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Medicare Blasted for Weak Oversight of Private Plans

By John Reichard, CQ HealthBeat Editor

May 16, 2007 - State insurance regulators joined Senate Aging Committee Chairman Herb Kohl, D-Wis., Wednesday in saying that Medicare officials are failing to properly oversee the marketing of private plans in Medicare, with Kohl revealing the results of a congressional investigation he said found "countless" cases of seniors being preyed upon by unscrupulous insurance agents.

But a senior Medicare official told lawmakers at Wednesday's hearing that she opposes the remedy he is seeking—giving states added authority to join the Centers for Medicare and Medicaid Services (CMS) in cracking down on abusive tactics. The private plans, collectively known as Medicare Advantage plans, are heavily funded by the federal government and so current federal authority should be maintained, said the official, Abby L. Block, director of the Center for Beneficiary Choices at CMS. "They're our contractors," she said.

But state regulators said CMS is reacting too slowly to protect seniors from sales tactics that defraud and deceive seniors into enrolling plans they don't want. The agency lacks the resources to oversee the private plans, they said, and urged that state authority be expanded beyond its current scope, which permits states to investigate and take enforcement action only against insurance agents, rather than against the plans themselves.

While lawmakers, federal and state officials and insurers may be at odds over the policy remedies to the problem of marketing abuses, there was no dispute at the hearing that too many abuses are occurring. Revelations of the scope of the problem are occurring at a delicate time for the insurance industry, when a number of congressional Democrats are trying to build the case for chopping its Medicare payments on the grounds that they are overpaid.

Kohl and the panel's ranking Republican, Gordon Smith of Oregon, made it clear that they do not oppose the Medicare Advantage program per se, but Smith warned the industry that public confidence in the private plan side of Medicare may be hanging in the balance. He told insurers to "get on top of this and get on top of it fast."

Medicare Advantage plans involve tradeoffs for seniors—lower out-of-pocket costs, extra benefits such as dental and vision coverage, and more extensive coverage of prescription drugs, for example—but enrollees are limited to seeing doctors and hospitals in the plan's networks. In addition, benefits are subject to change, plans may stop operating, and in some cases, out of pocket costs may exceed those of traditional Medicare.

Fueled by the promise of big sales commissions, insurance agents have signed up seniors without explaining the disadvantages of the plans or even that they are no longer part of the traditional Medicare program, investigators found. "Our investigation has revealed a disturbingly consistent picture, one which only seems to be growing," Kohl said. "Seniors have been removed from Medicare without their knowledge, signed onto plans they can't afford, misled regarding coverage, and told their doctors accept these plans, when in reality they don't. This is simply unacceptable."

Thirty-seven states have reported receiving complaints about marketing that led Medicare beneficiaries to enroll in a Medicare Advantage plan "without adequately understanding their choice to remain in traditional Medicare or without adequate understanding of the consequences of their decision," testified Wisconsin Insurance Commissioner Sean Dilweg.

Dilweg, who chairs a National Association of Insurance Commissioners task force on senior issues, added that insurance departments in 39 states have reported complaints about other types of misleading practices. "This includes instances where a plan or an agent provides misleading information about the provider network associated with a certain plan, or the benefits that the plan offers, or the beneficiary cost-sharing involved," he said.

"This seems to be a particular problem" with a type of Medicare Advantage plan known as private fee-for-service plans, "where seniors are being told that they can go to any provider without being told that they may only go to a provider that accepts Medicare, and also a provider that has agreed to accept the plan's payments." In 31 states, regulators have reported "cross-selling," he added, in which agents use Medicare prescription drug-only plans as a pretext to get in the door, then sell seniors other plans such as Medicare Advantage plans, annuities, and funeral policies, he said.

Kim Holland, Oklahoma's insurance commissioner, testified about a condition of "virtual lawlessness" in her state regarding Medicare Advantage marketing. "Unlicensed agents are setting up shop in pharmacies, Wal-Marts, and nursing home lobbies to prey upon seniors' confusion over their medical coverage," she said. Holland said "we have pushed the boundaries to respond to our citizens in need because CMS has not done so—leaving many of our aged and vulnerable to those whose interests are strictly their own."

After recently visiting with CMS officials about problems in her state, Holland said she was left with the impression that "they are more concerned with protecting the [Medicare Advantage] program than protecting the people" enrolled.

The driving force behind the deceptive marketing is the big commissions sales agents can make on Medicare Advantage, said Albert Sochor, vice president of an Oklahoma-based insurer called Old Surety Life Insurance that sells competing Medigap coverage. "First year commissions run as high as $700 per enrollee," he said. "Agents have made hundreds of thousands of dollars in a very short time."

Dilweg urged that states be given authority oversee Medicare Advantage plans as they do Medigap plans. Doing so would allow states to hold companies "responsible for the acts of their agents as they currently are for all other insurance products," he said. "Under the Medigap model, consumers will be able to go directly to their state insurance departments to resolve problems rather than having to call CMS, who seems to have neither the manpower nor the expertise to deal with many of these types of complaints."

Block said CMS wants to work closely with states to share information on abusive practices without changing the current oversight structure. She also said the agency plans to soon propose two regulations that would speed the ability of CMS to impose penalties on plans with marketing violations. In addition, she said that private fee-for-service plans next year will be required to include clear language in the information they give enrollees stating that they only can see providers who accept the payment conditions imposed by the plans.

Kohl said he was pleased by a new set of practices that the lobby group America's Health Insurance Plans has said its members are adopting to strengthen the training of insurance agents to prevent marketing abuses. "This is a good start, but it's only a start," he said. "If more hearings are necessary to hold feet to the fire, we will hold them," he said.

Senate Finance Committee Chairman Max Baucus, D-Mont., issued a statement late Wednesday saying he'll work with his colleagues on the panel "to enact measures that protect seniors against slimy sales tactics." Baucus noted that he introduced legislation in the 109th Congress that would have required the Department of Health and Human Services to adopt marketing standards developed by state insurance commissioners through the National Association of Insurance Commissioners. The measure also would have permitted states to enforce those standards, he said.

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