Able, baker, and charles are engaged in the marketing to and enrollment of beneficiaries into medicare health plans. mr. able is an independent agent paid directly by a health plan. ms. baker is an independent agent paid through a field marketing organization (fmo). mr. charles is an independent agent paid for his work by a third-party marketing organization (tmo). how do the cms compensation rules apply to these three agents?

The CMS compensation rules involves the rules that the compensation paid in initial year has to be more than that of the renewal years. The compensation for the renewal years should not be less than 50% of the compensation of initial year.

Further explanation:

CMS: CMS refers to the Centre for Medicare & Medicaid Services. It is the component of U.S. Department of Health and Human Services. CMS regulates many programs related to health information technology, which involves the regulation of electronic health records (EHR). CMS also works as a regulatory body for medical costs and manages the Child Health Insurance Program (CHIP).

The companies which deal in providing healthcare services use the agents or brokers for selling their Medicare plans to the Medicare beneficiaries. The brokers are initially paid in the first year of the policy and thereafter half amount in the subsequent years if they remain enrolled. The agents must have the license of the state where they are doing business. They must complete their annual training and pass the knowledge test about Medicare and health prescription drug plans.

CMS compensation rules:

Mr. Able:

• The compensation of the initial year cannot exceed 200 percent of the amount paid for renewal years in the six-year cycle.

• The initial year compensation has to be higher than the renewal compensation level.

• The compensation in the renewal year will not be less than 50% of the initial compensation, and it will be based on the fair market value of the work which has been performed.

Mr. Baker:

• The compensation of the initial year cannot exceed 200 percent of the amount paid for renewal years in the six-year cycle.

• The initial year compensation has to be higher than the renewal compensation level.

• The compensation in the renewal year will not be less than 50% of the initial compensation, and it will be based on the fair market value of the work which has been performed.

• The organizations which contract with FMOs (Field marketing organizations) or pay other similar type entities have to pay the amount on the basis of the fair market value. This amount should not exceed an amount that is commensurate with the amount that the organization paid to a third party for similar services in each of the prior two years.

Mr. Charles:

• The compensation of the initial year cannot exceed 200 percent of the amount paid for renewal years in the six-year cycle.

• The initial year compensation has to be higher than the renewal compensation level.

• The compensation in the renewal year will not be less than 50% of the initial compensation, and it will be based on the fair market value of the work which has been performed.

• The organizations which contract with FMOs (Field marketing organizations) or pay other similar type entities have to pay the amount on the basis of the fair market value. This amount should not exceed an amount that is commensurate with the amount that the organization paid to a third party for similar services in each of the prior two years.

• The compensation structure should be reported by the third party marketing organization (TMO).

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Answer details

Grade: Senior School

Subject: Taxation of individuals

Chapter: Compensation to agents

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