Over 2,000 beneficiaries nationwide, 200 of who were HIV/AIDS patients were involuntarily disenrolled from their Sierra Rx Plus Part D prescription drug plan earlier this year. California Health Advocates received reports of Medicare beneficiaries in at least 10 California counties who were disenrolled for failure to pay premiums. This was the first time since Part D’s inception that California Health Advocates had encountered any such cases, many of which had several common threads. Just the sheer numbers of beneficiaries being disenrolled was cause for alarm as the consequences of involuntary disenrollment with the absence of a Special Enrollment Period right are serious. Beneficiaries in this situation would lose their prescription drug coverage for the balance of the calendar year and not be able to regain Part D coverage until January 1, 2008. This would leave affected enrollees without any coverage for their medications and no recourse. In response to a letter California Health Advocates sent to the Centers for Medicare and Medicaid Services (CMS) along with appeals from other advocates across the states and inquiries from the media, CMS ordered all involuntarily disenrolled Sierra Rx members to be reinstated to their Part D prescription plans as of late March.
Why and how were so many beneficiaries involuntarily disenrolled? What exactly happened? It turns out that for 2007 Sierra Health Services is the only major plan offering an enhanced plan that included extensive brand-name drug coverage during the ‘donut hole’ coverage gap. Yet, the Sierra Rx Plus plan lost $3 million in January – its first month of operation, and quickly announced to both the public and its investment analysts that it will no longer offer this “money losing” plan with donut hole coverage next year. In addition, Sierra’s President and Chief Executive told analysts that “Sierra Rx suffers from an extraordinary level of ‘adverse selection.’” The company accused Humana Inc. of inappropriately diverting its most expensive customers to Sierra. (See “Feds Probe Humana Over Rx Drug Patients” The Hill, 3/8/07).
About the same time, hundreds of enrollees started getting notices that their Sierra Rx coverage was being discontinued for nonpayment – although many said they had already sent their checks in. In some cases, Sierra enrollees received no bills prior to being disenrolled. In other cases, Sierra enrollees who did receive notices and/or bills promptly followed up with Sierra, but were told by customer service representatives that many billing and disenrollment letters were sent out “by mistake” and were advised “not to worry” and to “disregard” the bills. Despite these assurances, however, these enrollees were subsequently disenrolled anyway. In addition, some people who had elected for Social Security premium withhold or electronic funds transfer through their bank who had had their premiums deducted were still disenrolled. Also, many of the disenrollment cases involved former Humana enrollees.
While Sierra denies any connection between its financial losses and the wave of canceled policies, many advocates are skeptical. The coincidence of timing and who was disenrolled raises questions. Also, it appears that the disenrollments did not follow many of CMS’ rules and procedures. CMS’ PDP Enrollment and Disenrollment Guidance (updated 9/8/06) states in §40.3.1 that plans can only disenroll individuals for failure to pay premiums “after a grace period and proper notice.”
In many of the disenrollment cases Sierra did not provide timely notice of disenrollment (or if they did provide a notice/bill, plan representatives often told enrollees who called to disregard the notice). It is also apparent that the plan would not have been able to demonstrate to CMS its “reasonable efforts” to collect unpaid premium amounts, nor would it be able to show that it had notified members in writing after the expiration of the grace period but prior to submission of the transaction to CMS that it was planning to disenroll its members.
In addition, around the same time Sierra released information on their financial losses, they also began to mail to enrollees an amendment to their plan rules that shortened their grace period for premium payment from 90 days to 30 days. This amendment noted that the longer 90-day grace period referenced in their Evidence of Coverage (EOC) was a “typographical error.” Yet, their original 90-day grace period, which was the rule outlined in Sierra’s EOC on January 1st, should have still been in effect through the end of March. Instead, it appeared that Sierra Rx began applying their new shortened grace period both retroactively (in February) and before their enrollees had even been notified about the change in their plan’s contract terms. For example, for outstanding premiums due for the month of February – the month Sierra began to send out notices about the change in the grace period but before most or all enrollees were notified of this change – Sierra appeared to already be applying the 30 day period, and disenrolled individuals at the end of February as a result.
Thanks to advocates’ efforts and CMS investigation, these affected beneficiaries have all now been reinstated to their Sierra Rx plan. CMS also ordered Sierra to reinstitute the 90-day grace period for premium payment, and is further investigating Sierra’s failure to give adequate notice before dropping beneficiaries. Advocates, though, have many outstanding questions, including how and why CMS approved the change in the grace period and what corrective action, if any, Sierra will be forced to take for these actions.