View all text of Subpart V [§ 423.2260 - § 423.2276]

§ 423.2274 - Agent, broker, and other third-party requirements.

If a Part D sponsor uses agents and brokers to sell its Medicare Part D plans, the requirements in paragraphs (a) through (e) of this section are applicable. If a Part D sponsor makes payments to third parties, the requirements in paragraph (f) of this section are applicable.

(a) Definitions. For purposes of this section, the following definitions are applicable:

Compensation. (i) Includes monetary or non-monetary remuneration of any kind relating to the sale or renewal of a plan or product offered by a Part D sponsor including, but not limited to the following:

(A) Commissions.

(B) Bonuses.

(C) Gifts.

(D) Prizes or Awards.

(ii) Does not include any of the following:

(A) Payment of fees to comply with State appointment laws, training, certification, and testing costs.

(B) Reimbursement for mileage to, and from, appointments with beneficiaries.

(C) Reimbursement for actual costs associated with beneficiary sales appointments such as venue rent, snacks, and materials.

Fair market value (FMV) means, for purposes of evaluating agent/broker compensation under the requirements of this section only, the amount that CMS determines could reasonably be expected to be paid for an enrollment or continued enrollment into a Part D plan. Beginning January 1, 2021, the FMV is $81. For subsequent years, FMV is calculated by adding the current year FMV and the product of the current year FMV and the Annual Percentage Increase for Part D, which is published for each year in the rate announcement issued pursuant to § 422.312 of this chapter.

Initial enrollment year means the first year that a beneficiary is enrolled in a plan versus subsequent years (c.f., renewal year) that a beneficiary remains enrolled in a plan.

Like plan type means one of the following:

(i) PDP replaced with another PDP.

(ii) MA or MA–PD replaced with another MA or MA–PD.

(iii) Cost plan replaced with another cost plan.

Plan year and enrollment year mean the year beginning January 1 and ending December 31.

Renewal year means all years following the initial enrollment year in the same plan or in different plan that is a like plan type.

Unlike plan type means one of the following:

(i) An MA or MA–PD plan to a PDP or Section 1876 Cost Plan.

(ii) A PDP to a Section 1876 Cost Plan or an MA or MA–PD plan.

(iii) A Section 1876 Cost Plan to an MA or MA–PD plan or PDP.

(b) Agent/broker requirements. Agents and brokers who represent Part D sponsors must follow the requirements in paragraphs (b)(1) through (3) of this section. Representation includes selling products (including Medicare Advantage plans, Medicare Advantage-Prescription Drug plans, Medicare Prescription Drug plans, and section 1876 Cost plans) as well as outreach to existing or potential beneficiaries and answering or potentially answering questions from existing or potential beneficiaries.

(1) Be licensed and appointed under State law (if required under applicable State law).

(2) Be trained and tested annually as required under paragraph (c)(4) of this section, and achieve an 85 percent or higher on all forms of testing.

(3) Secure and document a Scope of Appointment prior to meeting with potential enrollees.

(c) Part D sponsor oversight. Part D sponsors must oversee first tier, downstream, and related entities that represent Part D sponsor to ensure agents and brokers abide by all applicable State and Federal laws, regulations, and requirements. Part D sponsors must do all of the following:

(1) As required under applicable State law, employ as marketing representatives only individuals who are licensed by the State to conduct marketing (as defined in this subpart) of health insurance in that State, and whom the Part D sponsor has informed that State it has appointed, consistent with the appointment process for agents and brokers provided for under State law.

(2) As required under applicable State law, report the termination of an agent or broker to the State and the reason for termination if required by state law.

(3) Report to CMS all enrollments made by unlicensed agents or brokers and for-cause terminations of agents or brokers.

(4) On an annual basis, provide training and testing to agents and brokers on Medicare rules and regulations, the plan products that agents and brokers will sell including any details specific to each plan product, and relevant State and Federal requirements.

(5) On an annual basis by the last Friday in July, report to CMS whether the Part D sponsor intends to use employed, captive, or independent agents or brokers in the upcoming plan year and the specific rates or range of rates the plan will pay independent agents and brokers. Following the reporting deadline, Part D sponsor may not change their decisions related to agent or broker type, or their compensation rates and ranges, until the next plan year.

