Seniors allegedly steered into HMOs

Health insurers entrusted with administering the government's Medicare drug benefit may be using that access and high-pressure sales tactics to push seniors into HMOs, broader health plans that can bring six times the revenue, critics say.

Allegations that an insurer paid higher commissions to sales agents who convince seniors seeking a basic drug benefit to sign up for "Medicare Advantage" plans have escalated into an investigation by the Office of the Inspector General at the U.S. Department of Health and Human Services, which oversees Medicare.

An influential Democratic member of Congress, Rep. Pete Stark of California, pushed for the investigation, saying such sales practices violate the Medicare marketing guidelines established last year. Meanwhile, the Washington-based HMO lobby says it has stepped up efforts to make sure agents who contract with its health plans are complying with marketing regulations.

"Beneficiaries are already overwhelmed trying to navigate the new law," said Stark, ranking minority member of a House health subcommittee, in a recent letter to officials who administer Medicare for the Bush administration. "They should not be subject to bait-and-switch tactics or other misleading marketing ploys once they have made a decision to enroll in the plan."

Stark's office said the most aggressive pitches are made via the telephone, during which confused seniors are being lured into the Advantage plans when they call to sign up for a drug-only prescription drug plan. Other seniors say they were put in the health maintenance organizations when they signed up for a drug-only plan.

Millions in program

In all, nearly 5.3 million seniors have enrolled or taken steps to sign up for the Medicare drug benefit through a private company. It's unclear how many had problems or believe they were moved into an HMO.

More than 500,000 have signed up for Medicare Advantage plans, which include other managed-care plans with broader coverage, like a preferred provider organization, during that period, according to the federal Centers for Medicare & Medicaid Services.

Millions more could be making such phone calls, or other contact, in the open-enrollment period that ends in mid-May. In all, about 25 million are covered by various health plans subsidized in some way by the Medicare program.

Seniors have myriad choices to get the prescription drug coverage that went into effect Jan. 1. Among the options are HMOs that offer coverage for drugs, physician services and other perks, additional coverage that may require serious trade-offs for some seniors.

While Advantage plans can provide a richer drug benefit, plus other extras, such HMO-style plans also can restrict a senior subscriber's choice of doctors.

It's unclear whether deductibles or out-of-pocket expenses for a Medicare Advantage plan would cost more than drug-only coverage because the numerous plans vary widely in their premiums and coverage options.

The allegations of fraudulent marketing practices come amid other launch problems in which a computer claims-processing glitch in early January caused thousands of seniors to experience delays in getting signed up and, in some cases, the ability to get their prescriptions.

Investigating complaints

In response to Stark's complaints, the inspector general of the U.S. Department of Health and Human Services, Daniel Levinson, said his office will be working with the Centers for Medicare & Medicaid Services to "monitor and resolve this situation." In a Feb. 8 letter to Stark, Levinson said the office would look into "any beneficiary complaints about scenarios in which their wishes regarding participation in any plan were not followed."

A spokesman for Levinson confirmed the inquiry but would not elaborate.

The focus of the investigation is Louisville-based Humana Inc., one of the largest health insurance companies in the country, which Stark claimed has been offering higher commissions for selling HMOs.

Stark's office said Humana's marketing of higher commissions has been documented. Stark specifically cited a report this month in Business Week that said the company is paying sales reps "more than double the commission" if they sign seniors up to HMO-style plans compared with what salespeople would earn for signing seniors up for plans with only drug coverage.

Communications between Stark's office and the inspector general have named Humana, but the investigation is industrywide, a spokesman for the congressman said.

For its part, Humana says the company and its marketing of Medicare drug plans are lawful and comply with government guidelines. It says it is upfront with customers about whether they are joining an HMO or not.

Percentage of premium

Tom Noland, Humana vice president of corporate communications, said the company pays commissions to licensed agents and brokers based on a percentage of the premium, and it does not provide a higher percentage for a sales agent selling one plan over another.

Humana said its commission structure is in compliance with Medicare's marketing rules for all Advantage plans, which include HMOs, PPOs and private fee-for-service plans, Noland said. Furthermore, he said, Humana said it tells customers about the differences between drug-only plans and HMOs and other Advantage plans.

"In each case, we explain fully the structure and benefits of the plan," Noland said.

Meanwhile, the health insurance lobby, America's Health Insurance Plans, said its member companies have reached out to "brokers and agents to ensure compliance with the marketing and compensation guidelines set forth in the regulations," spokesman Mohit Ghose said.

The Centers for Medicare & Medicaid Services said it would not comment on any specific complaints about health plan marketing.

Stark and federal officials say there are financial penalties and repercussions as serious as being barred from participation in the program. Stark, though, admits it is unlikely plans would be fined or kicked out of the program.

Big money to be made

Much is at stake for health insurance companies vying for potentially billions of dollars in revenue. The federal government plans to spend more than $700 billion during the next 10 years to provide drug coverage under Medicare as part of a landmark bill signed by President Bush in December 2003.

For health insurance companies, selling a senior a Medicare Advantage plan can mean several times the revenue per senior than a typical drug plan. In the Chicago area, for example, the Medicare program pays HMO-style plans between $700 and $800 per senior per month. By comparison, the government pays $110 monthly to standard drug-only plans for each senior enrolled in the plan, according to government statistics.

Humana may have more at stake than other large health insurance companies. A report last week by investment bank SG Cowen & Co. said Humana generates about 50 percent of its total corporate earnings from Medicare Advantage compared with 25 percent or less for other large health insurers listed.

But Humana officials said its sales of drug-only prescription plans have far outpaced its sales of Advantage plans. As of Feb. 1, Humana had about 1.7 million drug-only plan members compared with "slightly more than 700,000 Medicare Advantage members," Noland said.

The inspector general's office would not comment on how long its examination would take or when its findings would be reported.