Los Angeles Office
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Centers for Medicare & Medicaid Services
Department of Health and Human Services
P.O. Box 8016
Baltimore, MD 21244–8016
Re: File Code CMS–4138-IFC2
73 Federal Register 67406 (November 14, 2008)
Submitted electronically: http://www.regulations.gov
To Whom It May Concern:
California Health Advocates (CHA) submits the following comments to the above-referenced proposed rules setting forth new limits on compensation that Part C and Part D plans can pay agents or brokers for enrollment of Medicare beneficiaries. CHA is non-profit organization dedicated to Medicare beneficiary education and advocacy. We appreciate the opportunity to provide these comments.
Through our work with the State Health Insurance Assistance Program (SHIP) in California, known as the Health Insurance Counseling & Advocacy Program (HICAP) in our state, we have seen the consequences for older adults and people with disabilities when they are enrolled in Medicare Advantage (MA) or prescription drug plans (PDPs) that do not meet their health care needs. Among the most common consequences of such inappropriate enrollments:
- Individuals can no longer receive care from long-standing primary care doctors or specialists, because these providers are not in the plan’s network or do not accept the plan.
- Individuals must interrupt a course of treatment, such as chemotherapy or home health care, because the provider is not in the plan’s network or does not accept the plan.
- Individuals face interruptions in drug therapy because their medicines are not on the plan’s formulary or are subject to utilization management restrictions.
- Individuals face cost-sharing for medical services or prescription drugs that is substantially higher than they paid previously.
- Individuals find that, after 12 months in a Medicare Advantage plan, they have lost guaranteed issue rights for a Medigap supplement and face higher premiums because of their age or medical condition.
- Individuals lose access to supplemental coverage sponsored by a former employer after enrolling in an MA plan.
In our experience, beneficiaries often face these adverse consequences because the independent agents and employed plan representatives did not properly explain the outcome of enrollment in a MA plan (aggressive marketing of stand alone drug plans is much less common). Typically, marketing representatives will highlight one benefit of the plan — e.g., a debit card for over-the-counter drugs and medical supplies or a limited dental benefit — but neglect to explain how enrollment may impact access to physicians or medicines. Plan representatives generally emphasize the premium savings under MA plans but do not adequately explain beneficiaries’ liability for cost-sharing for medical services. Enrollees are almost never told that the benefits offered one year can change radically in the next or that they have only limited rights in returning to coverage under a Medigap supplement. Besides incomplete and self-serving explanations of the consequences of MA enrollment, beneficiaries are too often subject to bullying, deception and outright fraud.
It is because of the widespread reports of abusive marketing tactics that Congress in the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) directed CMS to strengthen its oversight and regulation of Medicare Advantage marketing practices and to establish guidelines to “ensure that the use of compensation creates incentives for agents and brokers to enroll individuals in the Medicare Advantage plan that is intended to best meet their health care needs.” In an effort to follow Congress’ directive, CMS set out a rule on agent commissions that has two principal components.
First, Medicare Advantage plans must establish a compensation structure that pays agents for enrollees who are new to the Medicare Advantage program a first year commission that is exactly double the renewal commission that is paid each of the subsequent five years. Agents are also paid this lower renewal rate for enrollees who are switched from one Medicare Advantage plan to another. This structure is designed to dissuade agents from “churning” — switching enrollees from one Medicare Advantage plan to another solely for the purpose of earning a commission.
Second, the initial rate must be based either on: 1) the Medicare Advantage plan’s initial commission rate it paid in 2006 adjusted by a factor reflecting the increase in Medicare Advantage payments since 2006; or 2) prevailing commission rates for the plan type in the market in 2006 and 2007 trended forward by the same factor. This structure appears designed to have all MA commissions fall within a particular range but allow plans flexibility to establish their commission rates and to vary those rates based on geographic markets and product types (HMO, PPO, PFFS, MA v. MA-PD etc.).
