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55–593—PDF 2008

S. HRG. 110–1027

SELLING TO SENIORS: THE NEED FOR

ACCOUNTABILITY AND OVERSIGHT OF

MARKETING BY MEDICARE PRIVATE PLANS

HEARINGS

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

FEBRUARY 7 AND 13, 2008

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

JOHN ENSIGN, Nevada

JOHN E. SUNUNU, New Hampshire

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

(II)

(III)

C O N T E N T S

FEBRUARY 7, 2008

OPENING STATEMENTS

Page

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee

on Finance ............................................................................................................ 1

Lincoln, Hon. Blanche L., a U.S. Senator from Arkansas .................................... 2

Grassley, Hon. Chuck, a U.S. Senator from Iowa ................................................. 10

WITNESSES

McRaith, Michael, Director of Insurance, State of Illinois, Springfield, IL ........ 4

Harper, George, Medicare Beneficiary, Mayflower, AR ........................................ 5

Hebertson, Peter, Director of Outreach, Salt Lake County Aging Services,

Salt Lake City, UT ............................................................................................... 6

O’Toole, Patrick, vice president, Medicare sales, Humana, Inc., Louisville,

KY .......................................................................................................................... 8

FEBRUARY 13, 2008

OPENING STATEMENT

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee

on Finance ............................................................................................................ 37

WITNESS

Weems, Kerry N., Acting Administrator, Centers for Medicare and Medicaid

Services, Baltimore, MD ...................................................................................... 39

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

Opening statements............................................................................................ 1, 37

Medicare Advantage sales commission chart, Humana MarketPOINT ....... 65

Advertisement for Medicare Advantage sales seminar, Humana, Inc., November 2008 .................................................................................................. 66

Grassley, Hon. Chuck:

Opening statement ........................................................................................... 10

Prepared statements......................................................................................... 67, 71

‘‘Health Insurance Agents! Medicare Advantage—Great Commissions,’’

advertisement, Craigslist, February 3, 2008 .............................................. 70

Harper, George:

Testimony .......................................................................................................... 5

Prepared statement .......................................................................................... 73

Hebertson, Peter:

Testimony .......................................................................................................... 6

Prepared statement with attachment ............................................................. 79

Lincoln, Hon. Blanche L.:

Opening statement ........................................................................................... 2

McRaith, Michael:

Testimony .......................................................................................................... 4

Prepared statement .......................................................................................... 91

Page

IV

O’Toole, Patrick:

Testimony .......................................................................................................... 8

Prepared statement with attachments ........................................................... 97

Weems, Kerry N.:

Testimony .......................................................................................................... 39

Prepared statement with attachments ........................................................... 120

COMMUNICATIONS

Medical Group Management Association (MGMA) ............................................... 131

National Committee to Preserve Social Security and Medicare (NCPSSM) ....... 134

Seymour, Marion E. ................................................................................................. 138

(1)

SELLING TO SENIORS: THE NEED FOR

ACCOUNTABILITY AND OVERSIGHT OF

MARKETING BY MEDICARE PRIVATE PLANS

(PART I)

THURSDAY, FEBRUARY 7, 2008

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 10:10 a.m., in

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus

(chairman of the committee) presiding.

Present: Senators Lincoln, Wyden, Stabenow, Grassley, and

Snowe.

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The hearing will come to order.

The book of Leviticus directed the ancient salesman to deal fairly. Leviticus commanded, ‘‘Do not falsify measures of length,

weight, or capacity. Keep an honest balance, honest weights, and

honest measures.’’ Centuries have passed, but the challenge of

maintaining honesty in sales continues.

Today we are going to hear how some insurance salespeople are

selling private health insurance for Medicare dishonestly. For example, some insurance sales agents canvass seniors’ housing complexes to talk about ‘‘Medicare benefits.’’ They gain entry into

homes because seniors think that the salespeople come from the

Medicare program. Once the salesmen get inside, some seniors

have a hard time saying no. Seniors often cannot get the salesmen

to leave until they sign something. That is usually an enrollment

form. Seniors do not realize that they have been duped until they

get a ‘‘welcome to our plan’’ packet in the mail.

Another example. In New York, one company parked a sales van

outside a senior center and herded seniors toward the van to discuss ‘‘new Medicare benefits.’’ The seniors did not understand that

they were signing up for a private plan.

Of course, there are some good companies and good agents that

want to give seniors an honest deal, but far too many insurance

salesmen are misleading seniors when they sell them private Medicare plans. The push to sell Medicare benefits by private plans has

been aggressive at best. Too often, it has been abusive or downright

fraudulent.

2

In December, MedPAC said that it found evidence of hard sell

tactics in interviews with a dozen groups of beneficiaries around

the country. MedPAC’s analyst reported ‘‘in all 12 focus groups, at

least one member mentioned horror stories about marketing

abuses.’’

Last year, the National Association of Insurance Commissioners

did a survey of States. Forty-one States responded to the survey.

In 39 out of 41 States responding, there were complaints about

misrepresentations by insurance agents or companies marketing

their Medicare products, and 22 States reported fraudulent activity, like falsifying signatures on applications.

States are preempted by statute from regulating private Medicare plans, but the problems are so egregious and widespread that

insurance commissioners convened a task force to develop stronger

rules that they will share with the administration. We hope to see

the recommendations this summer.

Congress gave the Centers for Medicare and Medicaid Services

exclusive regulatory authority over private insurers selling Medicare benefits. The rationale was that a Federal agency should regulate a Federal program with one set of rules. But the rules need

to be stringent and the rules need to be enforced, otherwise private

companies who care most about profits and earnings will find it too

easy to take advantage of the elderly and disabled people just to

make a buck. We will discuss oversight of private plans by CMS

in a separate hearing.

There are too many problems and abuses, and it is not just in

a few States, it is in most States. Ask your State Health Insurance

Assistance program and local advocates. They will give you scores

of cases where agents have pressured, fooled, or defrauded seniors

into buying their plans.

Today I hope we will hear solutions. Let us have a constructive

dialogue about the problem and ways to fix it. The Finance Committee has jurisdiction over Medicare, and we will legislate new

marketing rules if that is what is needed. We will do what we need

to do to protect and serve the people who are entitled to Medicare

benefits.

So today we will examine the sales and marketing practices of

private Medicare insurance plans. We will see how the challenge

of maintaining honesty in sales continues to this day, and we will

see if we can learn of any new ways to make sure that seniors get

a fair deal.

I would now like to welcome our witnesses. First, we will hear

from Mr. Michael McRaith, Director of Insurance for the State of

Illinois; second, Mr. George Harper of Mayflower, AR. I am sure at

the appropriate point the Senator from Arkansas would like to introduce you, Mr. Harper. In fact, this would be a good place to do

that.

OPENING STATEMENT OF HON. BLANCHE L. LINCOLN,

A U.S. SENATOR FROM ARKANSAS

Senator LINCOLN. Well, thank you, Mr. Chairman. Thank you

again for holding this very important hearing. It is important to

our health care system, and to our constituents. I am not really

happy about the reason that George Harper is here today. He is

3

here because he has been taken advantage of by an agent of this

program that we call Medicare Advantage. But I am very proud

that he is here, and I am always proud when I can share my constituents with my colleagues here in Washington to help us solve

the problems that exist out there. I know that that is why George

is here.

But it is, indeed, my pleasure to introduce him, welcome him,

and thank him for coming all the way to Washington, DC from

Mayflower, AR just to tell us his story.

The CHAIRMAN. Senator, if you could just proceed. I have to take

a telephone call. Why don’t you just go right ahead and introduce

the rest of the witnesses, and we will start with you, Mr. McRaith,

when you are finished.

Senator LINCOLN. I would be glad to. Thank you, Mr. Chairman.

It is my hope that the power of his story and the other testimony

and cases that we will hear today will help to ensure these marketing abuses do not take advantage of other seniors across the

country.

Mr. Harper is 73 years old and has been married to his wife,

Pauline, for 52 years. They have 7 children, 32 grandchildren, and

15 great-grandchildren. Mr. Harper grew up in a farming family

near Mayflower, AR, where the Harpers live today. Their children

have all settled nearby. Most live within 3 miles of them. What a

blessing. The Harpers spent several years in Kansas City, where

he worked for Ford Motor Company for 15 years before moving

back to Mayflower to be near their family.

Mr. Harper worked for several companies before retiring from

Carrier Air Conditioning. When Mr. Harper retired, he took over

the full-time care of his wife from their eldest daughter, who had

come by every day to help take care of their mother, as she requires regular dialysis treatments and is blind.

Both Mr. Harper and his daughter are trained in performing

home dialysis. Mr. Harper does all the cooking, housekeeping, and

cares for both his and Mrs. Harper’s health. What an incredible

blessing you are to her as well, Mr. Harper.

