Alyssa Lane
Medicare overrides refer to the additional compensation that agencies receive when they enter into an agreement with an insurer or reinsurer based on the percentage of written or ceded premiums. This agreement guarantees income to the agency and introduces complexities in how fees are handled and disclosed. Medicare override discussions often revolve around the number of agents or layers in the hierarchy, influencing the amount of compensation. Medicare General Agencies (GAs) with a CMS Medicare contract and licensed sub-agents can receive overrides on every sale, creating an opportunity for agencies to expand their revenue streams by offering Medicare planning to clients aged 65 and over.
| Characteristics | Values |
|---|---|
| Definition | An override is an agreement between an insurer and intermediary based on the percent of written premium that will be guaranteed income to the intermediary. |
| Medicare General Agency (GA) | Agencies with an above-street-level CMS Medicare contract and two or more licensed, producing sub-agents. |
| GA contract | Agencies can receive compensation above the street level as an override on every sale made from the GA or sub-agents. |
| Requirements | Agencies must work with an up-line agency that is willing to give them a GA-level contract and meet carrier qualifications. |
| Carriers | Some carriers require the GA Principal to be contracted and certified before processing sub-agent contracts. |
| Payer | If you have Medicare and other health insurance, each type of coverage is called a "payer". The "primary payer" pays up to its limit, then sends the rest to the "secondary payer". |
| Coordination of benefits | If the secondary payer doesn't cover the remaining balance, the patient may be responsible for the rest of the costs. |
| Medicare Advantage FMO Overrides | If there are no additional layers of hierarchy between the FMO and the agent, the override is between $150 and $200 depending on the carrier. |
| Medicare Downline Overrides | Some companies require a certain number of people under an agent to get an override. For example, UHC requires 5 agents, while some companies require 2 agents to move up a level. |
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What You'll Learn
CMS proposes to prohibit overrides in Medicare Advantage
On November 6, 2023, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule regarding changes to the Medicare Advantage (MA) and Medicare Prescription Drug Benefit Programs for Contract Year (CY) 2025. The proposal included significant changes to longstanding rules on permissible payment structures for agents and brokers.
One of the key proposals was to prohibit override/administrative fees paid to agents and brokers. CMS defines overrides as separate administrative payments made to field marketing organizations (FMOs) or other general agencies. CMS has previously permitted MA and Part D plan sponsors to pay agents and brokers for administrative services other than enrollment, such as training, customer service, and agent recruitment, outside of the compensation limits set by CMS. These administrative fees could be paid on a per-enrollment basis. However, CMS now proposes to prohibit these separate administrative payments and require that they be subject to the annual fair market value (FMV) compensation limits set by CMS.
The proposed changes aim to prohibit contract terms between MA and Part D plan sponsors and agents, brokers, or third-party marketing organizations (TPMOs) that may interfere with the ability of agents or brokers to impartially evaluate and recommend the most suitable plan for a beneficiary's healthcare needs. CMS views certain contract terms as problematic, including those that tie compensation or renewal to high enrollment rates or set enrollment targets. By prohibiting these override fees, CMS intends to remove incentives that could impede agents' or brokers' ability to act in the best interests of beneficiaries when suggesting plans.
The rule was published in the Federal Register on November 15, 2023, and comments were due by January 5, 2024. Some of the proposed changes are expected to go into effect in 2024, while others will not be effective until the 2025 contract year.
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Medicare General Agency (GA) contracts and overrides
A Medicare General Agent contract (GA) is a contract that pays the full CMS-allowed "street commission" for an individual producer, as well as an override per policy. Agents with a GA contract can receive additional commissions on both initial and renewal payments. The additional compensation, or override, is paid on every sale made by the GA or their sub-agents.
To obtain a GA contract, you must work with an up-line agency that can offer you a GA-level contract and meet the carrier qualifications. Most insurance companies will require a certain number of sub-agents, anywhere from 2 to 5 licensed and certified producing sub-agents. Some companies, like UHC, require 5 people under you to get an override, while others, like Humana and Anthem, require an LOA (Letter of Authority).
Medicare GAs can receive compensation in a few ways, including street-level direct payments, where the street compensation is paid directly from the insurance company to the producer. The override would then be paid directly to the agency. Alternatively, compensation can be paid to an individual's bank account or an entity (LLC, S-Corp, Corporation, etc.), in which case a licensed, certified affiliated person is required.
Crowe & Associates, for example, offers support for those seeking to become a Medicare General Agent. They provide access to major Medicare companies and carriers for other lines of business, as well as assistance with application processing and lead generation.
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Override fees paid to agents and brokers
Agents and brokers play a crucial role in selling Medicare plans to Medicare beneficiaries on behalf of companies that contract with Medicare. These agents and brokers are typically subject to rigorous oversight and are required to be licensed in the state where they operate. They also need to complete annual training and pass a test on their knowledge of Medicare and health and prescription drug plans.