Unfortunately, the compensation structures promulgated by CMS in the interim final rule do not establish the incentives that Congress intended. In fact, the compensation structures outlined by CMS allow, and may even require, MA plan sponsors to create incentives for agents to push enrollment in Medicare Advantage plans that are contrary to the interests of Medicare beneficiaries and to the financial health of the program.
Current incentives encourage unsuitable MA enrollments.
By focusing on churning, CMS addresses just one aspect of the marketing problems witnessed over the last few years — the one that was a concern of MA plan sponsors who were losing enrollees to competitors. While churning has been a problem, in our experience the most serious and widespread marketing problems concern enrollees who are switched from Original Medicare — with retiree or private Medigap coverage or with Medicaid as a secondary payer – to an MA plan. The current commission structure, by paying twice the commission for enrolling beneficiaries new to MA, encourages agents to focus their marketing activities on beneficiaries enrolled in Original Medicare. It is precisely these beneficiaries — those who stand to lose supplemental coverage from a former employer, who may have all Medicare cost-sharing and additional benefits paid by Medicaid, or who are accustomed to the wide provider access, protection against catastrophic expenses and predictable monthly expenses of a supplemental plan — for whom a Medicare Advantage plan is often unsuitable.
Although this commission structure mirrors the structure for Medigap commissions, the underlying differences between Medigap and MA benefits mean that the incentives no longer align with beneficiaries’ interests. Medigap plans are standardized and guaranteed renewable, and the benefits don’t change from year to year. There is no need to annually evaluate coverage each year, and the commission structure encourages retention. On the other hand, MA benefits, including provider networks, formulary coverage, hospital copayments and out-of-pocket limits, do change from year to year, and beneficiaries, with or without the advice of an agent, must review their coverage and potentially switch to a more suitable plan. The current structure provides little incentive for agents to assist clients in that evaluation process.
The real money may be in pulling new clients into the MA program. The current commission structure encourages agents to focus on older adults who have recently aged in to Medicare, the healthiest, lowest cost cohort of the Medicare population. Such incentives only exacerbate the pre-existing tendency of MA plans to cherry pick the healthiest beneficiaries, leaving Original Medicare and Medigap plans with a risk pool that is increasingly comprised of the highest cost beneficiaries with the most severe and expensive conditions.
Current Incentives Encourage Marketing of Low-Value Plans
CMS’ efforts have been unsuccessful in restraining both the absolute level and the variation in commissions. Although CMS has not made MA commission rates publicly available, we have seen documents and reports showing initial commission rates as high as $550, a rate that can generate as much as $1,875 in agent income over five years for one enrollment. Commission rates of this magnitude are likely to fuel aggressive and deceptive marketing tactics and are a poor use of the excessive taxpayer subsidies paid to MA plans.
We have also seen substantial variation in commissions under the current structure, with rates varying as much as $200 — between $350 and $550 — for competing MA plans with drug coverage. Such variation between commissions paid is of particular concern as it appears to bear no relationship to the value of the benefits provided under the competing plans. Plans with no out-of-pocket limit on medical expenses, for example, appear to pay substantially higher commissions than plans with out-of-pocket limits substantially below the level recommended by CMS ($3,350). Such variation encourages agents to sell lower value plans to earn higher commissions, an incentive structure that actively discourages sale of products that “best meet” the health care needs of beneficiaries, in direct violation of Congress’ directive.
The variation in commissions also allow plan sponsors to pay higher commissions in particular counties, encouraging plan sponsors’ pre-existing practice of cherry-picking counties where MA payment benchmarks generate the highest profits. Such incentives exacerbate the drain on Medicare dollars caused by the current over payment structure for MA plans.