Mr. Harper, I just want to welcome you and again thank you for

your willingness to tell us your story. I think it is so powerful, and

I think it is so powerful for people in Washington to hear what it

is that we regularly hear from our constituents in our offices in

order to be able to understand why it is that we feel so passionately about doing things to correct problems that exist and move

forward.

I would also like to take a moment to thank the Arkansas SHIP

and its Director, Melissa Simpson, who is also here today with us.

You and your staff, Melissa, have offered tremendous support to

our seniors and have been very gracious in teaching us about some

of what is going on in Arkansas, and I wanted to add that special

thanks as well.

So, Mr. Harper, thank you. I am proud that you are here with

me and my colleagues today, and we appreciate your willingness to

tell your story.

Our third witness is Mr. Peter Hebertson, Director of Outreach

for Salt Lake County Aging Services in Salt Lake City, Utah. WelVerDate 11-MAY-2000 17:51 May 20, 2010 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 55593.000 TIMD PsN: TIMD
4

come. We appreciate you being here. Fourth is Mr. Patrick O’Toole,

vice president of sales and marketing for Humana.

I want to thank you all for taking the time to speak with us

today. As a reminder, just limit your oral presentation to 5 minutes, and your written statements will automatically be submitted

into the hearing record.

So, thank you all very much for being here. We will begin with

Mr. McRaith.

STATEMENT OF MICHAEL McRAITH, DIRECTOR OF

INSURANCE, STATE OF ILLINOIS, SPRINGFIELD, IL

Mr. MCRAITH. Senator Lincoln, Senator Wyden, Senator

Stabenow, thank you for inviting me to testify this morning. I am

Michael McRaith, Director of Insurance for the State of Illinois,

and I also speak today on behalf of the National Association of Insurance Commissioners.

In 2005, when introducing Medicare Part D in the Illinois wraparound program to seniors, I met with the retirement community

on the Peoria riverbank. I sat next to a single elderly woman, tiny,

spry. She whispered that her husband of nearly 50 years died just

months before, that he understood this stuff and that this most

basic presentation simply overwhelmed her.

In 2007, an agent worked the halls of a senior high-rise near Joliet and pushed a Medicare Advantage application on an elderly

woman. She signed the paperwork, telling the agent to hold the

documents until the next day so that she could verify his assertions. By the next day, the agent had already processed the application. She could no longer participate in the Illinois senior drug

program, and her long-time physician was now out of network.

Humana generates nearly three-quarters of its pre-tax profit

from Medicare Advantage plans and sold those plans in Illinois

through at least 67 unlicensed agents, even though we maintain a

24/7 online and publicly available agent database. The problem is

national. Of 36 States that replied to a recent NAIC survey, 34 reported complaints in the marketing and sales of Medicare private

plans; 21 reported complaints about cross-selling; 32 reported complaints about practices misleading beneficiaries into Medicare Advantage plans; and one-half reported that the situation has not improved within the last year.

Seniors are pushed into Medicare Advantage plans they do not

need, they cannot afford, or do not want, but States cannot protect

those seniors. Seniors, often the most vulnerable of your constituents, often alone, reliant upon fixed and limited incomes, have

fewer protections than we afford conventional private insurance

consumers.

Seniors have to fight a company alone or call an 800 number and

be put on hold for 20 or 30 minutes before CMS will recognize a

complaint. Ad hoc CMS guidelines or call letters issued after media

reports do not serve the consumer interest. The status quo is not

working. State insurance regulators have the institutional knowledge to improve the marketing practices of private Medicare plans.

Each day, we analyze the inherently local questions of provider

network adequacy, agent conduct, or accuracy of insurer marketing.

5

To be clear, State commissioners accept CMS’s authority over

Medicare’s commercial arrangements, review and approval of contracts of bids and premium rates, and, yes, the marketing and

sales materials. State commissioners do not advocate for 50 different standards or prior State approval. We do endorse the measured approach described in S. 1883, the Accountability and Transparency in Medicare Marketing Act of 2007.

The Medigap paradigm from 1990 demonstrates that the NAIC

can effectively develop national marketing and sales standards that

are balanced, but prioritize the consumer interest. We can do the

same for Medicare Advantage and prescription drug plans. These

standards could then be adopted by the Secretary of Health and

Human Services to govern private Medicare plans.

Practices like telemarketing, rebates for enrollment, bonuses for

number of submitted applications, cross-selling, cross-branding,

tying, sales in senior homes, all must have more clear guidelines

and State-based enforcement. With national standards and authority as granted by S. 1883, States can analyze and examine company behavior and impose appropriate penalties. Departments of

Insurance can assist seniors if they have been harmed.

Our protective focus must always remain on the consumer. We

can prevent problems rather than deal with the aftermath. We ask

you to promptly enhance the safeguards for vulnerable seniors in

your State, and around the Nation. The NAIC stands with this

committee, and Congress, as you consider the Accountability and

Transparency in Medicare Marketing Act of 2007. I pledge to you

NAIC’s support for the constructive process that you have continued today.

Thank you for your attention. I look forward to your questions.

The CHAIRMAN. Thank you, Mr. McRaith, very much.

[The prepared statement of Mr. McRaith appears in the appendix.]

The CHAIRMAN. Mr. Harper? I must say, that is one of the best

introductions I ever heard given to any witness, when Senator Lincoln was introducing you.

STATEMENT OF GEORGE HARPER, MEDICARE BENEFICIARY,

MAYFLOWER, AR

Mr. HARPER. Good morning to the whole panel of Senators. I say

to my Senator, Ms. Blanche, it is an honor to be here. I mean, a

great honor, because I paid my dues, I thought, in society. I had

numerous jobs, like she said. Now that we are in our golden years,

I just hope that somehow we can finish them up happily.

So I just want to say, it has been a challenge to this outsider.

When you can put so much faith in a person who comes in your

house, and try to better your condition, and all it is is false statements, misrepresentation of where they come from. This gentleman

entered into my home upon the pretense that he was from Medicare. I told him I had Medicare. At the time, he called me from my

brother’s house and I told my brother, tell him no.

But he came on anyway. By him coming by—I was wrestling

with my wife because she had been home from the hospital for just

a few days. He sat there at my table and he promised me and

showed me—well, he tried to, I will put it that way—that this polVerDate 11-MAY-2000 17:51 May 20, 2010 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 55593.000 TIMD PsN: TIMD
6

icy was something that us senior citizens were not aware of that

we could get. I kept telling him I was satisfied with what I had,

and he just kept on talking, kept on talking. I told him over and

over that I did not want anything he had to say on it. I was satisfied with what I had.

Through this conversation, he was telling me more about myself

than he wanted to know about me. That puzzled me. It irritated

me. So finally I guess he recognized it and he left. That was on a

Saturday. On Sunday, another gentleman came by. He told me,

‘‘Mr. Harper?’’ I said, ‘‘Yes.’’ He said, ‘‘Somebody from the insurance

was going to come by to see you yesterday.’’

I said, ‘‘Fine.’’ He said, ‘‘Did he sign you up?’’ I said, ‘‘No.’’ He

said, ‘‘I think you ought to look at your papers.’’ He said, ‘‘Did he

leave any papers with you?’’ I said, ‘‘Yes, he left some forms with

me.’’ He said, ‘‘I think you ought to go see them.’’ He said, ‘‘Can

I see them?’’ I said, ‘‘No, you cannot see them.’’ I was leery. I have

always been leery about letting him see them.

But anyway, he said, ‘‘You need to look at them.’’ He said, ‘‘Once

you look at them, he said, you need to call the gentleman.’’ I looked

at the form after he left. Before he departed he said, ‘‘You are

signed up.’’ I said, ‘‘No.’’ He said, ‘‘You call this gentleman.’’ Okay.

Fine. Monday morning, I call him. He told me, no, I left those

forms, and like I told you, if you did not want it—if you decide to

take it, I will fill them out and send them in, the forms.

I wrestled with this for that whole week, trying to get in touch

with him again, which I never could. He told me to call the office,

he took care of it, blah, blah, blah. Anyway, a week’s time I wrestled with this. I went from A to B, from B to A, back and forth.

And I have been trying, up until Social Security finally called me

and let me know that I was back into Medicare.

But in between times, when I went to get our prescription drugs,

that was the first name that popped up and I could not fill the prescription because the pharmacy did not know how to fill it, under

what plan. I go to the hospital. They did not know how to bill anyone, because when they keyed it in it would be the first company

to pop up. We finally got it straightened out. So finally I asked him

to send me my money, which I have never gotten.