(6) On an annual basis by October 1, have in place full compensation structures for the following plan year. The structure must include details on compensation dissemination, including specifying payment amounts for initial enrollment year and renewal year compensation.

(7) Submit agent or broker marketing materials to CMS through HPMS prior to use, following the requirements for marketing materials in this subpart.

(8) Ensure beneficiaries are not charged marketing consulting fees when considering enrollment in Part D plans.

(9) Establish and maintain a system for confirming that:

(i) Beneficiaries enrolled by agents or brokers understand the product, including the rules applicable under the plan.

(ii) Agents and brokers appropriately complete Scope of Appointment records for all marketing appointments (including telephonic and walk-in).

(10) Demonstrate that marketing resources are allocated to marketing to the disabled Medicare population as well as to Medicare beneficiaries age 65 and over.

(11) Must comply with State requests for information about the performance of a licensed agent or broker as part of a state investigation into the individual's conduct. CMS will establish and maintain a memorandum of understanding (MOU) to share compliance and oversight information with States that agree to the MOU.

(12) Ensure that, prior to an enrollment CMS' required questions and topics regarding beneficiary needs in a health plan choice are fully discussed. Topics include information regarding pharmacies (that is, whether or not the beneficiary's current pharmacy is in the plan's network), prescription drug coverage and costs (including whether or not the beneficiary's current prescriptions are covered), premiums, and other services or incentives.

(d) Compensation requirements. Part D sponsors must ensure they meet the requirements in paragraphs (d)(1) through (5) of this section in order to pay compensation. These compensation requirements only apply to independent agents and brokers.

(1) General rules. (i) MA organizations may only pay agents or brokers who meet the requirements in paragraph (b) of this section.

(ii) Part D sponsors may determine, through their contracts, the amount of compensation to be paid, provided it does not exceed limitations outlined in this section.

(iii) Part D sponsors may determine their payment schedule (for example, monthly or quarterly). Payments (including payments for AEP enrollments) must be made during the year of the beneficiary's enrollment.

(iv) Part D sponsors may only pay compensation for the number of months a member is enrolled.

(2) Initial enrollment year compensation. For each enrollment in an initial enrollment year, Part D sponsors may pay compensation at or below FMV.

(i) Part D sponsors may pay either a full or pro-rated initial enrollment year compensation for:

(A) A beneficiary's first year of enrollment in any plan; or

(B) A beneficiary's move from an employer group plan to a non-employer group plan (either within the same parent organization or between parent organizations).

(ii) Part D sponsors must pay pro-rated initial enrollment year compensation for:

(A) A beneficiary's plan change(s) during their initial enrollment year.

(B) A beneficiary's selection of an “unlike plan type” change. In that case, the new plan would only pay the months that the beneficiary is enrolled, and the previous plan would recoup the months that the beneficiary was not in the plan.

(3) Renewal compensation. For each enrollment in a renewal year, Part D sponsors may pay compensation at an amount up to 50 percent of FMV.

(i) Part D sponsors may pay compensation for a renewal year:

(A) In any year following the initial enrollment year the beneficiary remains in the same plan; or

(B) When a beneficiary enrolls in a new “like plan type”.

(ii) [Reserved]

(4) Other compensation scenarios. (i) When a beneficiary enrolls in a PDP, the Part D sponsor may pay only the PDP compensation (and not compensation for MA enrollment under § 422.2274 of this chapter).

(ii) When a beneficiary enrolls in both a section 1876 Cost Plan and a stand-alone PDP, the 1876 Cost Plan sponsor may pay compensation for the cost plan enrollment and the Part D sponsor must pay compensation for the Part D enrollment.

(iii) When a beneficiary enrolls in a MA-only plan and a PDP, the MA plan may pay for the MA plan enrollment and the Part D sponsor may pay for the PDP enrollment.

(5) Additional compensation, payment, and compensation recovery requirements (Charge-backs). (i) Part D sponsors must retroactively pay or recoup funds for retroactive beneficiary changes for the current and previous calendar years. Part D sponsors may choose to recoup or pay compensation for years prior to the previous calendar year, but they must do both (recoup amounts owed and pay amounts due) during the same year.

(ii) Compensation recovery is required when:

(A) A beneficiary makes any plan change (regardless of the parent organization) within the first three months of enrollment (known as rapid disenrollment), except as provided in paragraph (d)(5)(iii) of this section.

