Federal court temporarily blocks portions of CMS’s Medicare final rule

A court in Texas has temporarily blocked some parts of the 2025 Medicare rule from taking effect. Specifically, its decision discusses regulations on agent/broker compensation and contracts between carriers and marketing organizations. However, the regulations on sharing beneficiary contact information will still go into effect.

What are the impacts of this federal court’s ruling?

The long-term impacts are still unclear and will be for as long as the legal process takes. Here's what we can expect in the short term.

Agent/broker compensation regulations are temporarily paused

The 2025 final rule took significant steps to, in CMS’s eyes, prevent inappropriate steering of beneficiaries into plans. CMS felt agents might steer beneficiaries to plans with more financial gain for the agent instead of the beneficiary.

Part of that strategy was to redefine agent/broker compensation. This put the kibosh on the administrative payments category, potentially lowering agent payouts. But to make up for Health Risk Assessments, marketing reimbursements, and other lost revenue sources in this category, CMS added an extra $100 to this year's Fair Market Value (FMV) calculations for health insurance agents.

The claim asserts that thorough support is not there for this $100 FMV assessment. For example, when asked how this FMV encompasses costs for things like overhead and marketing, CMS claimed that cost was too difficult to measure. If CMS did not take those costs into account when assessing, the court argues, then how did CMS arrive at this number?

The stay issued by the federal court simply stops these rules from going into effect. Not permanently, of course, but just until the legal process plays out. However, the court indicated that it would likely find this rule "arbitrary and capricious," suggesting this portion of the rule could be struck down.

Contracts between carriers and TPMOs stay status quo for now

The new rule bans certain contract terms between carriers and field marketing organizations, as well as other downstream entities. Specifically, the rule calls out volume-based enrollment bonuses. CMS’s logic here is that agents/brokers may steer beneficiaries to a plan choice that benefits the agent, regardless of how well it meets the beneficiary’s needs.

There is not enough clarification on what is prohibited and what is not, according to the decision. Case law and precedent allow rules to be set aside if no "meaningful clarity" is available to ensure the rule is followed.

This stay will affect the regulation in the same way. The court did, however, echo its “arbitrary and capricious” language when discussing this portion of the rule.

The prohibition on sharing beneficiary contact information continues

The rule also requires beneficiaries to give consent every time a TPMO shares their information with another organization. In essence, beneficiaries must give an enthusiastic yes whenever their information is sold. This regulation aimed to target ill-intentioned lead-generation firms that mislead beneficiaries into switching plans.

The court found this regulation had appropriate legal justification, and challenges to it are unlikely to be successful. As such, implementation will continue as planned.

What’s not affected?

While this court decision may impact your bottom line, plenty of other forces are reshaping the Medicare Advantage and Prescription Drug Plan markets this year. The Inflation Reduction Act’s $2,000 maximum out-of-pocket limit on Part D drugs goes into effect on January 1, 2025. Carriers will be eating a portion of the drug costs above and beyond that limit.

They’re also facing reduced reimbursement for medical services. Together, this means a significant portion of your clients will be receiving negative Annual Notices of Change (ANOCs) this fall.

 The remainder of the 2025 final rule will go into effect, too. New regulations on D-SNPs, notifications about supplemental benefits, and enhanced appeal rights should still be on your radar. And, Part D carriers will still have increased flexibility to swap in biosimilars on their formularies as they become available.

What comes next?

Both of the plaintiffs (Americans for Beneficiary Choice and Council for Medicare Choice) and the defendant (United States Department of Health and Human Services) will go to work on a joint schedule for summary judgment. The schedule is due to the court no later than July 17, 2024. From there, the court may schedule additional hearings. The outcomes of the hearings and any appeals will determine when the compensation and contract terms regulations will be implemented.

But wait, there’s more…

The U.S. District Court in the Northern District of Texas will decide this case first. But, there are pending challenges to the rule in other districts. If a different district court disagrees, higher federal courts, including the Supreme Court, may have to get involved. It’s anyone’s guess, though, as to how long these processes might take to play out.