Up to today, I am still fighting these people. I just ask this panel

today, give us a little freedom as old people, before you bury us,

give us a little joy. That is all I ask, and I hope and pray to God

that you understand where I am coming from. I cannot say everything today, but this is my closing of my conversation. Thank you

very much.

The CHAIRMAN. Thank you, Mr. Harper. It was very compelling.

[The prepared statement of Mr. Harper appears in the appendix.]

The CHAIRMAN. Next, Mr. Hebertson. Why don’t you proceed?

STATEMENT OF PETER HEBERTSON, DIRECTOR OF OUTREACH, SALT LAKE COUNTY AGING SERVICES, SALT LAKE

CITY, UT

Mr. HEBERTSON. Good morning, Chairman Baucus and distinguished members of this committee. I really appreciate this opportunity to spend a few minutes in telling you what we are seeing

on the streets in Salt Lake. Mr. Harper’s story is all too common,

7

and we get to deal with people who have these experiences every

day.

One of the programs that I have the opportunity to manage is

the State Health Insurance Information Program. This is the program—and ours is based through an Area Agency on Aging—where

we help people understand their Medicare benefits. We do that in

several ways—by providing information and assistance, we provide

screening assistance—but one of the things that is starting to really creep into our daily lives is handling complaints just like Mr.

Harper described here today. Those are taking more and more of

our time and really making it difficult for us to get to the information and assistance that we would like to get.

Nonetheless, we are very proud of what we do. Salt Lake County

has 95,000 people with Medicare, and that number grows every

year. Part of the success that we have had, and I just need to mention this, is that we have developed an Access to Benefits Coalition

where we have brought together a lot of interested stakeholders in

the Medicare issue, so we meet monthly with CMS, Social Security,

nonprofit State agencies.

Part of the other group that we have brought to that table is the

private plan insurance companies. So I work very closely with a lot

of these private plan companies, and we are all trying to impact

positive changes for seniors and people with Medicare to understand their benefits.

I think, fortunately, Salt Lake has worked with the private

plans, and I do not know that we have seen a lot of the systemic

abuses that we see throughout the country, but we still see a lot

of issues. As a matter of fact, we are getting daily reports of seniors

who are being misled about the Medicare Advantage programs.

So let me tell you some of the kinds of issues that we are seeing.

These are really complaints that we have gathered from seniors.

One of the first things is just the quantity of mail that people receive. All right. This is not illegal, but what it tends to do is it becomes very confusing to people. So we see them come in with

stacks of 2 to 4 inches of mail, and they are confused.

What we have experienced is, people who are confused tend to

make poor decisions. We have had seniors who will throw away

very important correspondences, particularly from the Social Security Extra Help Program, because they got that confused with the

mailing, and because of that they have lost their coverage of the

Social Security low-income subsidy, and that has been a problem.

Another problem that we see a lot is the aggressive telemarketing from the agents. These are people who somehow get the

seniors’ name on a call list, and they just keep calling and calling

them. They are very aggressive in their attempts to get into the individual’s house. We had a couple, both in their late 80s, who received multiple marketing calls from an agent trying to sell

Medigap.

Finally they relented and let the person come out to the house.

Again, like Mr. Harper, it was a very similar story. It was a lot of

pressure on them. They ended up making a change. Then when

they realized that that change was not benefitting them, they

called us. We got the problem fixed, but this particular agent still

continues to aggressively market to these people, even though they

8

had told him no after he enrolled them into a plan that was not

best meeting their needs.

We have significant independent agent problems. I think a few

of those include the agents who do not fully understand the Medicare plans that they are selling. We have agents who do not understand certain types of coverage issues, what enrolling somebody

into a Medicare Advantage plan is going to cost, whether it is best

for their drug coverage or not. The SHIIPs spend a lot of time trying to fix these issues.

Currently, that is very difficult because of the amount of resources that we get. I want to be out there helping educate people,

helping them take an opportunity. We see all the choices that individuals have under this Medicare system, and if we screen them

correctly they actually can save money. The problem is, the way

the system is set up is, it is set up to market so that the people

are pressured, like Mr. Harper, where they are only seeing one of

the many options that are available to them.

We need to have a marketing system that I think upholds the

intent of Congress and has people look at all of their options. As

we talk, I think one of the issues that maybe we can talk about

in the question and answer period is, one of the fundamental problems is the way the commissions are paid to the agents. I think

that the decisions are being made based on the commission of the

agent, not necessarily what is best for the individuals.

I will be happy to answer questions as the hearing proceeds.

The CHAIRMAN. Thank you, Mr. Hebertson.

[The prepared statement of Mr. Hebertson appears in the appendix.]

The CHAIRMAN. Mr. O’Toole?

STATEMENT OF PATRICK O’TOOLE, VICE PRESIDENT,

MEDICARE SALES, HUMANA, INC., LOUISVILLE, KY

Mr. O’TOOLE. Mr. Chairman, Senator Grassley, and committee

members, I am Patrick O’Toole, vice president of Medicare sales for

Humana.

Humana has over 20 years’ experience offering Medicare beneficiaries affordable health plan coverage through a variety of plan

products. We provide health benefits and related services to over

11.5 million members.

My written testimony details the Medicare Advantage programs,

initiatives that Humana and our industry have undertaken to ensure marketing compliance, regulatory agent oversight, lessons

learned, and recommendations for necessary program improvements, including more stringent Federal standards and increased

Federal and State cooperation.

We believe that MA plans should be required to appoint agents.

Humana appoints agents. HHS should limit the total commission

compensation paid to agents to a fixed percentage of premium.

There should be level commission payments year over year for both

renewal or replacement sales.

HHS should establish a registry of agents where data on verified

sales practice violations are maintained. This protects beneficiaries

and plans. CMS should continue to work with State regulators on

increased debit exchange and enforcement actions. There should be

9

Federal standards related to cold-calling, cross-selling of non-health

related products, consumer disclosures, uniform agent training and

certification, co-branding, and more easily understood plan descriptions, to name a few. While we do not support benefits that limit

choices for seniors, we do strongly support clear and understandable benefit terms.

Humana currently employs about 2,300 agents. Seventy-five percent of our agent sales come from our employees. We also partner

with reputable sales organizations such as State Farm, USAA, and

Thrivent. Last year, we reduced the number of contacted agents by

43 percent and the number of agents used by 29 percent in order

to strengthen agent oversight and compliance outcomes.

Our agents must be licensed, appointed, certified to sell our

Medicare products, and meet all regulatory and company requirements. They are background-checked and their licensure status is

monitored monthly. All agents must participate in structured training in annual recertification programs, and their activities are

monitored monthly.

Every agent signs a code of ethics that prohibits door-to-door

marketing, cold-calling, high-pressure sales tactics, failure to fully

disclose plan benefits or rules, inappropriate enrollment in a plan

that does not meet the beneficiary’s needs, falsified application

forms, gifts or financial inducements, enrolling beneficiaries not

competent to make an enrollment decision, any misrepresentation

by agents of whom they represent, and health screening, to name

a few.

During 2007, we investigated about 1,595 MA sales allegations,

0.59 percent of our total agent-assisted sales. About 258 were confirmed, and corrective action was taken. In 2006, Humana terminated approximately 98 agents, and in 2007 terminated an additional 44. When we hear or identify issues, we take action.

Some of our marketing program improvements have included:

educational outreach and special toll-free numbers and contacts

with the State regulatory agents, SHIIPs, and beneficiary groups;

a post-sale outbound enrollment verification process to confirm the

beneficiary’s intent to enroll; expanded instructional training; expanded employee field sales management’s oversight of contracted

agents; monthly management and monitoring reports on disenrollments, cancellations, and compliance; and secret shopping

initiatives.

The MA program is governed by CMS, with State oversight for

licensure and solvency issues. Last summer, Humana and other

large plans voluntarily agreed to cease MA private fee-for-service

sales and improve sales and marketing efforts. We also provide

CMS with bi-weekly marketing reports and have regular calls.

CMS secret-shops MA plans’ call centers and sales presentations.

Two State Department of Insurance agent licensure issues arose in

2005–2006 and have been remedied system-wide.

In May 2007, our trade association board adopted a set of industry principles to protect Medicare beneficiaries and has been working with beneficiary groups and broker groups for strengthening

marketing programs that are detailed in my testimony. We in our

trade group are active participants in the NAIC’s Medicare Private

Plan Workgroup to reach consensus among State and Federal reguVerDate 11-MAY-2000 17:51 May 20, 2010 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 55593.000 TIMD PsN: TIMD
10

lators, beneficiary groups, and plans on strengthening this program.

As our recommendations indicate, we believe Federal standards

should be strengthened to protect beneficiaries. There should be no

tolerance for sales practices that do not meet the highest standards

of ethical conduct.

