Oregon Medicare Supplement Marketing and Compensation

Oregon regulations and required provisions for Medicare supplements

Oregon regulates the sale of Medicare supplement coverage more tightly than most health products, because the buyer is typically a retiree who may be approached repeatedly and may already hold coverage they have forgotten about. Two administrative rules in OAR chapter 836, division 52 carry most of that weight: one governs how the policy may be marketed, the other governs what the producer may be paid.

Standards for marketing (OAR 836-052-0175)

An issuer of Medicare supplement coverage in Oregon, acting directly or through its producers, must:

• Establish marketing procedures to assure that any comparison of policies by its producers is fair and accurate
• Establish marketing procedures to assure that excessive insurance is not sold or issued
• Display prominently by type, stamp or other appropriate means, on the first page of the policy, the notice: “Notice to Buyer: This policy may not cover all of your medical expenses”
• Inquire and otherwise make every reasonable effort to identify whether a prospective applicant or enrollee already has health insurance, and the types and amounts of any such insurance
• Establish auditable procedures for verifying compliance

That fourth duty is the one that most often decides a case. A producer who writes a Medicare supplement policy for someone who already holds one has usually failed the duty to inquire, and the sale is likely to be excessive insurance as well.

On top of everything already prohibited by Oregon’s trade practices law, three practices are specifically prohibited in Medicare supplement marketing:

• Twisting — knowingly making any misleading representation, or any incomplete or fraudulent comparison of insurance policies or insurers, for the purpose of inducing or tending to induce a person to lapse, forfeit, surrender, terminate, retain, pledge, assign, borrow on or convert any insurance policy, or to take out a policy with another insurer
• High-pressure tactics — employing any method of marketing having the effect of inducing, or tending to induce, the purchase of insurance through force, fright or threat, whether explicit or implied, or through undue pressure to purchase or to recommend the purchase of insurance
• Cold-lead advertising — making use, directly or indirectly, of any method of marketing that fails to disclose in a conspicuous manner that a purpose of the method is the solicitation of insurance, and that contact will be made by a producer or an insurance company

Violating any of these is an unfair trade practice under ORS 746.240, which puts it in the same enforcement category as the prohibited practices covered in the state regulation chapter.

Finally, the terms “Medicare Supplement,” “Medigap,” “Medicare Wrap-Around” and words of similar import may not be used unless the policy is actually issued in compliance with Oregon’s Medicare supplement rules.

Permitted compensation (OAR 836-052-0156)

Medicare supplement compensation is capped in shape rather than in amount. Oregon’s concern is the incentive to churn: if the first-year commission is very large relative to the renewal, a producer is paid to move the client to a new policy every year, which costs the client their coverage protections and gains them nothing.

The rule works by tying the first year to the second:

• First-year commission or other first-year compensation may not exceed 200 percent of the commission or compensation paid for selling or servicing the policy in the second year. This includes overrides and other sales-connected remuneration to field supervisory personnel
• Compensation in subsequent renewal years must be the same as that provided in the second year, and must be provided for a reasonable number of renewal years — not fewer than five renewal years
• Where an existing policy or certificate is replaced, an issuer may not provide, and a producer may not receive, compensation greater than the renewal compensation payable by the replacing issuer

That last provision is the anti-churning rule proper. If a producer moves a client from one Medicare supplement policy to another, the producer is paid at the renewal rate, not a fresh first-year rate — so there is no financial reason to replace a policy unless the replacement actually serves the client.

“Compensation” is read broadly. It means pecuniary or non-pecuniary remuneration of any kind relating to the sale or renewal of the policy or certificate, including but not limited to bonuses, gifts, prizes, awards and finder’s fees. A sales-contest prize is compensation for the purpose of these limits.

Violating the compensation rule is an unfair trade practice under ORS 746.240.

Lesson summary

• Oregon Medicare supplement marketing requires fair and accurate comparisons, procedures against excessive insurance, the first-page notice “Notice to Buyer: This policy may not cover all of your medical expenses”, an inquiry into existing coverage, and auditable compliance procedures (OAR 836-052-0175).
• Twisting, high-pressure tactics and cold-lead advertising are prohibited, and each is an unfair trade practice under ORS 746.240.
• First-year compensation may not exceed 200 percent of second-year compensation; renewal compensation must equal the second-year amount for at least five renewal years (OAR 836-052-0156).
• On a replacement, compensation may not exceed the replacing issuer’s renewal compensation — the rule that removes the financial incentive to churn.
• Compensation includes bonuses, gifts, prizes, awards and finder’s fees, not just commission.