Conclusion and Recommendations:
Our analysis shows how the variability of commission rates, both among competing plans and alternative product types and among different categories of prospective enrollees, create incentives that work against selection of the most appropriate MA plan or PDP for an individual’s health care needs. To the extent that independent agents and brokers provide valuable advice in selecting the most suitable drug and health coverage for people with Medicare, the objectivity of such counseling is best assured when agents’ financial incentives to target particular beneficiaries or to push particular plans or product types is minimized. The argument put forward by CMS — that larger commissions compensate for the additional time required to educate beneficiaries who are new to the MA program or to explain the ramifications of both MA and PDP enrollment – is specious. There is no evidence that paying higher commissions actually results in agents providing more thorough explanation of the consequences of enrollment, or that beneficiaries are better served and enrolled in the most suitable product. Indeed, volume-based incentives by their very nature encourage agents to maximize the number of enrollments, rather than the quality of the service they provide.
Recommendation #1: CMS should put forward regulations that minimize or eliminate variation in commissions among plan sponsors and among product types.
It is evident, from the recent bidding war for agents among MA plan sponsors, that a nationwide ceiling, if it is low enough, will likely result in uniform commissions as plans set their commissions at the ceiling in order to avoid being “outbid” by competitors. One option would be to set a single commission ceiling for all product types — PDPs, MA-only plans and MA-PDs, which would eliminate any incentive to steer beneficiaries toward one product over another. A second option is to set three separate ceilings — one for PDPs, one for MA-only plans and one for MA-PDs. This would equalize commissions among competing sponsors, eliminating any incentive to steer enrollees toward low-value products to earn higher commissions, but allow variation in commission that is tied to value of the benefit package.
Recommendation #2: CMS should put forward regulations that eliminate incentives to target particular beneficiaries.
A flat MA commission rate that is the same for renewals, switches among MA plans, or new MA enrollments, eliminates any incentive to target dual eligibles and beneficiaries with retiree or private Medigap coverage who have been the most negatively impacted by abusive marketing. It maintains incentives for agents to assist clients in the annual review of MA and PDP coverage, which, because of the absence of standardized benefits under either program, is subject to significant yearly changes in benefits and costs.
We are well aware that CMS’ previous attempt to require MA plans to pay renewal rates for all enrollments resulted in exorbitant commissions schedules paying $500 or more per year for five years. It is incumbent on CMS, therefore, to establish hard limits on the commission rates that plans can pay. These limits should reflect an overarching policy goal to limit the share of per capita payments to MA plans that is diverted away from extra benefits or lower cost-sharing to paying for initial and continuing marketing costs. The MA market is already severely distorted by the current payment system; any effort to have commission rates reflect market forces only exacerbates these distortions.
Recommendation #3: CMS should put forward regulations that provide uniform and reasonable limits on the agent commission rates paid by MA and PDP plans.
We recognize that such limits on agent compensation may cause MA plans to adopt new strategies, such as hiring salaried agents or investing heavily in advertising, which would defeat the policy goal of limiting the share of MA subsidies that is spent on marketing. In addition, we share CMS’ concern that compensation of field marketing organizations (FMOs) can be used to undermine the incentive structures established for street-level agents. We therefore encourage CMS to use its existing authority to regulate marketing practices, as well as its authority to review plan bids, to limit the amount MA and PDP plans can spend on marketing activities, taking into account mandatory marketing activities, such as the dissemination of the Annual Notice of Change. In particular, plans that have sub-par performance on existing quality of care measures should have strict limits on the amount they can spend on marketing activities.
Recommendation #4: CMS Should Establish Overall Limits on Plan Marketing Expenditures.
Finally, we would like to note that the purported policy goal of allowing MA subsidies to be used to pay commissions — that agents will provide beneficiaries with advice and counseling on plan selection – would be better served by increasing the funding and capacity of State Health Insurance Assistance Programs (SHIPs) and community-based organizations that use volunteer and trained caseworkers to provide objective advice on plan selection and to help resolve consumer problems with all facets of the Medicare program. Enhanced funding can be secured by increasing the user fee assessed on MA plans and PDPs.
Thank you for the opportunity to submit comments on this important topic. Please feel free to contact us if you have any questions.
Training & Policy Specialist