Medicare’s Sherpas: Are Seniors Being Led Up the Wrong Mountain?

Established by Congress in 1997, MedPac, the Medicare Payment Advisory Commission, is a 17-member group advising the Center for Medicare and Medicaid Services on pricing of healthcare services. You can find the list of appointed members here. They recently met to discuss the role of insurance brokers in guiding beneficiaries in selecting Medicare services. 

While the process of enrolling in Medicare is relatively straightforward, the choices are daunting. For those choosing traditional, fee-for-service (FFS) Medicare, 10 standardized plans provide “Medigap” coverage to help with out-of-pocket expenses, and 14 Part D plans (PDP) assist with medication coverage. For the increasing number of individuals choosing Medicare Advantage (MA) plans, which incorporate Medigap and PDP coverage into one policy, an average of 41 plans are offered by eight different companies. To build on my metaphor, that represents many paths “up the mountain.”

Many beneficiaries, like climbers on Everest, use sherpas; in this instance, licensed insurance brokers and agents acting as intermediaries between an individual and insurers. While brokers typically represent purchasers, you and I, and agents represent insurers, both are paid for their services as intermediaries by insurance companies. The federal government separately funds a state-based group of sherpas, the State Health Insurance Assistance Program (SHIP), providing the same information and services. Typically, 30% of individuals use brokers or agents while 5% use SHIPs – most, if not all, are satisfied with the assistance. 

The Sherpas [1]

All insurers use these agents, who work independently or as part of a larger group that handles “lead generation, marketing, sales, and enrollment-related functions.” A study by the Commonwealth Fund found that while 96% of MA and Part D plans (PDP) contract with agents, agents offered only 43% of available MA plans and 64% of PDP. These services are heavily advertised online (87% of ads) compared to 7% by the government. As they go on to write, 

“The agent–plan model can limit plan choice in ways that are not obvious to beneficiaries.”

These Medicare sherpas do not receive federal funds but are paid commissions by the insurers for enrolling beneficiaries in MA, Medigap, and PDP plans. As with any business, additional incentives for marketing and meeting benchmarks, e.g., enrollments, may exist. Typical commissions are 20% for initial enrollment and 10% for renewals, with caps set by Medicare. 

One significant difference between the sherpas guiding climbers up Everest and our Medicare sherpas is the Everest sherpas have “skin in the game” – they share with the climbers the impact of their guidance decisions. The Medicare sherpas have “skin in the game,” as the amount of their commission – they are not fiduciaries, individuals obligated to act in the best interest of their clients. They are salespeople. As a result, Medicare’s sherpas have financial incentives on the climb up the Medicare decision mountain. How much?

Additionally, insurance companies can nudge brokers by not providing any commission for some plans. [2]

To be fair, there is little definitive data on to what degree Medicare’s sherpas are guiding beneficiaries towards plans that may benefit the sherpa more than the individual. CMS has looked at the problem finding,

“…many instances during which agents/brokers failed to provide enough information… [or] provided inaccurate information about plan benefits.”

But Medicare does not collect this type of information and public data from the sherpas and insurance companies is “limited.” 

With 33 million beneficiaries participating in MA plans, and on average, taxpayers pay 22% more for each enrolled MA beneficiary’s care. We are looking at $83 billion annually. That makes those commissions to insurance agents a great return on investment. [3]

We have the words of President Trump, Secretary Kennedy, and Dr. Oz speaking to us about transparency. 

“I look forward to working with Congress to put forth legislative reforms which give Americans unprecedented transparency into their health system.” 

– Response of Secretary Kennedy to Senator Grassley

“First, we should empower beneficiaries with better tools and more transparency, so that they can better manage their health and navigate the complex health care system.” 

– Dr. Mehmet Oz’s Opening Statement to the Senate Finance Committee.

“Making America healthy again will require empowering individuals with the best information possible to inform their life and healthcare choices.  By building on the historic efforts of my first term, my Administration will make more meaningful price information available to patients to support a more competitive, innovative, affordable, and higher quality healthcare system.” 

– Executive Order on Making America Healthy Again

President Biden failed to act on this problem. With billions of taxpayer dollars at stake and a system where brokers are financially incentivized to steer beneficiaries toward specific plans, we need more than blind faith that Medicare’s sherpas are leading seniors to the best coverage. Transparency should be the bare minimum—public reporting on commissions, plan availability through brokers, and stronger oversight of misleading sales tactics would be a good start. After all, if we can track every step up Everest, surely we can do the same for the financial trails brokers are blazing through the Medicare landscape. With new sheriffs in town, we wait to see if deeds follow words. 

[1] These individuals must be licensed in their state, pass an annual examination on their knowledge of FFS, MA, and PDP plans, use approved marketing materials, and have established permission to counsel the specific beneficiary. 

[2] For the 2024 Fall enrollment, Aetna stopped commissions on 24 Medicare Advantage plans, UnitedHealthcare on 106 Medicare Advantage plans, Humana on 54 Medicare Advantage plans, and Cigna and Wellcare on their prescription drug plans. 

[3] The return on investment of $1,878 in commissions on $10,000 in their gross margin per beneficiary over 5 years is overestimated but roughly 400%. For context, a 10 to 20% return on investment is considered good to excellent.  

Source: Background: Medicare Insurance Agents MedPac