Finally, I encourage you to preserve the competition, choice, and

innovation that have played such a crucial role in delivering savings and value to our Nation’s Medicare beneficiaries. Our members depend on, and want to continue, receiving quality, affordable

coverage.

Thank you.

The CHAIRMAN. Thank you, Mr. O’Toole, very much.

[The prepared statement of Mr. O’Toole appears in the appendix.].

The CHAIRMAN. I would now like to turn to Senator Grassley at

this point, if you would like to make a statement.

OPENING STATEMENT OF HON. CHUCK GRASSLEY,

A U.S. SENATOR FROM IOWA

Senator GRASSLEY. Yes. I would like to make a statement. Usually when I am late, I put it in the record. But before I go to my

statement, I want to say, over a period of the years and history of

Medicare Advantage, I have considered myself a friend to Medicare

Advantage. I am still a friend of Medicare Advantage, and I want

to continue it.

It happens that I am more of a friend to Medicare Advantage

when it includes all 50 States instead of just Florida, Texas, California, et cetera. For years, that was true, except for Pottawattamie

County, out of 99 Iowa counties, which was across from Omaha.

Those 4,000 Iowans had the benefit of it, but nobody else in Iowa.

So in 2002–2003, Senator Baucus and I set out to make sure that

this was a program that was beneficial to rural America, as well

as a few States.

We wrote the provisions that are presently in the law that made

it possible to be in rural America. But we learned sometimes that,

when we think of things to do it right, we might not always get

it right. So the last hearing, this hearing, and one more hearing,

we are reviewing the things that show what is right or wrong

about Medicare Advantage.

So I hope when we are done, at least I am going to work towards

solutions to these problems in a way to make sure that we still

have Medicare Advantage in rural America, because it is a national

program and we ought to have it for everybody. Iowans have always been asking me before 2005, how come we cannot get Medicare like they have in places like Florida and Texas?

I presume Iowans want to get out of the cold, and they go to

Florida and they find out. You know, it is not right. They are getting things on Medicare in Florida that I cannot get in Iowa. So,

we have some equity and we want to keep that equity, but we also

want to make sure that we are good caretakers of the taxpayers’

money.

So with that ahead of what I am saying, Mr. Chairman, first of

all, thank you for your leadership to look at things that are not

11

quite right about this and try to correct them, and particularly as

it relates to fee-for-service. In Iowa this past December, some of my

constituents found that they had been sold Medicare Advantage

plans that their doctors did not take. I have heard from some people that ‘‘the salesman told me all the doctors took the plan.’’ That

is not right, and the agent should not have said that.

The agent may not have intended to mislead my constituents,

but they ended up in a plan that did not work for them. It made

me wonder about the agent’s training and incentives. I am hearing

that seniors, who are perfectly happy with their health coverage,

are getting a hard sell to change plans each year. I am hearing stories about agents visiting homes of elderly sick with the flu and insisting on enrolling them in private Medicare plans.

I am hearing that health plans are buying beneficiaries lunches

and dinners as part of the sales pitch. Some people feel obliged to

enroll as a result. I am hearing that seniors who ask for Medigap

coverage have ended up in a Medicare Advantage plan. They are

stunned to find out, usually about the time they receive bills for

cost-sharing that they thought Medigap covered.

Now, some of this may be the result of Medicare beneficiaries not

examining their choices carefully, and these are anecdotes that implicate only a few of many agents and plans working with Medicare

beneficiaries on their plan options. Nonetheless, it appears that

some Medicare beneficiaries were subject to abusive sales practices

just months ago. There were a number of shocking stories in 2006

about Medicare Advantage and Part D plan sales activities.

While I am a proponent of the Medicare choices, it was clear this

was an area that needed close scrutiny. As a result of these startup problems, in 2006 CMS clarified its policies. It has continued to

tighten up sales requirements for plans, and anecdotal evidence

suggests that the worst of the abuses may have ended. I commend

CMS for those steps.

But there are some areas that CMS did not address. Commissions, for example, continue to give agents the wrong incentives. I

have here an ad that was posted. Do we have that ad? All right.

I have an ad posted on Craigslist on the Internet a few days ago.

It is an ad for agents to sign up seniors to Medicare Advantage programs. It suggests that Medicare Advantage is just an add-on to

Medicare. It suggests that all Medicare Advantage plans—I have

had a chance to read that, but it was a couple of days ago. But anyway, this is what I am referring to. It suggests that all Medicare

Advantage plans are free. It says that enrolling the beneficiary is

really not a sale. They sign up and you get the commission. Mr.

Chairman, I would ask consent that that be inserted in the record.

The CHAIRMAN. Without objection.

Senator GRASSLEY. Maybe you have already done that.

The CHAIRMAN. No, not yet.

[The advertisement appears in the appendix on p. 70.]

Senator GRASSLEY. This ad tells me that something is wrong

with how the agents, and perhaps the plans, are looking at Medicare Advantage. That ad makes it clear that not everyone out there

is acting with the beneficiary’s best interests in mind. I have heard

from insurance agents that some plans’ commission structures

were providing incentives to urge seniors to switch plans each year.

12

The plans themselves have told me they wish someone would intervene to regulate commissions. Another problem is that some

agents tell beneficiaries that they are from Medicare. This is a violation of Federal regulations, but it continues to happen. Door-todoor salesmen are barred in Medicare. Cold-calling is not allowed.

An agent may visit if a beneficiary has indicated interest in meeting with an agent. You can see how a senior might agree to a meeting just to get an agent to stop calling.

CMS has tried to get a handle on abusive sales activities. Last

summer, it suspended marketing by seven private fee-for-service

plans until they instituted key reforms, such as improved agent

and broker training. Last December, CMS suspended sales and enrollment by an overly aggressive Medicare Advantage plan. The

States agree that they have authority over insurance agents, yet

they complain that they lack the authority to hold the Medicare

Advantage plans accountable when there is a pattern of abusive

sales practices. They also say that CMS lacks experience and staff

to oversee plans’ sales activities.

So a key question is whether the current CMS guidance and enforcement actions are adequate to protect beneficiaries from abusive sales tactics. While we are not hearing today from Kerry

Weems—that is going to be next week—I am glad that we have

these witnesses before us today to shed light on this. I was only

able to hear half of the witnesses because I was at the prayer

breakfast this morning, which is a once-a-year event. Thank you

very much.

The CHAIRMAN. All right. Thank you, Senator Grassley.

[The prepared statement of Senator Grassley appears in the appendix.]

The CHAIRMAN. I have a chart here, and I would just like you,

Mr. Hebertson, to comment on it. I know the print is quite small

here, but you did refer to commissions in your statement. I will try

to read it to you.

[The chart appears in the appendix on p. 65.]

The CHAIRMAN. This is Humana. As I understand it, it is the

commission structure. It is green. I do not know if that is supposed

to represent money or environment, I am not sure which. But essentially, I will explain it to you. It explains to agents that they

will receive certain bonuses, and increased bonuses depending upon

the number of applications approved. Basically, it is $1,000 for the first 25, and they will receive an additional $1,000. When you get up to the hundreds, the agent receives an additional $1,500. When it gets up to 125, the agent gets

a bonus of $2,500. At 150, it is a bonus of $3,000. If you get to 150,

you get an additional $10,000 bonus.

I might say, I do not know if it is totally coincidental, Humana received about $4 billion, I think it is, either profits or sales in

Medicare this last year. It is a big company, and they have a lot

of bonuses here.

So could you comment, please, on the degree to which this kind

of compensation structure is part of the problem?

Mr. HEBERTSON. Yes. I think when we were discussing this back

in Utah, I got together with our coalition, which includes the Medicare Advantage plans, and they are the ones who will admit to me

13

that the way the commission structure is paid to people is the problem, because the agents are looking at that chart saying, how can

I maximize what I am making, versus taking a look at the consumer and saying, what is going to be in that individual’s best interests? So, because the incentive is to get the commission, we have

agents—and not all agents—who are out there looking at that incentive versus looking at the incentives that all of these choices

offer which could be a real benefit to the consumer.

The CHAIRMAN. All right. I might ask Mr. O’Toole, is this same

bonus structure applied to commercial sales as opposed to individual?

Mr. O’TOOLE. They have bonus programs, but I am not familiar

with what occurs on the commercial end.

The CHAIRMAN. You do not know whether or not they are the

same.

Mr. McRaith, could you comment on the structure and the degree

to which you think it is part of the problem?

Mr. MCRAITH. Mr. Chairman, I think you have identified the economic dynamic perfectly. We have a very large company that is

shareholder-owned, has responsibilities and duties to its shareholders. Then we have the individuals who are on the street selling

the policies. They have their own economic incentives. The chart,

the board that you posted, is an example of how companies are

incentivizing agents to generate volume. It is not necessarily quality.

