How Medicare Agent Commissions Work for Medicare Advantage, Part D, and Medigap Insurance

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The Medicare open enrollment period is October 15 through December 7, with coverage changes taking effect on January 1 for the following year. During open enrollment, Medicare beneficiaries can make changes to their Part D coverage or Medigap insurance to better meet their current needs, save money, or – better yet – both.

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A surprising 70% of Medicare beneficiaries do not compare plans during open enrollment. This means that millions of people could be missing out on opportunities to get coverage better suited to their needs. A simple annual revision to verify the new plans available for the upcoming year could result in saving money and/or getting coverage better suited to one’s needs for that specific year. 

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It’s no wonder people feel overwhelmed at the choices: the average Medicare beneficiary had 43 plans to choose from in 2023. To get help and guidance, many Medicare beneficiaries turn to Medicare agents to help them compare and purchase plans.

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What is a Medicare Agent?

A Medicare agent, also known as a Medicare broker, is a licensed professional who has been authorized by the State in which they do business to help Medicare beneficiaries compare coverage options and sell Medicare Advantage, Medicare Part D, or Medigap plans. 

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Medicare agents are paid by insurance providers who offer Medicare plans. The insurance providers contract with Medicare agents and agencies to find and enroll beneficiaries, and they compensate the agents by paying commissions on the plans they sell.

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A Medicare agent may represent and earn commissions from multiple Medicare insurers, but a very important consideration is that they may not represent all Medicare insurers. This means that, although they can shop multiple plans for their customers and compare plans side-by-side that are available in their customers’ area, they don’t represent all of the options available. Agents can compare plans alongside insurers they don’t contract with, but they won’t earn commissions on those plans.

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Ultimately, Medicare agents are representing both Medicare beneficiaries and Medicare insurers. However, because the insurers compensate the agents and not the beneficiaries, agents may find themselves having to choose between their own income potential and suggesting what’s truly best for their clients.

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How Medicare Agent Commissions Work for Medicare Advantage (Part C) and Medicare Part D

The Centers for Medicare and Medicaid Services (CMS) sets national commission maximums for Medicare agents and agencies each year. The commission maximums are proportionate to fair market value (FMV) and may be adjusted according to the state in which Medicare agents live based on higher costs of living and other similar factors.

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For example, CMS has set the national maximum commission in 2024 for first-time enrollment in Medicare Advantage plans at $611 per beneficiary. In Washington DC, however, the maximum commission is set at $689. For Part D coverage, the national commission maximum is $100 and applies to all states.

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Agents are paid the highest commissions for first-time enrollments and a lower commission for renewed contracts or switched contracts. The CMS maximum commission for renewed or switched contracts is often set at half the commission maximum for first-time enrollees. 

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Of course, individual insurers determine how much commission they pay to agents, which may vary by product or contract type, as long as their commissions don’t exceed the CMS maximum. This is why some agents may experience a conflict of interest at times if one or more insurers pay higher commissions than other insurers, even if those insurers don’t offer the best options for individual consumers.

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How Medicare Agent Commissions Work for Medigap Insurance

Unlike Medicare Advantage and Medicare Part D, CMS does not set a commission maximum for Medigap insurance plans, which are also known as Medicare Supplement insurance. Instead, the insurer typically pays the agent a commission that is a percentage of the annual premium for the plan sold. 

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The average percentage insurers pay to agents is a 22% commission for first-time enrollees. The commission percentage is then reduced to about 10% of the plan’s premium for renewals. Commission percentages vary by insurer, the type of Medigap plan sold, and the state in which the agent sells the plan.

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This is a really important distinction. The average premium for a Medigap plan can vary based on the lettered plan selected and zip code. But even if Plan G, one of the more expensive options, is chosen, the commission that agents receive at the initial sale could be as little as half of what they earn for Medicare Advantage plans. Although this is not the only contributing factor, it is known to be a big reason for the recent surge in Medicare Advantage plans.

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What Do Medicare Agent Commissions Mean for Medicare Beneficiaries?

Medicare agents are often an important resource for Medicare beneficiaries because they are uniquely qualified to answer questions about different Medicare plans and coverages. However, commission incentives risk the possibility that agents don’t always act in clients’ best interests. 

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Additionally, because renewal and switching commissions are low, Medicare agents may not be motivated to help clients review their plans each year for best fit. As Medicare beneficiaries’ medical circumstances change, it’s essential that they review and compare their plans annually during open enrollment. 

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And since Medicare Advantage and Part D coverage are regulated separately from Medigap insurance, it’s possible that Medicare agents may be incentivized to sell one type of plan over the other depending on which pays a higher commission in a given year without prioritizing the best fit for beneficiaries.

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Until policymakers address these potential downfalls, Medicare beneficiaries may not be able to rest assured that their Medicare agents are always providing them with the best guidance for their situation.

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How Comprehensive Financial Advisors Can Help Their Clients on Medicare

Fiduciary, fee-only comprehensive financial advisors can help fill the gap for their clients who are enrolled or will soon be enrolling in Medicare benefits. As with their financial circumstances, your clients’ medical needs may change year to year. Their health insurance and Medicare coverage should change accordingly, but many clients miss out on opportunities to save money or better align their coverage (or both).

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Although you may not be a health insurance or Medicare expert yourself, you can offer your clients a safe place to review their Medicare benefits by partnering with Caribou. We're a non-commissioned healthcare planning company that works exclusively with financial advisors and their clients to plan for current and future healthcare costs, thereby creating a holistic and accurate financial plan. We do this through our healthcare planning software, HealthPlanner, and custom HealthPlanning Analyses. To learn more, click here.

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.