Regarding override fees, while I couldn't find specific information about "override fees," I did find details on commissions, administrative fees, and other compensation structures for agents and brokers. Starting in Contract Year 2025, CMS (Centers for Medicare & Medicaid Services) will implement changes to how it compensates agents and brokers. "Compensation" will include all administrative fees, commissions, and fees paid to agents and brokers, with salaries being exempt. These commissions will serve as a global payment for services. CMS has proposed increasing the caps for both MAPs and PDPs by $100 for initial enrollments and half of that amount for renewals.
Prior to these changes, certain plans offered agents and brokers bonuses and perks, such as free trips and cash, framed as allowable administrative payments in exchange for enrolments. This practice will likely be curtailed by the new compensation structure. Additionally, MA plans found workarounds to the previous compensation caps by paying brokers "administrative fees" on top of commissions, rewarding them for steering customers toward specific plans.
It's important to note that agents and brokers who are found to engage in high-pressure marketing tactics or fail to comply with strict rules related to selling and enrolling Medicare beneficiaries may face consequences such as the loss of licensure or termination from their contracted health or drug plans.
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How override fees are handled
On November 6, 2023, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule regarding Contract Year (CY) 2025 Policy and Technical Changes to the Medicare Advantage (MA) and Medicare Prescription Drug Benefit Programs. The proposal included significant changes to longstanding rules on permissible payment structures for agents and brokers.
CMS proposes to prohibit override/administrative fees paid to agents and brokers outside of the fair market value (FMV) enrollment compensation limits. CMS's current regulations expressly permit these administrative fees to be paid on a per-enrollment basis. Under the current regulations, compensation for agents and brokers may be paid at a rate determined by the MA or Part D plan sponsor, but may not exceed caps that CMS calculates each year based on FMV. For example, the CY 2023 FMV caps are $601 for each MA initial enrollment, $301 for an MA renewal enrollment, $92 for each Part D initial enrollment, and $46 for a Part D renewal enrollment.
CMS now proposes to require that all payments to agents or brokers that are tied to, related to, or are for services conducted as part of the relationship associated with the enrollment into an MA or Part D plan must be included under compensation. This includes payments for certain activities previously excluded under the definition of compensation, such as reimbursement for mileage to and from appointments with beneficiaries and actual costs associated with sales appointments.
CMS proposes to increase the FMV by $31 beginning in 2025 to reflect the value of administrative compensation for these types of services. This change is expected to affect MA and Part D plans' administrative services arrangements with certain entities that are currently paid on a per-enrollment basis for administrative services.
It is important to note that these are proposed changes, and the final rule is expected to be published in the Federal Register, with comments due by January 5, 2024. The effective date of the final rule is anticipated to be in 2024, with some changes taking effect in the 2025 contract year.
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Medicare Advantage FMO overrides
On November 6, 2023, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule regarding changes to the Medicare Advantage (MA) and Medicare Prescription Drug Benefit Programs. One of the key proposals was to prohibit override/administrative fees paid to agents and brokers, including Field Marketing Organisations (FMOs), outside of the fair market value (FMV) enrollment compensation limits.
CMS previously permitted MA and Part D plan sponsors to pay agents and brokers for administrative services outside of the compensation limits set by CMS, on the condition that these payments were consistent with FMV for the services. These payments are often paid per enrolment and are referred to as 'overrides'.
In the context of Medicare Advantage FMO overrides, the amount of the override depends on the number of people in the downline and the carrier. If there are no additional layers of hierarchy between the FMO and the agent, the override is between $150 and $200. If there are layers in between (SGA, MGA, etc.), the override is smaller as these intermediate layers are paid out of the total override.
The proposed changes by CMS aim to subject all payments, including overrides, to a total FMV. Starting in 2025, this new FMV would be $31 higher than the current FMV rate, but it would only apply to new enrolments and not renewals. This change would significantly reduce the total compensation for FMOs, which currently ranges from $100 to $300 per beneficiary enrolled per year.
It is important to note that overrides, in general, refer to an agreement between an insurer and an intermediary based on the percentage of written or ceded premiums that will be guaranteed income to the intermediary.
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Frequently asked questions
An insurance override is an agreement between an insurer and an intermediary based on the percentage of the written premium that will be guaranteed income to the intermediary. Overrides are commonly paid to FMOs or other general agencies.
Medicare General Agencies (GAs) with an above-street-level CMS Medicare contract and two or more licensed sub-agents can receive compensation above the street level as an override on every sale. Overrides are also paid to agents and brokers for administrative services outside of the compensation limits set by CMS.
The amount of the override depends on the carrier. Overrides can range from $40 to $200, with the amount shrinking if there are additional layers of hierarchy that need to be paid out of the total override.
