Do Commissions Influence Medicare Insurance Agents?

It’s one of the biggest questions many people silently ask themselves: How do I know if my Medicare insurance agent has my best interests in mind, and not influenced by earning the highest possible commissions for themselves when enrolling me in a Medicare plan? Is my insurance agent selling the policy that best fits my needs, or simply selling me a product that pays him/her as much as possible?

Let’s start with the basics. First of all, 99.9% of independent insurance agents are fine, upstanding, moral, high-character people who ALWAYS put the best interests of their customers first. If they’re not, they will soon be found out and kicked out of the business and stripped of their insurance license. But like any industry (financial planning, stock market, etc.) there are always a few bad apples who don’t do the right thing and more often than not, end up on the news.

Independent insurance agents selling Medicare products go to extreme measures to remain compliant with Medicare regulations and laws, must be licensed as an agent and sit through hours of classes for each company they represent to remain “certified” to sell MAPD and PDP plans every single year. They also must take continuing education classes every year to keep their insurance license. Insurance companies have an extremely low tolerance for agents who do not follow the rules and are quick to terminate their ability to sell their products if they suspect any improprieties.

So (very good) odds are, the insurance agent you’re dealing with for your Medicare insurance needs are highly trained, ethical, honest and highly regulated sales professionals who know their business, know the local market and know what plans are (usually) the best for you.

How Much Do Medicare Insurance Agents Make?

Independent insurance agents selling a Prescription Drug Plan (PDP) or a Medicare Advantage plan (MAPD) … ANY MAPD or PDP are paid exactly the same, regardless of the policy they sell you. Around 10 years ago, these commissions were not regulated, and that led to different insurance companies offering some staggeringly high commissions for selling MAPD plans… at times as high as $850 or more per sale. That led to a number of folks complaining to Medicare their agents were inappropriately placing them into a plan based upon those high commissions, and not because it was the best plan for them and their health and financial conditions.

That all changed around 2007, when Medicare stepped in and mandated Medicare insurance companies pay exactly the same commission amounts, and proposed steep penalties for not doing so.

Current MAPD and PDP Commission Rates

For plans that go into effect in 2017, agents selling an MAPD plan are paid $443 for the first year, and $221 every year after that, usually for 6-7 years. That $443 is paid if you’ve recently enrolled in Medicare, or are buying an MAPD for the very first time. If your agent is merely switching you from one MAPD plan into another MAPD, they only get $221 per sale, and get that every year until you choose a different plan. So, if you buy an MAPD from an agent and stick with the same plan for 6 years, the total amount that agent is paid for your enrollment could be around $1,500. Yes, that’s quite a bit of money! But because every MAPD plan is not allowed to pay more than those amounts, it’s hard to argue there’s an incentive for agents to inappropriately steer people to one plan over another. Remember, the vast majority of independent insurance agents are just that: INDEPENDENT. That means they’re independent contractors, with no base salary and no benefits, no car allowance, no gas money and pay taxes on those commissions. Factor in all those costs and $1,500 over 6 or 7 years doesn’t seem quite as high.

For PDP, that commission amount is $71 for the first year, and then half of that amount in the following years, usually stopping around year 6 or 7, depending upon the company. The same logic applies as found in the MAPD scenario above; it’s hard to argue an insurance agent has an incentive to enroll you in one PDP plan over another… because they make the same amount of commission for every plan.

These commissions are not paid by you, nor do they directly influence the cost of your MAPD. Your premium does not go up or down if you buy a policy from an independent Medicare insurance agent. Online, over the phone or in your home on your couch with your insurance agent, the MAPD premium (if there is one) and the PDP premium you’ll pay stays the same regardless of where or how you buy it.The price as they say, is the price.

Medicare Supplement Commissions

The issue of commissions gets a little murky when talking about Medicare Supplements. Unlike MAPD or PDP plans, Medicare supplements are regulated by the states, not the federal government. And unlike MAPD and PDP plans, commissions are not the same and can actually vary quite a bit. For example, Company A might pay $15% sales commission for year 1, and 10% commission for years 2-6. Company B might pay 22% sales commission for year 1, and 15% commission for years 2-10. If one company pays more than the other for the exact same Medicare supplement insurance policy… are you sure your agent is putting you in the product that best fits your needs and budget? Let me remind you, 99.9% of the time that answer is YES. But how do you really know?

How Do I Know If I’ve Got a Trustworthy Agent?

Most independent insurance agents represent multiple Medicare insurance companies. So, if your agent only presents you one option, get suspicious and ask questions. Ask them, “Why this option and not the others?” Be active and challenge them! There’s usually a good reason. Medicare Supplement plan F is the exact same plan, regardless of the company logo. In that case, your agent may be recommending you take one option over another due to lower premiums, for example.  Maybe your doctors and preferred hospitals are in one plan’s network and not the others. The key here is to ASK. Ask them WHY they think this is the best plan for you.

