A federal judge has paused implementation of CMS regulations capping the amount Medicare Advantage companies can pay brokers that sell their plans.
In a decision issued July 5, U.S. District Judge Reed O'Connor granted a stay on the implementation of the new regulations until a final decision is issued. Americans for Beneficiary Choice, an association representing insurance brokers and two Texas insurance agencies, sued to challenge the decision.
In April, CMS issued a final rule capping the total compensation MA plans can pay brokers at $611 for a new member, and $306 for a renewal. These caps include payments for administrative services, which were previously excluded from limits.
CMS raised the previous compensation limits by $100 to account for the removal of administrative costs. In his ruling, Mr. O'Connor wrote the agency did not sufficiently substantiate that $100 was an adequate number to cover administrative costs.
"CMS failed to substantiate how they calculated the costs of administrative expenses. Plaintiffs are substantially likely to show that the fixed fee is arbitrary and capricious," he wrote.
In its final rule, CMS said the cap was intended to prevent brokers from using administrative expenses as "loopholes" to get higher compensation from plans, and prevent "anti-competitive and anti-consumer steering incentives."
Smaller plans have argued previous broker compensation standards made it difficult to compete with larger insurers that had a larger budget to pay brokers for enrolling beneficiaries in their plans.
In his ruling, Mr. O'Connor said the insurance brokers demonstrated their businesses would likely suffer irreparable harm if the rule was not stayed, and have to make costly amendments to their current agreements with insurers. The stay prevents the rule from taking effect for all insurers and brokers, not just the plaintiffs in the suit.
Mr. O'Connor has ruled in several high-profile healthcare cases, including ruling the ACA unconstitutional in 2018. The decision was later reversed by the Supreme Court. The Texas judge is also tasked with hearing a challenge to CMS' risk adjustment data valuation audit standards for Medicare Advantage plans.