Testimony for the Record
Barbara B. Kennelly, President and CEO
National Committee to Preserve Social Security and Medicare

United States Senate Committee on Finance

Hearing on "Selling to Seniors: The Need for Accountability and Oversight of Marketing and Sales by Medicare Private Plans"

February 7, 2008

Mr. Chairman and Members of the Committee:

I am Barbara Kennelly, President and Chief Executive Officer of the National Committee to Preserve Social Security and Medicare, and I appreciate the opportunity to submit this statement for the record. With millions of members and supporters across America , the National Committee is a grassroots advocacy and education organization devoted to preserving and promoting the financial security and health of maturing Americans.

Mr. Chairman, earlier this week the President released his Fiscal Year 2009 Budget which proposes severe cuts to Medicare, totaling $178 billion over the next five years, $556 billion over the next 10 years, and more than $10 trillion over the next 75 years. These massive cuts are funded by increasing beneficiary cost-sharing and slashing reimbursement rates to providers who serve beneficiaries in traditional Medicare. We are concerned that cuts of this magnitude will undermine the strength of traditional Medicare and negatively impact the health outcomes of beneficiaries by limiting their access to care.

While the President's budget places traditional Medicare on the chopping block, it continues to fund substantial subsidies to private Medicare Advantage plans. These private health plans were first allowed to participate in Medicare because policymakers believed they could provide better services at a lower cost than traditional Medicare. In fact, because it was anticipated private plans would be so efficient, the government initially paid them five percent less for each beneficiary they enrolled than it would have cost to cover that same beneficiary in traditional Medicare.

Medicare now pays private plans significantly more than it would cost to cover the same beneficiaries through traditional fee-for-service Medicare. Today the government pays an average of 13 percent more to cover a beneficiary enrolled in a private Medicare Advantage plan than it would cost to cover that same beneficiary under traditional Medicare. In simple dollar terms, Medicare pays about $1,000 more a year to cover a beneficiary in a private plan than it would cost to provide care to that same beneficiary under traditional Medicare.

All beneficiaries, whether they enroll in a private plan or not, subsidize payments to private companies by paying higher Part B premiums. Today, these premiums are almost $50 per year higher per couple than they would be absent the subsidies to private plans. This number will continue to grow exponentially in future years. These increases are in addition to the record-setting increases in Part B premiums beneficiaries have already experienced – and which are expected to continue - as a result of overall increases in the cost of health care.

In addition to adding costs for individual beneficiaries, subsidies to Medicare Advantage plans result in higher costs to the federal government. Medicare's actuaries estimate that eliminating these subsidies would add two years of solvency to Medicare's hospital insurance trust fund. According to the Congressional Budget Office (CBO), paying private plans at the same rate as traditional Medicare would save $54 billion over the next five years and $149 billion over the next ten years.

For all of these reasons, I support the Medicare Payment Advisory Commission's (MedPAC) recommendation that payment policy should be built on a foundation of financial neutrality between payments in the traditional fee-for-service program and payments to private plans. We should be using taxpayer dollars to promote quality in Medicare, instead of bestowing unwarranted subsidies on inefficient private plans that serve a fraction of Medicare beneficiaries.

Today's hearing focuses on the marketing abuses that exist in the Medicare Advantage program. Medicare Advantage subsidies are driving unscrupulous agents and private plans to use aggressive sales tactics and misrepresentations to sell their products to beneficiaries. A recent survey of state insurance departments found that 39 of 43 states have received complaints about misrepresentations and inappropriate marketing practices of Medicare Advantage plans. In most cases, these practices led to Medicare beneficiaries enrolling in a private plan without adequate understanding of the plan or their ability to stay in traditional Medicare. The inflated payments to private plans allow them to offer exceedingly large commissions to agents who enroll beneficiaries into Medicare Advantage plans, regardless of whether the plan meets their needs. To receive their commissions, some insurance agents have engaged in fraudulent activities including: forging signatures on enrollment documents; mass enrollments and door-to-door sales at senior centers, nursing homes, or assisted living facilities; and enrolling beneficiaries with dementia into inappropriate plans.

Mr. Chairman, one of our National Committee members has witnessed countless examples of marketing abuse in the Medicare Advantage program. Marion Seymour is a senior citizen living in Syracuse , New York . Ms. Seymour is a licensed insurance agent who has sold life and health insurance policies for nearly fifty years. On a personal level, Ms. Seymour receives numerous telephone calls on a weekly basis from insurance agents selling Medicare Advantage plans. Oftentimes, the insurance agents will identify themselves as "working for Medicare" or "contracting with Medicare due to government backlogs". According to Ms. Seymour, some of the agents are very reluctant to identify the name of the insurance company providing the policy. Many of the agents she spoke with could not answer basic questions about the benefit package of the Medicare Advantage plan. She has found some of these agents will promote coverage for prescription glasses or gym memberships, but cannot answer questions about coverage for chemotherapy. In addition to the telephone calls, Ms. Seymour also receives weekly direct mailings containing invitations to informational get-togethers. She attended a get-together at one of the area's finest restaurants where the Medicare Advantage plan paid for dinner for every attendee.

Since Ms. Seymour is a licensed insurance agent, she continually gets offers from many different companies to sell Medicare Advantage plans. Ms. Seymour does not accept these offers because she believes the plans provide inferior benefits and she is opposed to the subsidized payments they receive. Based on her calculations, Ms. Seymour believes she could make at least three times her current commission selling Medicare Advantage products instead of the supplemental policies she sells to Medicare beneficiaries. She has been offered commissions ranging from $250 to $600 up front per sale of a Medicare Advantage plan.

As a supplemental insurance agent, Ms. Seymour encounters many seniors who enrolled in a Medicare Advantage plan under the belief that they were enrolling in a supplemental policy to traditional Medicare. In some instances, the beneficiaries called the insurance company to be placed in a supplemental policy only later to find out they were enrolled in a Medicare Advantage plan. In other instances, the agents misrepresented the Medicare Advantage plan as a supplement to traditional Medicare. Ms. Seymour is aware of adult children enrolling their parents in a Medicare Advantage plan because the agent misrepresented the plan as a supplement to traditional Medicare. Some of Ms. Seymour's most heart-breaking examples of marketing abuse have occurred when Medicare Advantage agents went to senior housing facilities and adult day care facilities to enroll vulnerable beneficiaries who did not understand the ramifications of their actions.

Unfortunately, the kind of fraudulent marketing practices that Ms. Seymour is witnessing in New York are occurring throughout our country. I do not believe that Congress will be able to eliminate marketing abuse in the Medicare Advantage program until it removes the excessive subsidies these plans receive. As long as private plans are overpaid, they will be tempted to use that money to offer agents exceedingly large commissions and to engage in unethical and illegal sales tactics. However, until private plans operate on a level playing field with traditional Medicare, I encourage Congress to increase the oversight and regulation of these plans. I support Sen. Kohl's legislation - the Accountability and Transparency in Medicare Marketing Act of 2007 (S. 1883) - which would request the National Association of Insurance Commissioners to develop standardized marketing requirements for Medicare Advantage organizations and prescription drug plans.

Mr. Chairman, thank you for holding this hearing today. As you know, the vast majority of Medicare beneficiaries remain in the traditional program. In a time of budgetary challenges, we cannot continue to reward private plans with taxpayer and beneficiary-funded subsidies. I look forward to working with you and other members of this committee to restrain unwarranted spending in the Medicare Advantage program and to ensure that traditional Medicare is preserved for generations to come.