Center for Medicare Advocacy

Advancing Access to Medicare and Healthcare

Court Strikes Down Key Medicare Marketing Regulations

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A federal judge in Texas dealt a significant blow to efforts to reform Medicare Advantage and Part D marketing misconduct, vacating key provisions of a rule designed to align agent and broker compensation with beneficiary health needs. The August 18, 2025 decision by Judge Reed O’Connor in the consolidated cases Americans for Beneficiary Choice v. HHS and Council for Medicare Choice v. HHS represents a major setback for Medicare beneficiary protections.

Background: The 2024 Final Rule Under Challenge

As detailed in the Center for Medicare Advocacy’s March 2025 Issue Brief, the Centers for Medicare and Medicaid Services (CMS) issued a Final Rule in April 2024 in response to increasing beneficiary complaints and widespread marketing misconduct documented by the Senate Finance Committee.

The practices that triggered the rule included agents and brokers receiving “golf parties, trips, and extra cash” in exchange for enrollments, which had been framed as allowable “administrative” add-ons. CMS also documented inflated payments for agent training and testing, excessive payments for health risk assessments tied to particular plans, and the provision of agent leads and other incentives based on enrolling beneficiaries into specific plans regardless of their health care needs. Beneficiaries said they were encouraged or pressured to join MA plans that turned out not to be what they expected or what had been explained to them.

The rule targeted three key areas:

  1. “Fixed Fee” – A $100 cap on administrative payments from insurers to third-party marketing organizations (TPMOs) and treating such payments as “compensation” subject to regulatory limits. TPMOs include agents, brokers, and field marketing organizations (FMOs). FMOs provide administrative and operational support to agents and brokers, such as marketing and technology infrastructure.
  2. Contract-Terms Restrictions – Prohibitions on contract provisions that could incentivize agents or brokers to steer beneficiaries toward particular plans regardless of health needs.
  3. Consent Requirements – Mandating beneficiary consent before sharing personal data between third-party marketing organizations.

Judge O’Connor had already stayed the Fixed Fee and Contract-Terms Restrictions in July 2024, allowing only the Consent Requirements to take effect pending the outcome of litigation.

Fixed Fee Struck Down on Two Grounds

The court ruled that CMS exceeded its statutory authority under 42 U.S.C. § 1395w-21(j)(2)(D), which mandates that the Secretary of Health and Human Services establish “guidelines” to “ensure that the use of compensation creates incentives for agents and brokers to enroll individuals in the Medicare Advantage plan that is intended to best meet their health care needs.” (42 U.S.C. § 1395w-104(1)(2) applies the same language to Part D prescription drug plans.) This statutory language was enacted specifically to address the inherent conflict between agent financial incentives and beneficiary health care needs.

CMS argued that Congress deliberately used the broad term “use” to capture both the amount of compensation and its practical effects on agent behavior. The agency contended that when administrative payments varied significantly by plan, this created exactly the kind of problematic incentive structure the statute was designed to prevent. CMS maintained that its authority to regulate compensation necessarily included the power to prevent circumvention of existing caps through administrative payments.

The government also emphasized that Congress did not require CMS to wait for proof of actual harm to beneficiaries, but instead mandated proactive action to ensure agents never had incentives to harm beneficiaries in the first place. CMS pointed to the Supreme Court’s recent Loper Bright decision as supporting the principle that when “Congress delegates discretionary authority to an agency,” courts should ensure agencies act within statutory boundaries while respecting that discretion.

The court, however, adopted a narrow reading of CMS’s authority:

1. No Rate-Setting Authority. Judge O’Connor found that Congress authorized CMS to ensure that “the use of compensation” creates incentives for appropriate plan recommendations, but did not delegate rate-setting authority. The court distinguished this language from other statutory provisions where Congress explicitly granted agencies power to “establish separate rates of payment” or set fees “based on the lesser of” specific amounts.

The court interpreted regulating the “use of compensation” as governing “how agents and brokers put compensation into action,” not setting the specific rate of compensation itself.

2. Administrative Payments Are Not “Compensation.” The court also rejected CMS’s attempt to include administrative payments as “compensation.” CMS emphasized that the statutory purpose of ensuring that compensation structures align with beneficiary health needs rather than agent financial gain supports a functional rather than formalistic interpretation. Judge O’Connor rejected this reasoning, finding that:

  • The plain meaning of “compensation” is “payment or remuneration for a service.”
  • Administrative payments are “reimbursements for overhead and other hard costs,” not payment for enrollment services.
  • CMS’s previous regulations stated that administrative payments were “not considered compensation.”