There was one company that offered 3-night vacations in Las

Vegas for its agents based on the number of applications they submitted. So, there is a real incentive to generate volumes regardless

of quality in many cases, unfortunately. We have seen seniors suffer as a result of that incentive package.

The CHAIRMAN. What do you think we should do? There is this

bifurcation between CMS regulation and State Insurance Commissioners and the others. You said you feel there should be certain

national standards. If I heard you correctly, you felt that States

should have a little more authority, I guess, to look into and investigate the practices of agents. Is that correct?

Mr. MCRAITH. Well, Mr. Chairman, you did hear correctly that

we do believe that more authority at the State level is absolutely

essential. We are not looking for 50 different standards, however.

There needs to be one national, uniform standard for marketing

and sales materials that CMS can then implement as it reviews

programs submitted by the plans. However, right now we have a

gap.

We have companies pointing the fingers at agents, we have

agents pointing the finger at companies, and somewhere in the

middle is a senior like Mr. Harper who has a complaint about a

company, and to deal with that problem he cannot go to his local

State regulator to help him work through the issue with the company. He has to deal with CMS, and sometimes that process, in

and of itself, is difficult.

The CHAIRMAN. So what additional authority do you think a

State Insurance Commissioner should properly have to basically

remedy the problems that Mr. Harper and so many other people

experience?

14

Mr. MCRAITH. Mr. Chairman, right now, when we see a pattern

of complaints relating to one company, we are able to go into that

company, conduct a thorough examination from top down, understanding what is the source of the problem. We can then take or

require the company to take corrective action. In the event they do

not take corrective action or the action they take is too small, then

we can impose appropriate penalties and fines. That in itself is a

deterrent that generates more appropriate conduct by the companies.

The CHAIRMAN. So how would you apply that here? That is, let

us take whatever company it is that Mr. Harper was having difficulty with. I mean, CMS has its rules and standards for the companies.

Mr. MCRAITH. Right.

The CHAIRMAN. But then there is a certain practice here that is

clearly abusive and fraudulent. So ideally then, what authority

would you want to have to look into problems like Mr. Harper is

having?

Mr. MCRAITH. We would want the authority to go into the company, not just look at the agent, the individual licensee that is selling the policy to Mr. Harper. We want to know, what is the company behind that sale? What is the commission or incentive structure that the company is using to incentivize the agent? We want

to know, what are the sales materials the company has produced,

and are they accurate for that region? To have one national standard allows for regional differences, or fails to account for regional

differences that we know exist.

As Senator Grassley pointed out, differences between suburban

and rural areas—for example, the adequacy of provider networks

when a consumer like Mr. Harper buys a Medicare Advantage

plan. Is he buying into a network that includes his long-term physician? It is the local regulators who understand that dynamic better than the Federal regulators.

The CHAIRMAN. I appreciate that. Thank you very much.

Senator Grassley?

Senator GRASSLEY. Senator Baucus asked questions along the

lines of what I was going to ask, so I am moving on to something

else.

To Mr. O’Toole, in your testimony you suggested that level commissions each year at a fixed percentage of premium would increase agents’ incentives to make sure that beneficiaries are sold

a plan that meets their needs.

Will you explain why you think this will help change agent behavior and improve service to beneficiaries? Then I would ask Mr.

McRaith to follow up with whether or not he agrees with what Mr.

O’Toole says about fixed and level commissions.

Mr. O’TOOLE. Yes, Senator. In line with our recommendations,

fixed, level commissions based on a percentage of premium, year

over year, on new sales as well as renewals, we think that that recommendation alleviates exactly that type of problem. It creates a

level playing field. All carriers are in line and on a level playing

field. We think that, in and of itself, will solve the issue.

Mr. MCRAITH. Senator, I think it is an excellent question that

the Medigap regulations currently govern to some extent and that

15

the State is allowed to regulate, or that the States actually regulated under Senator Wyden’s leadership back in 1990. But the fixed

and level commission percentages deal with one specific issue, and

that is the issue of churning. Is an agent going to be incentivized

to place a consumer in a different policy in each different year to

generate higher commissions? The fixed and level percentage commissions will address that issue, but not the much wider-spread

issues.

The CHAIRMAN. Is that because of short enrollment periods?

Mr. MCRAITH. That is part of it, yes. That is part, Mr. Chairman.

The CHAIRMAN. Thank you.

Senator GRASSLEY. I would follow up with you in a little bit different direction, the fact that many States require health insurers

to notify them as to which agents the insurer has appointed to sell

its products. CMS does not require what we call appointment, as

it is called for the Medicare private plans. So for you, Mr. McRaith,

would it help the States to oversee agent behavior if the plans had

to meet State appointment laws? Would it have the same impact

if CMS collected the names of appointed agents and shared them

with the States?

Mr. MCRAITH. Senator, not every State requires appointment of

agents. For example, in Illinois we do not require that agents selling Humana products, for example, be appointed by that company.

I think there are six or seven States like Illinois that do not require appointments. The critical issue is, will the company, as the

principal in that relationship, be held responsible for the conduct

of its agents? That is the critical issue. That is why requiring appointment is essential. But more importantly, the companies, the

insurance companies, should be held accountable for the conduct of

the agents they have engaged to sell their products.

Senator GRASSLEY. In your State, do you have a better approach?

Because you said you do not use the appointment process.

Mr. MCRAITH. We require that all agents be licensed. The issue

that we had with Humana was they had used 67 unlicensed agents

to sell their plans. However, if we find a licensed agent that is acting not in compliance with our consumer protection laws, then the

company can be held responsible for the actions of that agent.

Senator GRASSLEY. I would ask Mr. Hebertson and Mr. O’Toole

to listen to this question. Last week, we heard that beneficiaries

often do not understand how their private fee-for-service plans

work. Mr. Hebertson, you and your colleagues often attend Medicare private plan presentations. Do the agents, in your experience,

accurately describe how the plans work, detail the cost-sharing requirements, and point out that beneficiaries need to check to make

sure that their doctors will accept the plan?

Then Mr. O’Toole, following him, as the biggest seller of private

fee-for-service plans, how does Humana make it clear to beneficiaries the limitations of that product?

Could you start out, Mr. Hebertson?

Mr. HEBERTSON. Sure. I am going to say not always do the

agents know exactly what they are selling or take the time to go

into detail to make sure the person understands what they are getting in these seminars. It happens pretty much yearly. This year

we went into a seminar where they were doing exactly that, where

16

they were representing themselves as from Medicare. In the comparison, when they were comparing the particular fee-for-service

plan, they were comparing it to Medicare, traditional Medicare,

without factoring in that the person might have a Medicare supplement. So the cost savings looked very high to the senior, not realizing that if they factored in what the Medicare supplement plan

would be, that it would be more level.

Then we have had experiences where we have asked them questions about a particular plan and they were not able to provide accurate answers. So, we do, indeed, see these types of sales presentations where the folks who are selling the private fee-for-service

plans really do not understand it. That tends to be more of a problem when new plans are moving into the market and we do not

have a close relationship with them. So, we work very diligently to

maintain those relationships so if we do see these kinds of issues

we can provide feedback to the plans or to the insurance commissioners, as needed.

Mr. O’TOOLE. Yes, Senator. First of all, Humana’s position is, we

do a lot of outreach to reach out to organizations such as Mr.

Hebertson’s to improve our relationship with the local regulatory

entities. But agents who are selling the Humana product go

through a comprehensive training program. We go into a lot of details regarding the different products that we offer, and we stringently follow the marketing materials that have been approved by

CMS.

We have made a recommendation, and we support our trade association’s recommendation, of improved model language to make

some of the materials a little bit more consumer-friendly, if you

will. That potentially could be some of the issue with beneficiaries

not fully understanding things.

The CHAIRMAN. Thank you, Senator Grassley.

Next, Senator Wyden.

Senator WYDEN. Thank you, Mr. Chairman.

It seems to me, listening to your very powerful presentation, Mr.

Harper, that the country is right back in the situation where we

were prior to the enactment of the bipartisan Medigap law. Once

again, you have vulnerable seniors, once again, there is big money,

and once again there are these rip-off sales practices.

I have said it is pretty much like Dodge City before the marshals

showed up. What is really needed is corrective action. The Federal

Government has been dragging its feet. The Centers for Medicare

and Medicaid Services have not demonstrated that they are willing

to deal with the problem. I, with the leadership of Chairman Kohl

and Senator Dorgan, as you have indicated, Commissioner

McRaith, we have introduced S. 1883 because we would like to

clean house and get this situation corrected.

