TESTIMONY of CALIFORNIA HEALTH ADVOCATES

NAIC Senior Issues Task Force - Medicare Private Plans Subgroup

Public Hearing on Regulation of Medicare Private Plans

September 11, 2007

Washington DC 20001

INTRODUCTION

California Health Advocates (CHA) is an independent, non-profit organization dedicated to education and advocacy efforts on behalf of Medicare beneficiaries in California. Separate and apart from the State Health Insurance Program (SHIP), we provide support, including technical assistance and training, to the network of California’s Health Insurance Counseling and Advocacy Programs (HICAPs) which offer SHIP services in California. CHA also provides statewide technical training and support to social and legal services agencies and other professionals helping Californians with questions about Medicare. Our experience with Medicare is based in large part on our close work with the HICAPs and other consumer assistance programs that are on the front line assisting Medicare beneficiaries, as well as CHA’s long-standing participation as a funded consumer representative to the NAIC.

Our written testimony begins with an overview of the landscape currently facing Medicare beneficiaries, including: the vast number of plan options and variables; the difficulty of making informed decisions; a summary of marketing misconduct witnessed since advent of Part D; and both CMS’s and the insurance industry’s response to marketing misconduct. Since CHA has commented extensively on these issues recently in other settings[1], we will focus most of our attention on suggested responses to these problems, including a proposal for greater regulatory oversight by CMS, restoration of state regulatory oversight, and strengthened consumer protections that include standardization and simplification of plans providing coverage of Medicare benefits.

I. LANDSCAPE FACING CONSUMERS

Selecting the appropriate Medicare coverage for an individual’s particular circumstances has become immensely complicated for most Medicare beneficiaries since the enactment of the Medicare Modernization Act of 2003.[2] Whether an individual is just becoming eligible for Medicare or is currently enrolled in a Medicare product, the number of factors that must be considered to choose appropriate coverage has exploded with the establishment and growth of the Medicare Advantage plans, with and without the Part D prescription drug benefit, and freestanding Part D prescription drug plans. Mistakenly enrolling in the wrong plan can result in the loss of employer sponsored retirement plans that coordinate with Medicare, a loss of Medicare supplemental insurance (and the right to get it back), and/or being locked into a plan for the remainder of the calendar year with more expensive cost sharing, a restricted network of providers who will accept the plan, or benefits that do not match an individual’s needs.

The 2006 Medicare Annual Election Period (AEP) presented Medicare beneficiaries with a tsunami of product choices. Each of these choices involved several different types of products, each with complex benefit variations, premium differences, and cost sharing requirements. Beneficiaries in Los Angeles County, for instance, had more than 106 plan options to consider including stand alone drug plans, HMOs, regional and local PPOs, health plans with and without Part D benefits, Private Fee for Service plans, Special Needs Plans, and a Medical Savings Account plan.

Too much choice can negatively impact consumer decision-making. Nobel Prize winning economist Herbert Simon noted that "a wealth of information creates a poverty of attention." His work showed that most consumers can manage only a very limited amount of information before they reach information overload.[3] Medicare Advantage plan options create an algebraic puzzle that requires consumers to know and understand impossible amounts of complex information to make an appropriate choice of health care benefits. An individual’s out of pocket costs can vary enormously between plans in unfamiliar ways. For instance, one plan might charge an upfront deductible for a hospital stay, an unlimited per day coinsurance in another, or a daily coinsurance for a limited number of days in a third. These variations can be confusing and often hide the potential for out of pocket costs, making it almost impossible for consumers to compare one method of cost sharing with another, or with the cost sharing of Original Medicare.

In addition, some plans carve out certain Part B services such as chemotherapy, radiation, and certain Part B drugs applying a separate coinsurance or copayment that is not credited towards the plan’s annual out of pocket limit. Only people who currently use those services could be expected to know the financial impact of such a carve out if they understand it is part of the plan they are considering.

