CMS Reaffirms Federal Preemption Over Medicare Advantage Broker Compensation

CMS has issued a memo reaffirming that federal law preempts state regulations on Medicare Advantage (MA) broker compensation and marketing practices. This reminder comes amid legal conflict, notably UnitedHealthcare's lawsuit against the Idaho Department of Insurance, which challenged state-imposed MA commission requirements as unconstitutional. CMS emphasized that under the Social Security Act, state laws cannot override federal provisions on agent and broker compensation, marketing materials, and enrollment processes, except for licensing and plan solvency laws. The memo clarifies that MA organizations must annually disclose their compensation range to CMS, which can include a minimum of zero, and that compensation levels are determined through negotiations between insurers and affiliated entities, including brokers. This federal stance contradicts actions in at least ten states that have sought to regulate or restrict insurer practices on MA broker commissions, especially during the open enrollment period when many insurers have reduced commissions amid cost pressures. CMS expressed willingness to engage with state insurance departments, underscoring the agency's role in maintaining regulatory consistency nationwide. The agency's intervention supports insurers' positions against varying state regulations that could fragment the MA market and complicate broker compensation frameworks. This development has significant implications for insurance professionals involved in Medicare Advantage plan distribution and compliance. It underscores the primacy of federal oversight over broker compensation structures, potentially limiting state-level regulatory interventions. Market participants should monitor ongoing legal disputes and regulatory responses closely to align their strategies with evolving legal precedents and regulatory guidance. Overall, the CMS memo serves as a crucial signal reinforcing federal supremacy in Medicare Advantage plan administration, particularly regarding agent and broker compensation, which remains a contentious issue in balancing cost management and market integrity within the MA sector.