Now, what the industry says is, they are taking all of these various steps to deal with the problem, and that we do not need this

legislation. I want to make sure that the record is clear that these

problems are still ongoing as of today. In other words, it is not correct to say that everything has been settled in terms of the State

suits and the abuses have been cleaned up, but you and the NAIC

believe that these problems are continuing today. Is that correct?

Mr. MCRAITH. Absolutely correct, Senator. Yes.

17

Senator WYDEN. And second, in the legislation Senator Kohl and

I and others have worked on—and we want to work with Senators

Baucus and Grassley—the heart of it is to cut the shackles off the

States so that the States can go out there, consistent with this uniform kind of model that you are discussing, and make sure that we

are actually doing good oversight at the State level with respect to

both companies and marketing practices. Is that not the key to

really getting this done right, cutting the shackles off the States?

Mr. MCRAITH. I completely agree, Senator. In the summer, as

has been mentioned, there was a moratorium. Seven of the plans

adopted a moratorium on private fee-for-service. That was after a

series of media reports. At the State level, we have dealt with these

issues for decades. We understand them. So, up front there needs

to be appropriate proscriptions on sales and marketing materials

that Federal CMS can then implement nationally.

But on the back end, there needs to be a regulator who is able

to respond to an individual complaint and go and look at a company or respond to a pattern of complaints, as almost every State

has received, and look at a company and really scour that company

and its business practices to understand and evaluate, is it complying with the national uniform standards.

Senator WYDEN. Mr. O’Toole, I think what is going on, particularly in the area of these abuses where you have had to pay these

very large fines, I think this is giving the private sector in health

care a bad name. Now, Mr. McRaith has indicated that the problems are ongoing. They have not been corrected as of today. Will

you support the legislation now, S. 1883, that he has spoken favorably of, championed by Senator Kohl, the chairman of the Aging

Committee? Will you commit to supporting that bill this morning?

Mr. O’TOOLE. Senator, it is our position that CMS and the States

should work more collaboratively to oversee the——

Senator WYDEN. No. The question is, will you support the bill

this morning? Mr. McRaith says that the problems are ongoing. It

is a yes or no answer.

Mr. O’TOOLE. In that case, I would like to answer in writing.

Senator WYDEN. All right. I appreciate that, and I appreciate

your candor.

Many then say, what is wrong with the concept that we are advocating with the leadership of Chairman Kohl to have this uniform approach—they do not have 50 standards—with respect to

marketing, with respect to authority over the companies, in giving

the States the ability, as we did with Medigap, to play a key role

in enforcement? What is wrong with that? We think you have a

valid point with respect to not having 50 State standards. So Mr.

McRaith and our consumer coalition says one standard, but also we

give the States the authority. What is conceptually wrong with

that?

Mr. O’TOOLE. Senator, I believe the situation exists where CMS,

working in collaboration with the States, improving their memorandum of understanding, can achieve the same outcome.

Senator WYDEN. Mr. McRaith has told us the problem has not

been corrected. I will look forward to your answer for the record,

and I hope that your company, given the huge fines that have been

levied on you all for these marketing abuses, given what Mr.

18

McRaith has said in terms of the problem ongoing, I hope you will

support the legislation.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator Wyden.

Now, Senator Lincoln?

Senator LINCOLN. Thank you, Mr. Chairman. We are pleased to

be having this hearing today. As Senator Wyden has mentioned, we

heard about it in the Aging Committee, working with Senator Kohl.

We heard about it in the press, and hundreds of articles, as has

been mentioned. But most importantly, we are hearing from our

constituents. I think the important point here today is that this is

not an isolated issue. This is a systemic problem, and it is ongoing.

In 2007, I know my office was dealing with more than 100 calls—

hundreds of calls—in terms of this issue.

All of the other members of our delegation are doing the same.

Our SHIIP office is dealing with it, the Area Agency on Aging. We

are having a lot of these problems, and it is not going away and

has not been cured. We need more accountability and oversight in

marketing and sales of Medicare private plans. Mr. Harper’s story

is not unique. We could bring many, many who are constituents in

here. We are hearing about the same abuses that are happening

over and over from State to State.

In my State, a State with only about 10 percent of our seniors

enrolled in MA, and of those mostly in private fee-for-service plans,

we are hearing mostly that seniors are confused by their plans. But

without a doubt, with these marketing practices, just the other day

we had a woman who had an agent come in dressed in scrubs with

a stethoscope around her neck to sell this woman a plan. The elderly woman let her in, I am sure, because she assumed that the

woman was coming there to give her care. But these are practices

that are inexcusable, and we have to do more.

I know from my home situation, my mother called the other day.

She had a call similar to Mr. Harper’s, someone who identified

themselves as being from Medicare. She visited with the gentleman

on the phone. He was very nice. As she began to give information,

she became alarmed, then she became frightened, and then she got

mad and hung up on the guy and called me. But the problem

being, these are practices that are unacceptable. Again, I want to

thank Mr. Harper for being here, for his testimony.

And since you have been a caregiver, Mr. Harper, just as my

mother was for 10 years with my dad as an Alzheimer’s patient,

you have been caring for your wife. I know you have had many responsibilities, and would imagine that you have learned probably

the hard way, just as we did in many instances, to be inquisitive

and to get all the facts from people who are questioning you and

going there.

I would just like for you to tell the committee and others how you

felt, how you feel once you find out that, despite all of your precautions and all of your questions and all of your opportunities of

saying, no, no thank you, no thank you, you are still defrauded.

Mr. HARPER. Well, thank you again. The key part of my problem

was, after I talked to the gentleman as kindly as possible, because

like I said, I was in turmoil with my wife just coming home and

everything, I did not give him authority to enroll me in anything.

19

I did not find out that I was enrolled even after talking to the other

gentleman the following week until I went the next month when

I got my check.

When I saw this other deduction out of my check, it tore me up

so, it took me about 3 or 4 days before I could clear my head and

find out what this was about. I went and called Medicaid after I

called these people, and they wanted to know, why did I sign from

Medicaid over into this plan. I wrestled with Medicaid that I had

not. Like I said, when I went to the hospital for my wife’s treatment, this company flashes up. I couldn’t even fill out the papers

because they didn’t know where or who to bill, blah, blah, blah.

It has been like this. It went on for about 2 months. The next

month we got our check, and there was another deduction for this

company. We did not sign anything. This man left just like he came

in. I treated him properly. He left. Like I said, I didn’t know anything about this until the next month.

Senator LINCOLN. So you went to your provider.

Mr. HARPER. Right.

Senator LINCOLN. Which is the other issue that we want to make

sure we point out. Lots of times our seniors are not even finding

out what has happened to them until they seek the health care

that they need from their providers. Then all of a sudden when you

need something, it is not there.

Mr. HARPER. It does not come. Tough luck. You do not have anything, because Medicaid does not know what to do, because these

people are claiming that you belong to them. So Medicaid cannot

do anything for you until you get it straightened out. Until I talked

to this lady at you all’s office, she got me on the right track. Eventually, here I am. I thank you all, and I thank God that I had this

opportunity.

Senator LINCOLN. Well, thank you, Mr. Harper. And I think all

of us agree that that is no way to treat our seniors, so we appreciate you coming and sharing your story, without a doubt.

Mr. HARPER. Thank you.

Senator LINCOLN. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator Lincoln.

Senator Stabenow?

Senator STABENOW. Thank you. Welcome to everyone for being

here today. Mr. Harper, thank you for making the trip.

As my colleagues have indicated, this is certainly not a story that

is unique. We have had hundreds of calls in Michigan and very,

very similar situations. I would just share one of literally hundreds, a gentleman named Evan Edwards of Ruby, MI. He now

owes a debt collection agency over $800 in bills that were run up

after he was enrolled in an HMO by a saleswoman who told him

it was a special MA plan for veterans and that he was not going

to have to pay anything. There was no such plan. No such plan exists. The actual plan that she enrolled him in had all of the usual

HMO charges and so on. That is a very common call that I get.

So, Mr. O’Toole, first, I would ask, in a situation where someone

is fraudulently enrolled and they try to disenroll from a Medicare

Advantage plan, I have heard it takes CMS up to 6 months. Oftentimes the charges continue, the costs continue. What, in this kind

of a situation, would you and your company do to help someone

20

who has been fraudulently enrolled in a Medicare Advantage program against their wishes?

Mr. O’TOOLE. First of all, Senator, I would like to extend to Mr.

Harper, my heart goes out to your story. That was a horrible occurrence. To your story, Senator, I am a veteran myself. I spent an

extensive period of time in the Army. A lot of the things I learned

about leadership and doing the right thing I learned from the

Army, so certainly representing Humana, as Humana’s Medicare

sales leader, I am committed to ethical sales practices and will take

a very no-nonsense approach to making sure that people do the

right thing for the right reasons. I think a lot of our recommendations have been a step in the right direction to help improve what

transpires in our industry today.