The court’s reasoning disregards CMS’s documented understanding of how compensation is being manipulated. The government demonstrated that what were ostensibly “administrative” payments were functioning as compensation supplements that varied by plan and created steering incentives—exactly what the statute aimed to prevent. The court’s formalistic distinction between “compensation” and “administrative payments” also ignores economic reality. When FMOs structure payments so that agents receive substantially more for enrolling beneficiaries in certain plans, the practical effect on agent behavior is identical, regardless of how the payment is labeled. The court’s interpretation risks rendering the statutory mandate nearly toothless. If Congress intended to ensure that “compensation creates incentives” for appropriate plan recommendations, but CMS cannot address obvious workarounds that achieve the same problematic incentive effects, the statutory purpose is easily circumvented.

Contract-Terms Restrictions Also Vacated

The court found that the Contract-Terms Restrictions similarly exceeded CMS’s authority because they 1. regulate the same administrative payments improperly classified as “compensation,” and 2. also regulate contract terms that “have nothing to do with compensation,” such as renewal terms and enrollment rate requirements. “Indeed,” Judge O’Connor wrote, the Restrictions regulate “virtually any contract provision that could be construed as ‘inhibit[ing] an agent or broker’s ability to objectively assess and recommend which plan best fits the health care needs of a beneficiary.’”

The court rejected CMS’s argument that conditioning contract renewals based on a party achieving higher rates of enrollment falls squarely within the agency’s statutory authority to limit the “use of compensation” to guard against perverse incentives. Judge O’Connor adopted the marketing industry’s argument that a contract renewal term governs whether insurance plans and FMOs “will continue to do business at all, not what carriers pay firms, agents, or brokers.”

Arbitrary and Capricious Findings

Beyond the statutory authority issues, the court also found the vacated provisions “arbitrary and capricious” under the Administrative Procedure Act, incorporating reasoning from its July 2024 preliminary injunction order. It claimed that the agency had provided insufficient justification for the $100 fixed fee amount, inadequate consideration of industry reliance interests, and had not sufficiently responded to public comments.

Consent Requirements Upheld

In contrast to the compensation-related provisions, the court upheld the Consent Requirements, finding that CMS adequately addressed concerns about potential conflicts with HIPAA and acted within its authority to protect beneficiaries from harmful data-sharing practices.

Legal and Policy Implications

The Fixed Fee and Contract-Terms Restrictions are now permanently vacated. Problematic compensation practices and contract terms that CMS sought to prohibit (such as enrollment-based renewal terms and volume bonuses) remain permissible. Only the Consent Requirements for data sharing remain in effect.

This decision significantly constrains CMS’s ability to address marketing misconduct through regulation. The court’s narrow interpretation of the agency’s statutory authority suggests that more comprehensive reforms may require Congressional action. The ruling also comes at a time when the Trump Administration may take a different approach to Medicare marketing regulation than the Biden Administration that issued the Final Rule.

Ongoing Marketing Misconduct

This setback occurs against the backdrop of continued concerns about Medicare marketing practices detailed in CMA’s Issue Brief, including:

  • Aggressive and misleading marketing campaigns during Medicare open enrollment periods.
  • Conflicts of interest where agent and broker compensation incentivizes steering beneficiaries to particular plans regardless of health needs.
  • Targeting of vulnerable populations, including individuals who are dually eligible for Medicare and Medicaid.
  • Inadequate oversight due to fragmented state and federal jurisdiction.

The court’s decision effectively removes key regulatory tools CMS developed to address these problems, leaving beneficiaries more vulnerable to inappropriate marketing tactics.

Next Steps

The government could appeal Judge O’Connor’s decision to the Fifth Circuit Court of Appeals, though the Trump Administration’s position on defending the rule remains unclear. Any appeal would need to address the court’s statutory interpretation and findings about CMS’s authority.

Other potential methods of addressing Medicare marketing misconduct include:

  • Congressional legislation explicitly granting CMS broader authority over compensation and marketing practices.
  • Enhanced state oversight through federal legislation restoring state authority over Medicare Advantage plan marketing.
  • Alternative regulatory approaches within CMS’s authority.
  • Increased funding for unbiased counseling resources like State Health Insurance Assistance Programs (SHIPs).

For now, third-party marketing organizations can continue to operate under the previous regulatory framework, potentially leading to:

  • Higher “administrative” payments and volume-based incentives that can thwart agent-broker objectivity.
  • More complex compensation structures that may not align with beneficiary interests.
  • Continued challenges in ensuring objective plan recommendations.

Conclusion

Judge O’Connor’s decision represents a significant victory for Medicare marketing industry interests and a substantial setback for beneficiary protection efforts. By constraining CMS’s regulatory authority and vacating key compensation reforms, the ruling may hamper efforts to address the marketing misconduct that prompted the 2024 Final Rule.

The decision underscores the need for a comprehensive Medicare marketing reform that would protect beneficiaries from inappropriate sales tactics and misaligned financial incentives. Without such action, the regulatory gaps that allowed marketing misconduct to flourish may persist, putting Medicare beneficiaries at continued risk of being steered toward inappropriate health coverage options.

For more background on Medicare marketing regulation and the legal challenges to reform efforts, see:

August 28, 2025 – A. Bers