Side-by-side comparison of any two plans, even of the same type if plan, can be impossible for beneficiaries and their families. Attempts by consumer groups to produce comparison charts to aid consumers in selecting a plan often result in complex spreadsheets that must be explained to each consumer based on their current coverage and needs. Individual counseling sessions often require several hours to give a consumer enough information so that s/he can choose a plan that will best meet their needs.

Many Medicare beneficiaries have limited or low functional literacy and a significant portion are cognitively impaired, both of which can impact informed decision-making. Many others have limited English proficiency adding another layer of complexity to choosing appropriate coverage. For those beneficiaries who seek more information and/or help in their decision-making about their options through Medicare, roughly half of beneficiaries rely on family and friends, many of whom are usually in the same situation of having to compare plan options. The second-most used source of advice about Medicare coverage options comes from insurance agents and the private Medicare plans themselves.[4]

Information from Medicare private plans and their contracting agents is often inadequate in scope and availability, and ultimately self-serving since it is motivated by maximizing profit. Beneficiary confusion surrounding the multi-faceted and Byzantine Medicare plan options and benefits can be – and has been – easily exploited by both plans and agents, particularly when meeting with beneficiaries in person, often in their own home.

Marketing Misconduct

Consumer advocates, state insurance regulators, the media, and Congress have all found appalling abuses surrounding the sale of Medicare Advantage and Part D plans over the last year and a half, resulting in real harm to Medicare beneficiaries. This misconduct has been well documented by all of these sources, including CHA.[5]

Misconduct surrounding the sale of MA plans has ranged from outright fraudulent sales practices to misleading sales due to agent ignorance and inadequate plan oversight. Examples of abuses include: Medicare beneficiaries signed up for plans without their consent or knowledge; prospective MA enrollees told outright lies in order to entice them to join plans; high pressure in-home sales following unsolicited (and prohibited) door-to-door marketing; behavior by agents meant to intimidate consumers; mass enrollments at senior and/or disabled housing facilities following sales presentations, and agents who misunderstood the plan benefits they were selling and enrolled their clients in inappropriate plans.

Despite CMS and industry response, discussed below, marketing abuses are not subsiding. For example, California’s Department of Insurance, which earlier this year reported few consumer complaints, recently issued a warning about aggressive Medicare marketing schemes (July 25th, 2007). In addition, CHA continues to receive reports of marketing misconduct occurring in California and elsewhere.

Industry & CMS Response

Facing mounting pressure from media stories and Congressional hearings, CMS and the insurance industry took several measures in response to reports of marketing abuses. As we have outlined elsewhere, though, these steps do not go far enough to fix the entire range of marketing misconduct surrounding the sale of MA plans.[6] The inadequacies of industry and regulatory response include the following: corrective action plans already imposed on sponsoring companies have not stemmed abusive conduct surrounding the sale of their plans; CMS’ new marketing guidance for PFFS plans, while helpful, does little to monitor and prevent ongoing abusive conduct, and has not been required of other, non-PFFS MA plans; the “voluntary” PFFS suspension of sales announced in June is already over for most plans, with questionable time and effort to correct deficiencies; and plans are still not held accountable for the actions of agents selling their products. So long as the number and complexity of plans continue to grow, consumers cannot easily choose appropriate coverage, and the economic incentives to sell one plan over another continues, marketing misconduct will continue as well.

Due, in part, to the design of Medicare’s regulatory structure, CMS as the federal regulator has allowed Part D and Medicare Advantage plans to police their own marketing activity. Federal law preempts traditional state authority over plans and their actions. Allowing plans and their agents maximum flexibility to sell products has come at the expense of adequate protection for consumers, including the ability of consumers to make apples to apples comparisons between plans they are considering. We argue that CMS should not be concerned with the “balance” between the interests of insurance companies profiting from the Medicare program and people who depend on those Medicare benefits. Instead, the federal government’s role as a federal regulator should be to protect consumers by setting and enforcing standards that create a healthy marketplace with an even playing field for all commercial participants.