As far as your particular question, Senator, I mean, certainly we

would work with the beneficiary to try to expedite that process. We

have to work within the framework that exists with CMS today,

but certainly we would work as the member’s advocate to try to get

them properly back to the coverage that is best suited for them and

help them through that process the best that we can.

Senator STABENOW. Would you ever refund any of the dollars

that were coming to the company through fraudulent sales practices?

Mr. O’TOOLE. I believe our position would be, yes, we would do

that.

Senator STABENOW. One of the things that is difficult for me in

all of this is to look at, obviously this is big business. There is a

lot of money made, as the chairman’s bonus chart showed, making

$10,000 in bonuses. It is good business, making a lot of money off

of this kind of health care. We certainly want businesses to be profitable. But I have a lot of questions about where we are going on

Medicare. We heard yesterday from the Secretary that people want

choices. That is what they want, they want choices.

I am wondering, Mr. Harper, in your mind, as someone who is

relying on health care for yourself and your family, what is most

important to you: having Medicare, having health care available to

your family, or is uppermost on your mind having lots of choices?

Mr. HARPER. In my opinion, Medicare is the best program once

you retire. I would rather stay with what I have. It may not be all

we need, but I am well-satisfied until it will be improved, which

it will hopefully. But all these choices, when you get my age, you

cannot think about all these choices. You have to take one at a

time and lock in. If it is providing what you need, you do not have

enough room to worry about anything else. Excuse me, but that is

just the way it is. It is kind of empty up there, not like it used to

be.

Senator STABENOW. Well, you sound pretty good.

The CHAIRMAN. You are not alone, believe me. [Laughter.]

Senator STABENOW. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you. Thank you, Senator.

Maybe someone can answer this. First of all, I would say, Mr.

Hebertson, I am very impressed in Montana with the SHIIP organization. They do a super job. I had an earlier CMS director come

to Butte, MT, basically at the beginning of the Part D benefit program. I was very impressed with the SHIIP people in Montana.

21

They are very dedicated. They work very hard and provide a real

service, and I just want to thank you for what you, and all of them,

do.

Second, maybe someone can tell me, how many different insurance plans are there? How many plans?

Mr. HEBERTSON. We have 54 different options in Salt Lake County.

The CHAIRMAN. If you have plans and variations and other

choices, how many different choices?

Mr. HEBERTSON. That is the 54.

The CHAIRMAN. Fifty-four.

Mr. HEBERTSON. Yes. Then of course you have the stand-alone

Medicare drug plans on top of that, which is another 50-plus. That

is just in Salt Lake County.

The CHAIRMAN. Right. As you know, the differential that the

Medicare Advantage plans receive is about 12, 13 percent higher

than paid under fee-for-service. The fact is, basically, Medicare Advantage plans take the rates that Medicare pays and build up, and

then either they get the additional 13-percent benefit, roughly, and

then they pay back to the provider either more or less what Medicare pays that provider.

So, several points here. Number one, taxpayers have paid for all

the work that Medicare has undergone in trying to figure out what

the reimbursement rates should be for lots of different procedures.

The plans do not do that. They have other resources. They have no

idea. They just start the base as the rates that Medicare pays and

reimburses, with all the work they have done. So basically the

plans are getting a free ride in that respect.

My bigger question is this. Maybe you could answer it, Mr.

O’Toole, or maybe Mr. McRaith, because all of you have experience

in all this. Do plans pay 13 percent more in benefits for beneficiaries since they get 13 percent greater payment from Uncle

Sam? Do they turn that back and do plans pay 13 percent more

to beneficiaries than the beneficiaries would receive under Medicare?

Mr. O’TOOLE. Senator, my understanding of this particular area

is, with the money that is provided to us by CMS, we provide the

Medicare benefit and generally a benefit that is in excess of Medicare, also, coordinate care, provide case management, disease management programs, and do that with a profit target that——

The CHAIRMAN. Can anybody quantify the degree to which there

may or may not be additional net benefits that beneficiaries receive

under plans compared with what beneficiaries receive under Medicare? American taxpayers pay the plans 13 percent more, so our

beneficiaries are getting, in fact, 13 percent more in benefits.

Mr. O’TOOLE. I believe that has been quantified, but I would prefer to respond for the record in writing on that.

The CHAIRMAN. All right.

I have to go now, but I will turn it over to Senator Lincoln and

Senator Stabenow. You two can finish up.

Senator LINCOLN. Thank you, Mr. Chairman. I think Senator

Snowe is going to re-join us.

22

The CHAIRMAN. Thank you all very much, too. This has been very

valuable testimony that all of you have given. I appreciate it very

much.

Senator LINCOLN. I was nodding my head because we have, I

think, 54 prescription drug plans in Part B in Arkansas that seniors choose from, and then we have at least 20 of the Medicare Advantage. So, it is a lot of plans out there for them to go over.

Mr. O’Toole, I think you indicated that in 2007 you reduced the

number of delegated agents selling your products by 43 percent,

and that 75 percent of Humana’s agent-assisted sales are by employee or career sales agents. But you have also said that delegated

agents are harder to control in terms of, I guess, quality, or however you want them to present themselves for your company. I do

not know.

So what is your rationale for continuing to use delegated or contractual agents? Are they needed more in certain areas? Is it something like that? What plan types do these types of agents tend to

sell, and is it mostly private fee-for-service, these delegated agents?

Mr. O’TOOLE. Right. Senator, when the MMA passed and this opportunity for choice was expanded across the country, it was the

best way to cover the footprint of opportunity that consumers had,

with local agents that were local to their community. So that is

really why we first got into the business of working with contracted

agents.

Senator LINCOLN. Do you ask how long an agent has been in that

area, a delegated agent? I mean, do you specifically look for agents

who have roots in the community?

Mr. O’TOOLE. Generally, we would contract with a managing

general agency that actually had a presence within a local community, or a State, or a place.

Senator LINCOLN. But not necessarily specifying a long-time

agent.

Mr. O’TOOLE. Not necessarily. Someone who is familiar with the

area. I believe we probably have the largest number of employed

agents within our industry, or certainly close to the largest. I

would not say, and I am not precisely sure what you were referring

to about contracted agents being more difficult to control, but certainly when you have an employed agent that works under the employment of the company with an employed supervisor, that is certainly a favorable arrangement.

Senator LINCOLN. Sure. I think that comment was made either

by you or someone else at Humana, that those delegated agents

were harder to control.

But I am just curious to know what plan types those different

delegated agents tend to sell. Are there any numbers in terms of,

are they mostly fee-for-service? Do they lean towards one plan type

or another? You have discussed a number of reforms that you have

made or plans make, and they do look like steps in the right direction, and that is a good thing.

But I would just like to ask you, how do you ensure that they

are enforced? I mean, you are the director of the marketing. You

mentioned your secret shopper program. I have heard about that

in our State as well. How does the secret shopper program catch

agents who are going into seniors’ homes? Would that be approVerDate 11-MAY-2000 17:51 May 20, 2010 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 55593.000 TIMD PsN: TIMD
23

priate for the kind of door-to-door problems that we are having in

our State?

I just wanted to know, what about the targeting of certain populations, particularly for us in Arkansas, dual eligible beneficiaries?

Is there anything in your proposal that ensures that agents will

not do this, directly targeting dual eligibles?

Mr. O’TOOLE. Senator, you threw a lot of questions out at one

time.

Senator LINCOLN. I know.

Mr. O’TOOLE. I will try to work from the beginning and go forward.

Senator LINCOLN. They should be pretty quick answers.

Mr. O’TOOLE. If you look at our recommendations, we address

cold-calling. In the broad sense, cold-calling does not necessarily

refer to a——

Senator LINCOLN. And I am assuming when you say ‘‘recommendations’’ you use these techniques in your own company, not

just suggesting them to the broader array.

Mr. O’TOOLE. Yes. It is our policy that, prior to an agent coming

to a beneficiary’s home, that they have a pre-scheduled appointment. So I think that covers a number of your questions right

there.

Senator LINCOLN. All right. And do you have anything in there

that prevents or ensures that the agents are not going to just target dual eligibles in your policies?

Mr. O’TOOLE. Not specifically. Not specifically, but some of the

comments that you have made about particular type facilities and

such——

Senator LINCOLN. Do you know if Humana has ever sponsored a

dinner for seniors?

Mr. O’TOOLE. Sponsored a dinner?

Senator LINCOLN. Yes. That is also something we have seen.

Mr. O’TOOLE. We actually do a number of informational seminars, and in some instances a meal or refreshment may be served.