(B) Any other time period a beneficiary is not enrolled in a plan, but the plan paid compensation based on that time period.

(iii) Rapid disenrollment compensation recovery does not apply when:

(A) A beneficiary enrolls effective October 1, November 1, or December 1 and subsequently uses the Annual Election Period to change plans for an effective date of January 1.

(B) A beneficiary's enrollment change is not in the best interests of the Medicare program, including for the following reasons:

(1) Other creditable coverage (for example, an employer plan).

(2) Moving into or out of an institution.

(3) Gain or loss of employer/union sponsored coverage.

(4) Plan termination, non-renewal, or CMS imposed sanction.

(5) To coordinate with Part D enrollment periods or the State Pharmaceutical Assistance Program.

(6) Becoming LIS or dually eligible for Medicare and Medicaid.

(7) Qualifying for another plan based on special needs.

(8) Due to an auto, facilitated, or passive enrollment.

(9) Death.

(10) Moving out of the service area.

(11) Non-payment of premium.

(12) Loss of entitlement or retroactive notice of entitlement.

(13) Moving into a 5-star plan.

(14) Moving from an LPI plan into a plan with three or more stars.

(iv)(A) When rapid disenrollment compensation recovery applies, the entire compensation must be recovered.

(B) For other compensation recovery, plans must recover a pro-rated amount of compensation (whether paid for an initial enrollment year or renewal year) from an agent or broker equal to the number of months not enrolled.

(1) If a plan has paid full initial compensation, and the enrollee disenrolls prior to the end of the enrollment year, the total number of months not enrolled (including months prior to the effective date of enrollment) must be recovered from the agent or broker.

(2) Example: A beneficiary enrolls upon turning 65 effective April 1 and disenrolls September 30 of the same year. The plan paid full initial enrollment year compensation. Recovery is equal to 6/12ths of the initial enrollment year compensation (for January through March and October through December).

(e) Payments other than compensation (administrative payments). (1) Payments made for services other than enrollment of beneficiaries (for example, training, customer service, agent recruitment, operational overhead, or assistance with completion of health risk assessments) must not exceed the value of those services in the marketplace.

(2) Administrative payments can be based on enrollment provided payments are at or below the value of those services in the marketplace.

(f) Payments for referrals. Payments may be made to individuals for the referral (including a recommendation, provision, or other means of referring beneficiaries), recommendation, provision, or other means of referring beneficiaries to an agent, broker or other entity for potential enrollment into a plan. The payment may not exceed $100 for a referral into an MA or MA–PD plan and $25 for a referral into a PDP plan.

(g) TPMO oversight. In addition to any applicable FDR requirements under § 423.505(i), when doing business with a TPMO, either directly or indirectly through a downstream entity, Part D sponsor must implement the following as a part of their oversight of TPMOs:

(1) When TPMOs is not otherwise an FDR, the Part D sponsor is responsible for ensuring that the TPMO adheres to any requirements that apply to the Part D sponsor.

(2) Contracts, written arrangements, and agreements between the TPMO and a Part D plan, or between a TPMO and a Part D plan's FDR, must ensure the TPMO:

(i) Discloses to the plan any subcontracted relationships used for marketing, lead generation, and enrollment.

(ii) Record all marketing, sales, and enrollment calls, including the audio portion of calls occurring via web-based technology, in their entirety.

(iii) Report to plans monthly any staff disciplinary actions or violations of any requirements that apply to the Part D sponsor associated with beneficiary interaction to the plan.

(iv) Use the TPMO disclaimer as required under § 423.2267(e)(41).

(3) Ensure that the TPMO, when conducting lead generating activities, either directly or indirectly for a Part D sponsor, must, when applicable:

(i) Disclose to the beneficiary that his or her information will be provided to a licensed agent for future contact. This disclosure must be provided:

(A) Verbally when communicating with a beneficiary through telephone;

(B) In writing when communicating with a beneficiary through mail or other paper; and

(C) Electronically when communicating with a beneficiary through email, online chat, or other electronic messaging platform.

(ii) When applicable, disclose to the beneficiary that he or she is being transferred to a licensed agent who can enroll him or her into a new plan.

[86 FR 6129, Jan. 19, 2021, as amended at 87 FR 27901, May 9, 2022; 88 FR 22342, Apr. 12, 2023]