Medigap Regulation : Past is P rologue

The complexity and number of permutations of Medicare Advantage plans mimics the number and complexity of Medigap policies before Congress limited the number and benefit designs of those products through federal legislation.[7] The marketing abuses surrounding the sale of MA and Part D plans is also with precedent: as the NAIC recently noted in a June letter to Senators Baucus and Grassley, the “rampant abuses” in the Medigap market leading to passage of OBRA ’90 “bear a striking similarity to the problems we are seeing today with Medicare Advantage and Medicare Part D prescription drug plans.”

Prior to the Omnibus Budget Reconciliation Act of 1990 (OBRA ’90) Medigap policies had proliferated in number, each with different riders, benefit variations, deductibles, and cost sharing requirements making it nearly impossible for consumers to compare one policy with another. As a veteran of the policy debate surrounding Medigap standardization noted at the time, consumers faced many challenges in the pre-standardized Medigap market: “Polices are purposely incomprehensible in their language and construction. They defy side-by-side comparison, and even singly are impossible for consumers to understand.”[8]

The same factors that existed in the Medigap marketplace before OBRA ‘90 exist today in Part D and Medicare Advantage plans; consumers cannot compare benefits and costs and therefore must depend on what agents and plans tell them to choose appropriate coverage. In hindsight, the variations in pre-standard Medicare supplement policies pale by comparison. In addition, unlike Medigap plans, Medicare Advantage plans can change their benefits – and participation in Medicare – annually, giving Medicare beneficiaries far less stability than they enjoy through Medigap coverage and disrupting their continuity of care.

Many of the current Medicare Advantage and Part D marketing abuses result from an unfettered market in which agents and companies are able to put their own economic interests first. Insurance companies and CMS – the agency tasked to regulate them – have placed the blame for misconduct squarely on the shoulders of “rouge” agents, acting without authority from the plans whose products they are selling. Congress heard the same refrain during hearings in the late 1980’s on Medigap abuses until a district attorney in Santa Cruz, California brought a civil case against an insurance agency for those practices and provided Congressional investigators with exhibits from the case which included vivid examples of systemic marketing misconduct in the Medigap marketplace.

In the Medigap context, after hearing numerous complaints that consumers were unable to make informed decisions about their health care coverage in a market with too many complex choices, Congress acted to establish mandatory federal benefit standards, consumer protections, and loss ratios requirements to ensure that consumers received fair value for the products they purchased. During the last 15 years consumers have benefited enormously from the simplicity of choosing a Medigap plan, and many have asked why other insurance purchases can’t be similarly simplified. Below, we offer both broad and specific recommendations concerning the Medicare Advantage and Part D programs aimed towards providing consumers with greater protection.

II. RECOMMENDATIONS for STRENGTHENING CONSUMER PROTECTIONS

We are convinced that much of the marketing abuse prevalent in the Medicare Advantage marketplace stems from several factors, including: the flow of money – both paid to Medicare Advantage sponsors by the Medicare program, and to agents selling these plans through commissions; the inability of consumers to compare plans and make informed choices on their own; and the preemption of traditional state authority over products sold in their state. Below, we make a number of recommendations to address marketing abuses in the Medicare Advantage marketplace. These recommendations range from broad suggestions that would require fundamental changes to the Medicare program, to more specific recommendations that NAIC, on behalf of state regulators, and CMS, as the federal regulator, can implement.

1) Apply the standardization and simplification requirements of the NAIC Medigap Model Act and Regulation to all Medicare Advantage and Part D plans

We strongly endorse NAIC’s request to Congress to consider the current regulation of Medigap insurance as a regulatory model for Medicare Advantage and Part D plans. As noted in a recent letter drafted by NAIC, the “regulation of Medigap insurance provides a good model for enforcement, as states have the ability to take action against both the agents and the companies themselves.”

Standardization and simplification requirements should include:

· Loss ratio standards to limit administrative costs and ensure adequate funds for medical care;

· Guaranteed renewability requirements to ensure stability of benefits;

· Suitability requirements to ensure the right set of benefits is sold to meet individuals’ needs;

· Required disclosures that include notice of availability of SHIP counseling;

· 30 day “free look” to allow time to examine plan documents and seek counseling;

· Replacement disclosure documents and standards to ensure that people understand differences between current benefits and replacement coverage and restrictions.