State RegulationsMA specificDifficulty 2/5
An insurer structures its Medicare supplement commission schedule so that producers earn dramatically more when they replace existing Medicare supplement policies than when they make an appropriate first sale. Under 211 CMR 71.18, this compensation structure is:
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
211 CMR 71.18 governs permitted compensation for Medicare supplement sales in Massachusetts, and its core principle is that pay structures must not create incentives to sell coverage that is not appropriate for the applicant. A schedule that pays a premium reward for replacements steers producers toward churn — repeated sales the applicant does not need — and is therefore improper compensation design under the rule enforced by the Massachusetts Division of Insurance. Contractual disclosure of the rate does not legitimize it.
Why the other options are wrong
- A) Compensation for Medicare supplement sales is regulated, not a private business matter; 211 CMR 71.18 constrains how it may be structured.
- C) Disclosure of the higher replacement rate in the contract does not cure the incentive problem the rule targets.
- D) The licensure status of the producer is beside the point; the compensation design itself violates 211 CMR 71.18.
Memory hook
Paying extra to churn is itself the violation — incentives must stay appropriate.