A federal district court in Texas has stayed a Department of Health and Human Services’ (HHS’) Centers for Medicare and Medicaid Services (CMS) rule that sets a fixed administrative fee and consequently prevents payment to health insurance agents and brokers for advice recommending certain managed care plans. In Am. For Beneficiary Choice v. HHS and Council for Medicare Choice v. HHS, the court found that the plaintiffs demonstrated a substantial likelihood that they would prevail on the merits. The merits include plaintiffs’ claims that the rule would “upend the regulatory status quo, dramatically limiting administrative fees that Congress did not intend” for CMS to regulate.

The CMS rule, issued this past April, allows for only a fixed fee to cover a managed care plan’s administrative expenses, and thus prevents payments to insurance agents/brokers for advising individuals to choose specific health insurance plans. The Texas court ruled that the CMS rule’s restriction on fees is “arbitrary and capricious,” and that CMS “never substantiated its decision to raise the fixed fee by $100 to account for administrative payments.”

The court wrote, “Accordingly, CMS cannot simply ignore…important aspect(s) of the problem such as the costs of overhead, marketing, data security and other administrative costs that CMS failed to consider and quantify when developing the Fixed Fee. Because 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.”

Prospects: The Texas Court promised to expedite a decision on the merits of the case. In the meantime, the rule is suspended, pending the final ruling.

NAIFA Staff Contact: Michael Hedge – Senior Director – Government Relations at jmhedge@naifa.org.