You’ve seen the advertising. Celebrities, athletes, letters, and brochures in the mail. What are they for? Medicare Insurance. Medicare Insurance is offered by insurance companies and Medicare Insurance agents. But, why is there so much advertising, and why does it seem to be increasing? The answer? Medicare is big business, and it’s growing by the day. There are several kinds of private Medicare Insurance, but the fastest-growing, and probably the most heavily advertised, is Medicare Advantage. You’ve likely seen the advertising; maybe you even have Medicare Advantage coverage. But if you’ve ever wondered, What do Medicare Agents make selling a Medicare Advantage plan, read on, because we’ll review agent compensation in this short article.
Are there such things as Medicare Agents?
Beware of false advertising. “Medicare agents” don’t exist. The Medicare program is government-sponsored and administered. Medicare is overseen by the Centers for Medicare and Medicaid Services (CMS). Anyone who works for CMS has a hand in the administration of the basic program. They have no affiliation with Medicare Advantage plans. No one working for Medicare sells anything.
On the other hand, Medicare Advantage plans are sold by licensed health insurance agents. There are heavy regulations for insurance professionals who help people with Medicare Insurance. One of the biggest is a strict prohibition against any insurance company or agent stating or implying that the government or CMS endorses or recommends any Medicare Advantage plan. Remember that – the only people who sell Medicare Advantage plans are licensed health insurance agents who either work for or are contracted with, insurance companies that have contracts with CMS to operate Medicare Advantage plans.
How are Insurance agents paid?
As you would imagine from reading so far, agents are NOT paid by Medicare or the federal government. Instead, they’re paid by private insurance companies. Commissions are paid in the following manner:
- Paid by insurance companies to agents and agencies
- Paid per enrollment / per “member”
- Paid for initial enrollment, and for each year a member is in the plan
Commission payments are regulated by CMS. That is, CMS sets a maximum permissible commission. Individual insurance companies can set their own commission policies as long as they abide by the CMS maximums. In theory, insurance companies can choose to pay less than the CMS maximum, but in practice, they tend to pay the CMS maximum. This amount increases by small amounts each year, and most insurance companies adjust their commission schedules to match the CMS maximum.
So, how much do Medicare Agents make selling a Medicare Advantage Plan?
Now that you have a good understanding of who gets paid commissions, and who pays them, it’s almost time to get into the specifics of how much an agent makes when they sell a Medicare Advantage plan. We need to add a couple of pieces of information first.
First of all, commissions vary by the state in which they’re paid. Second, commissions are different for an “initial enrollment” – when someone first enters Medicare and enrolls in a Medicare Advantage plan, and for “renewal” commissions – paid every year after a person’s first year in any Medicare Advantage plan.
Here are the details for initial enrollment commissions for 2022:
- CA and NJ – $715
- CT, PA, and Washington, DC – $646
- All other States – $573
Here are the per-state details for renewal commissions for 2022:
- CA and NJ – $358 per year
- CT, PA, and Washington, DC – $323 per year
- All other States – $287 per year
Renewal commissions tend to be paid monthly (known as “as-earned”), and initial commissions are often paid in one or two lump sums.
An important point to remember is that these are the maximum compensation limits, from all types of compensation. So, any kind of incentive program, like bonus payments or vacation giveaways based on sales production is included in these amounts.
How do Medicare Advantage commissions compare to other Insurance commissions?
There are two other Medicare Insurance products that pay commissions: Part D Drug Plans, and Medicare Supplement Insurance (Medigap). Let’s look at these commissions before we compare Medicare Insurance commissions to life insurance commissions.
Prescription Drug Plans pay the same commissions in all States:
- $87 for an “initial” enrollment
- $44 per year for “renewal”
Medicare Supplement Insurance plans work a little differently because they are not set by CMS. And, there are ten standardized Medigap “Plans,” each with its own commission amounts. However, assuming an average premium for an average policy, typical commissions would be:
- $264 to $308 for initial enrollment and
- $22 to $26 per month for renewals
You can see that Medicare Advantage plans have the highest commissions of the three Medicare Insurance plans available. How do they compare to other insurance products, though? Let’s look at commissions for life insurance.
There are two main types of life insurance:
- Term insurance
- Permanent insurance
Both types tend to pay commissions of between 80% and 100% of the first year premium paid. Term insurance, being much less expensive than permanent insurance, might have a total first-year premium of $360 to $600. This would produce commissions in the first year of $288 to $600.
Permanent insurance, often known as Whole Life Insurance, has much higher premiums than term insurance since it’s permanent rather than temporary. Monthly premiums average $517 per month for $500,000 in coverage for a person in their 30s. This works out to an annual premium of $6,204. 80% commission on the first-year premium would be $4,963.
You can see that while Medicare Advantage commissions are higher than other Medicare Insurance products, they are similar to the commissions paid on term life insurance. And, they are significantly less than commissions paid on permanent life insurance like Whole Life.
Commissions for Medicare Advantage are set at a relatively low level to discourage unscrupulous agents from having an incentive to put their clients in plans that aren’t a good fit. Instead, health insurance agents are incentivized to gain and retain clients over the long haul, since these plans pay commissions for as long as the member has the plan. This means that an agent is more incentivized to keep their clients happy rather than tempted to move someone to a Medicare Advantage plan to make a huge commission.