Periodically we get asked by consumers how much we earn selling Medicare plans – what is our commission? Before we answer that, we’d like to take a moment to explore why the compensation system is set up the way it is within insurance, more specifically in the Medicare niche. Hopefully after reading this short article, you’ll not only understand the reasons things are the way they are, but why people should be grateful our system is built on a commission-based system.
Commission = Capitalism
With multi-decade inflationary highs, many Americans are beginning to be reflexively dismissive towards tipping or its derivative, commissions, thinking that it makes more problems than it solves by needlessly complicating things. But look across the pond to Europe, and you’ll see tipping in restaurants is derided, if not shunned outright. They look at it from a pride standpoint – having to pay something extra is demeaning, even lowly. Over here in the good ole US of A, we’ve traditionally taken a more capitalist viewpoint on paying extra for a service – it gets us better service while rewarding a hard work ethic (something sorely lacking in this country at the moment)!
Ask anyone who visits Europe or even Australia, and you’ll hear about slow, sometimes insulting service. That’s because there’s no incentive to provide better service. That person is going to get the same compensation no matter what, so many think, “why try harder?”
Here in America, it’s the strongest and most dedicated workers that thrive and become successful. The harder you work, the more you get compensated. The hardest workers who provide the best service draw in the most customers, which is the definition of meritocracy. That’s why commissions are built into the American economy – whether it’s a fee, a tip, a bonus, or profit margin built into a product or service, it rewards those who provide the most value.
Pros and Cons of Commissions
Before we get into specific commission rates for Medicare, let’s quickly understand the major risk of a commission-based system. It can create sales bias. Companies that aren’t necessarily the best fit for a client may get more customers if they pay agents more in commission to sell that plan. Fortunately, for Medicare Advantage and Prescription Drug Plans, the commission is the same across all plans and companies. When it comes to Medicare Supplements, the commission structure is somewhat different.
But just because there may be bias, that isn’t a reason to shun the system altogether and throw the baby out with the bath water. Without commission, there’d be no motivation for agents to become brokers and contract with as many companies to offer as many options to seniors as possible.
More options means lower prices and more benefits, because not all plans take your doctors or even your prescription drugs at the same prices. More options means getting your cake and eating it too because you’re not the one paying the commission – the insurance company is.
In fact, according to federal law, you’ll pay the same for your insurance, whether you:
- Go through a captive insurance agent who only represents one company, so what they have is what they have and what you get is what they’ve got.
- Call up an insurance company’s 800 number directly to enroll yourself.
- Go through an independent insurance broker who can, at no cost to you, compare all the MAJOR Medicare companies in your area to find you the right plan at the right price.
Since the commission is already built into the price of every insurance plan, wouldn’t you rather get extra service from an independent broker to help you make the most informed Medicare decision?
Different Rates for Medicare Plans
Seniors have two options to cover the 20% of Medicare expenses that the government doesn’t pay. You can either:
- Get a Medicare Supplement plan that pays all or a portion of that 20%, along with a separate Prescription Drug Plan.
- Get a Medicare Advantage plan that has prescription drug coverage embedded, in addition to other benefits not offered by a Supplement like:
- Dental
- Vision
- Hearing
- Over the Counter (OTC)
A Medicare Supplement plan combined with a Part D Prescription Drug plan will cost more upfront with a monthly premium that ranges from $100 to $250 or more, but with little to no out-of-pocket costs when you use the plan (not counting medications).
A Medicare Advantage plan usually costs $0 per month but may have deductibles, copays, and coinsurance up to a maximum annual out-of-pocket amount (MOOP) that can range from $3,000 to $8,600 or more, depending on whether you stay in network or go out of network.
There’s no such thing as a free lunch in this world – so you’ll either pay more on the front end or the back end. The only question that matters to us is what is better for the client? If the client has a smaller budget and wants some extra benefits – than an Advantage plan may be better for them providing they understand it’s limitations. If the client has the extra budget and appreciates the freedom a Supplement can provide and the extra benefits aren’t worth that trade – then maybe a Supplement is more appropriate.
Ohio Medicare Supplement Commission Rate
The average insurance agent can expect to be compensated 20% of the monthly premium of a client’s Medicare Supplement plan as a commission. If the senior is turning 65 and chooses a Plan N with a premium of $86 a month, that’s $17.20 a month in commissions or about $206 for the year. Usually, agents get advanced 75% of that upfront with charged interest, so they’re really getting about $155 after selling a Plan N Medicare Supplement.
If it’s a Plan F Medicare Supplement (which is not offered to those who turned 65 after 2020) and the senior is paying $250 a month, the commission would be $50 a month, or $600 for the year with 75% or $450 advanced .
These commission rates can go up to around 30% of the monthly premium for successful agents running a larger agency. Sometimes, insurance companies will even offer a bonus commission per number of apps – or a special (taxable) trip destination for agents who sell more than others in a given year.
Ohio Part D Prescription Drug Plan Commission Rate
Prescription Drug Plan commissions are regulated by the Centers for Medicare and Medicaid Services (CMS) at a fixed amount that’s updated every year for inflation – the same as a Medicare Advantage plan. The Part D commission rate for an agent is $50 per enrollment, regardless of plan or company. If it’s a first-time enrollment into a Part D plan, that rate doubles to $100.
Ohio Medicare Advantage Plan Commission Rate
As mentioned, Medicare commissions are set by CMS and are the same across companies and plans. The commission rate for enrolling a client into a Medicare Advantage plan in 2024 is $301, or $602 if it’s a first-time enrollment.
First-time enrollment commissions for a Medicare Advantage plan can pay more than a Medicare Supplement commission, but Supplement commissions can be higher especially for an older client in their late 70’s or 80’s.
Agents may also be bonused additional funds by insurance companies based on how many people they enroll – to compensate them for marketing and servicing policies.
Are the Commissions Worth It?
At first look, the commissions sound pretty good – until you realize what it takes to stay in business as an insurance agent. Insurance agents often have to pay for advertising to generate leads. The average insurance lead costs $25-$50, and it may take 5-10 leads to close one deal because not everyone is open to changing their Medicare plans (in fact only 10% of seniors change their plan any given year). That means it costs $125-$500 in leads just to earn one commission of $300 or less.
Add on to that:
- 24 hours of certification every year for selling Medicare
- 24 hours of continuing education every other year to maintain an insurance license
- the overhead costs of keeping an office with staff
- administrative requirements like keeping recordings of all calls for 10 years and having 48-hour grace periods before appointments, which are constantly forgotten and missed
It’s not surprising that 90% of insurance agents drop out after their first year. The only possible way to make it in this business is by providing exceptional service and earning referrals, which lowers the overall costs to stay in business. That’s why we don’t recommend plans to our clients based on the commissions we earn, but rather, based on what’s best for each clients’ medical needs, prescriptions, doctors, and budgets.
This problem is compounded by the fact that 80% of insurance agents are Baby Boomers who are retiring also. This means there’s fewer agents able to handle an influx of seniors who need help navigating their Medicare options. This also means fewer options for seniors who will just end up going with the Medicare company with the flashiest advertising – which ultimately means higher costs for seniors and losing out on newer benefits.
This is why having a commission-based Medicare system is even more important – without it, you get captive agents giving an incomplete picture of your Medicare options, and with it, you get a system that rewards those who provide great service advice at no additional cost to the client. The agents who don’t provide good service don’t make money, which means consumers aren’t burdened by agencies that won’t go the extra mile for them.
If you’re looking for an independent insurance broker who can give you an unbiased review of your options, simply click HERE or the button below to get started.