The Best Way to Size Up Your Medicare Insurance Agent

Ask them how much commission they’re making if you enroll in the product they’re selling. If they say they don’t know, or refuse to tell you, end the sales presentation right then and there. If your independent insurance agent won’t disclose their commissions to you, what else are they not telling you? A good insurance agent will have no problem telling you how much commission they make on a sale. Heck, they should be proud to tell you. They’re professionals who know their stuff, work extremely hard and ALWAYS put the needs of their clients FIRST.

The Takeaway

Commissions paid to insurance agents are standard for Medicare Advantage and Medicare Prescription Drug Plans. Commissions paid to insurance agents for Medicare Supplement plans are NOT standard. These commissions do not directly influence the price you pay for your insurance policies and the price you pay is the same regardless of where you purchase your policy; phone, web or agent.

Good, professional insurance agents who specialize in Medicare coverage are all around, but like any profession, there are bad actors. When meeting with an agent for the first time, act like Dan Rather or Charlie Rose and interview them. How many clients do they have? How long have they been doing this? What companies do they represent and why? Finally, how much commission will they make if you buy a policy from them? Use your gut; if they can’t (or won’t) answer those basic questions, it’s best to thank them for their time and find a better agent.

The Three Types of Medicare Websites

Over the years, I’ve spent thousands of hours online reviewing Medicare websites.  What’s available is confusing, incomplete, wrong or not quite objective enough for me.   These websites fit neatly into three distinct categories.

1.  Insurance company websites

Insurance company websites can certainly be helpful, but looking for Medicare information at an insurance company website is much like doing new car research:  The Ford website will tell you everything you need to know about all the Ford options they have, but don’t/won’t tell you anything about Honda… or Chevy… or BMW… you get the point.  They don’t offer the complete picture or landscape of choices, but they usually do a pretty decent job of providing you company-specific information and the ability to enroll online.  Let’s be honest: the ability to enroll online may exist, but your patience will be taxed doing so.  Every insurance company website has a different way to enroll, different forms and different pages to navigate to.  The experience can be horribly frustrating, leading many people to simply either give up or call the company.  If you’re 100% sure you want to buy a policy from a particular policy, then enrolling online is the way to go.  If you want to compare different plans from different companies, you’ll have to visit multiple sites and each of them have their own web navigation positives and negatives.

2.  Lead-generation websites

Lead-generation websites are usually insurance agents or agencies that set up a site (or a dozen) to generate leads for themselves or their employees.  Often, these sites urge you to share your personal information, and then sell that information to a local agent or agency in your ear.  From what I’ve seen, they give you just enough information to get your interest piqued, then encourage you to contact them, send them your email address, etc.  They then either hound you to BUY BUY BUY or sell/give your information to call centers and/or insurance agents.  Their sites are full of long, complex definitions and articles chock-full of keywords the search engines love. They have to do this in order for Google, Bing or Yahoo to pay attention to them in hopes that when somebody searches for, “Medicare” their site ends up on the first page of the search results.  In all cases, unless you want to be contacted by someone trying to sell you something, stay away from these.

3.  Medicare’s Website

Medicare.gov is the Centers for Medicare and Medicaid (CMS) homepage.  Those are the folks who run (you guessed it!) Medicare and Medicaid.  If you’re ready to enroll in Medicare or you’re all set to enroll in a particular product, this is a good place to go but it’s not perfect by any stretch of the imagination.  However, there is a ton of content, and you could easily spend thousands of hours on their site reading through various items.  Information overload is easy to experience on this site, especially if you’re brand-new to Medicare.

The Takeaway

Learn to love medicare.gov.  The site does a decent job of helping you search for Medicare Advantage and PDP (Part D) plans, but is woefully lacking on helping you choose Medicare Supplemental plans.  Medicare.gov allows you to enter in your prescription drugs and pharmacy of choice.  Unfortunately, it doesn’t do a great job of letting you know your doctor or hospital of choice is in the plan’s network.  This is mostly due to the fact that Medicare PPO and HMO networks are in a state of constant flux; doctors and hospitals get added and removed on a monthly basis.   My advice is to use this site to enter in your prescriptions and pharmacy, and see what spits out.  Once you’ve narrowed down your top 3 choices, call those insurance companies and ask them if your doctors are in their plan.  They’ll try to sell you a policy over the phone.  Go ahead and buy it, if you’re ready, or do so online.

-OR-

Use a good independent Medicare insurance agent.  Note I said, “good” Medicare insurance agent, because they’re not all good and finding the good ones can be a chore.  Good agents will be able to narrow down the choices based on your financial goals, coverage needs, doctor usage and health status.  I’ve got a series of posts queued up on Medicare insurance agents, so check back soon!