New Rules for Medicare Private Health Plans

from the Medicare Rights Center Asclepios Your Weekly Medicare Consumer Advocacy Update September 18, 2008 • Volume 8, Issue 38 After four years of complaints from insurance commissioners, exposés in the press, congressional hearings and the testimony of numerous victims of fraud and deception and, finally, a legal mandate from Congress, the Bush Administration has decided it is time to regulate the marketing of Medicare private health plans. The new regulations on commissions for brokers selling Medicare private health and drug plans that take effect today are modeled after the rules that have governed the sale of Medigap supplements for over a decade. Companies must pay commissions over a minimum of six years and the commission for initial enrollments cannot be more than twice the rate for any subsequent year. The structure is designed to discourage “churning”—moving people from plan to plan to earn a commission—and to encourage agents to sell plans that are in the long-term interest of their clients. If enforced, it may work and weed out the agents who are in it just to make a quick buck. But there are fundamental differences between the Medigap market and the market for private Medicare “Advantage” plans that undermine the commission structure developed by the Centers for Medicare and Medicaid Services. An agent selling a Medigap plan knows the benefit package will be just as good two or six or ten years from today, because the benefits are standardized and mandated by law. Premiums can go up, but even these are subject to state regulation. Not so with Medicare Advantage plans. Every year the benefits can change. Premiums can go up, but so can copays for hospital stays. The annual cap on out-of-pocket spending can double, or even disappear. The incentives for the plan are to shift costs onto the sick and keep premiums low enough to attract new healthy members. What seemed at the outset like a suitable plan for someone living with multiple chronic conditions can devolve over time into a benefit package riddled with holes. There are other problems with the rules established by CMS. Insurance companies can still provide higher commissions to push low-value plans over plans that offer greater financial protection for the enrollee (and greater financial risk for the company). After all, it takes more work to cajole or trick someone into a lousy deal. The solution to these problems lies in establishing a minimum standard for the financial protection provided to enrollees in Medicare Advantage plans, standardizing the benefit packages to make facilitate comparison and providing some guarantee of year-to-year continuity in coverage. The current situation—where only the fine print of benefit packages can reveal the traps that are set for cancer patients and others with high-cost illness—is unacceptable, both to people with Medicare and to the honest brokers trying to find the best plans for their clients. CMS took a step today toward choking off the cash flow to predatory agents. It should take the next step and weed out unscrupulous plans.