), as added by the Affordable Care Act, generally require issuers to accept “every employer and individual in the State that applies for such coverage.” This requirement applies to issuers offering non-grandfathered health insurance coverage in the group or individual markets, through or outside of the Marketplaces. As implemented in the individual market, issuers are required to guarantee issue such coverage during the annual OEP to all individuals, as well as during an SEP to an eligible individual.

Issuers’ normal conduits for receiving applications and offering coverage must also be open to individual market consumers for OEP and SEP enrollments, as applicable. Issuers commonly use agents and brokers as an important part of their marketing and sales distribution channels. The way an issuer structures its compensation to agents and brokers influences the marketing to, as well as enrollment and retention of, individual market consumers. An arrangement that reduces or eliminates the commission or other compensation an agent or broker receives for SEP enrollments compared to the commission or other compensation received for OEP enrollments in the same benefit year discourages agents and brokers from marketing to and enrolling individuals eligible for an SEP. These practices therefore violate the guaranteed issue protections afforded to these individuals under the statute. Exceptions may be made for cases in which state regulators make specific recommendations for issuers to address solvency concerns or financial capacity limitations.

In a 2016 FAQ, CMS previously stated that payment of agent/broker commissions or other forms of compensation is a marketing practice covered under 45 CFR 147.104(e) and 156.225(b). Specifically, the 2016 FAQ explained that compensation arrangements structured to discourage agents and brokers from marketing to and enrolling consumers with significant health needs constituted a discriminatory marketing practice prohibited under §§ 147.104(e) and 156.225(b). Consistent with this previous guidance, to the extent arrangements which pay reduced or no compensation for SEP enrollments discourage agents and brokers from marketing to and enrolling consumers with significant health needs, the arrangements would also constitute a discriminatory marketing practice prohibited under 45 CFR 147.104(e) and 156.225(b).

As the latest FAQ guidance is still recent, we will now need to wait and see how the health insurance carriers who have altered their SEP commissions respond.