Senator LINCOLN. That would certainly be some of the different

kinds of events that you might have.

Mr. O’TOOLE. Correct. It is all built around information.

Senator LINCOLN. All right. Thank you.

Senator Stabenow?

Senator STABENOW. Well, thank you very much. Thank you again

for all of your questions.

I would like to talk about something a little bit different, and

that relates to employers that are using Medicare Advantage to be

able to provide the same kinds of coverage for their employees 65

or older, as they do for others below age 65. Both Mr. O’Toole, if

you might answer as well, and then anyone else. Mr. McRaith, if

you would have any thoughts on this as well.

I am wondering, have there been complaints of deceptive marketing practices in the group market similar to what we have

heard today? Is there any difference between the group market and

the individual market? Mr. O’Toole, could you describe any differences in marketing and sales practices in your individual products as opposed to the group products?

24

Then, finally, what responsibilities do employers have to educate

beneficiaries about the type of product versus what the plan has?

So, asking basically differences between marketing responsibility,

any deceptive practices. Are there any differences between the

group plans provided through an employer versus the individual

plans?

Mr. O’TOOLE. Fundamentally, there are not. Generally when we

are working in the employer-sponsored space, oftentimes you are

dealing with either the employer or some other intermediary. But

the over-arching CMS marketing guidelines would apply. There

would not be, necessarily, a difference.

One thing I failed to include in the record in my last question

is that, if there is a refreshment or meal that is served, it is limited

to $15 or less by the CMS guidelines.

Senator STABENOW. All right. Thank you.

Mr. McRaith, from your perspective, have you seen any differences in terms of deceptive marketing practices or other kinds

of differences between the individual market and the group market?

Mr. MCRAITH. Before I answer that question, if I could back up

real quickly to your story about Evan Edwards.

Senator STABENOW. Sure. Yes.

Mr. MCRAITH. And the $800 that he owes. This ties into questions that Senator Wyden asked earlier. There are those who argue

that CMS should, alone, regulate or be in this space regulating the

companies because it is Federal money. That is an example, and

Mr. Harper’s story is an example, of how there is consumer senior

money that is also a part of the Medicare Advantage program.

Senator STABENOW. Right.

Mr. MCRAITH. And that is why States need to be involved on the

regulatory front lines. So I am sorry for going back, but I just

wanted to add that perspective.

Senator STABENOW. No, no. That is an important point. Sure.

Mr. MCRAITH. From where we sit, the level of complaints or concerns are not the same with employer groups because typically an

employer is going to have a more sophisticated informational presentation to its employees and can sometimes serve as a screen to

kind of pick through the debris that floats out there sometimes,

and just present the employees with a more understandable and

appropriate benefit package.

I do think it is an illustration of the larger health care and

health insurance dilemma that we confront as a country, where 65

in some ways is like the new 21 and people are hanging on until

they are 65 and can participate in Medicare.

Senator STABENOW. Thank you.

And then, Mr. Harper, finally, I am wondering what happened

to the agent, Bill Perkins, who fraudulently enrolled you in this

program. Do we know what happened to him? Did the Federal Government investigate at all? What ended up happening to this?

Mr. HARPER. Well, I have not heard from either one of them, Mr.

Perkins or his office, since the last time that we had communication. So I do not know, is he still with the agency or what. After

I got in touch with Senator Lincoln’s office in order to get some results, all I know is, the investigation is still ongoing.

25

Senator STABENOW. But he represented Medicare. I am just wondering, did anyone tell you about any place to go where you could

file a complaint yourself? Is that what was done through Senator

Lincoln’s office? I am not quite sure.

Mr. HARPER. Right. Yes.

Senator STABENOW. All right.

Mr. HARPER. That is correct.

Senator STABENOW. Thank you.

Mr. HARPER. But I know it is still under investigation.

Senator STABENOW. Thank you very much.

Mr. HARPER. Thank you.

Senator STABENOW. And thank you, Senator Wyden.

Senator WYDEN. Thank you, Senator Stabenow.

Mr. McRaith, Kim Holland is the State Insurance Commissioner

of Oklahoma, and she described, in May, Humana’s sales practices,

in her language, ‘‘as creating an atmosphere of lawlessness.’’ That

is pretty strong language from a State Insurance Commissioner.

Can you tell us what you think the most flagrant sales and marketing abuses are that are causing your commissioners to continue

to use that kind of language? They are not talking about it in the

past tense. But what do you think are the most serious of these

anti-consumer practices that are still ongoing?

Mr. MCRAITH. Sure. Senator, there are a number of companies

about which we have concerns. Humana is not the only one. But

it is interesting to note that Oklahoma is also the State that found

Humana using unlicensed agents to market its plans. Now, I believe that, in part, companies will engage agents they would not

normally engage because of the shorter enrollment period. There is

so much pressure on companies to generate sales in a relatively

short time period, and that compressed enrollment period generates so much intensity of competition, that the agent community

is driven to conduct itself, and companies in fact are driven to engage agents to conduct themselves, in ways that would not normally be acceptable under any circumstance.

I think also the commission structure is important. As we talked

about, commissions that reward agents for volume of submitted applications, that is a serious problem. I think the lack of disclosures,

sufficient disclosures in the products—there should be mandatory

disclosures.

One of the things that I am very pleased to hear is the industry

is now embracing having the title of the product itself or the name

of the product itself in the title of the product that they are selling,

to eliminate the idea of a Medicare Advantage Gold, or some kind

of rewards policy, that kind of thing. The more clarity that we can

provide consumers—as Mr. Harper said, we are struggling with

complicated decisions—the better decisions those consumers can

make. So I could list for you problems with cross-selling, crossbranding, tying, sales in senior homes, all of those things. They all

need to be addressed, Senator.

Senator WYDEN. That is very helpful. I think that would be an

area where, if you could give us further amplification, that would

be very helpful.

Now, the second area I want to explore with you are the recommendations that Humana is giving again today for dealing with

26

the problem. When we look at them, it basically strikes you that

their recommendations are pretty much about keeping the States

out of the serious enforcement business. That is the bottom line of

the five recommendations furnished by Humana today—to keep the

States out of serious enforcement. That is not going to cut it. It is

not going to cut it for Chairman Kohl and myself, and all of those

who want to change this.

But your views will be helpful, for the record, on your reaction

to the five recommendations that Humana is making for dealing

with this.

Mr. MCRAITH. I applaud Humana’s openness to the discussion

and the acknowledgement that change and reform does need to

occur.

From where I sit, as I alluded to earlier, we have the companies

essentially saying it is an agent problem and the agents saying it

is a company problem, and in between we have Mr. Harper and the

thousands of consumers around the country like him. We need a

comprehensive approach. We need a national standard on marketing and sales programs. We need the ability, on a State-by-State

level, to get into the companies to understand better, how are the

companies operating in each State or within a region within each

State.

Senator Grassley referred to the desire to have Medicare Advantage benefits or programs in rural areas. Absolutely. Absolutely.

We should have as much competition as we can in every part of

every State. But at the same time, we have seen a proliferation of

problems in rural areas because those rural areas do not have the

provider networks.

In the State of Illinois, we understand what plans have what

provider networks. We know that. So when we see a complaint or

a pattern of complaints, we can go into a company immediately,

evaluate the marketing and sales materials, evaluating how it is

working with its agents, and evaluate, is it actually living up to the

consumer protection standards that the Federal Government, in

this case, could provide.

Senator WYDEN. So, on the point of ensuring that there is a

beefed-up State role, which is not included in the enforcement and

ideas advanced by Humana, you would continue to be in support

of that beefed-up State role?

Mr. MCRAITH. That is absolutely correct.

Senator WYDEN. All right.

Now, Mr. O’Toole, you talk about the memorandum of understanding between the Centers for Medicare and Medicaid Services

and the States, and that that is enough to improve on this. But you

did not mention any need to return to the States any of the authority that was taken away in 2003, which is of course what our legislation would do.

But we are hearing still that it can take months for a senior to

be put back on the right plan under the structure that you are advocating in this memorandum of understanding approach. Is it not

too long for seniors to have to wait, and wait, and wait to be put

back on the right plan, which is what seems to be coming with this

memorandum of understanding approach?

27

Mr. O’TOOLE. Well, Senator, I am convinced there could be really

favorable outcomes with this improved collaboration and cooperation between CMS and the States. Certainly there needs to be improvement from the Federal position in ensuring that there is more

timely caretaking of beneficiaries. I had not heard of months and

months of problems getting back to your prior health program, but,

if that is the case, certainly that is an area for improvement. I am

not sure that returning that jurisdiction to the States is going to

be the solver to that when we are talking about a Federal entitlement program, paid for with Federal money.

Senator WYDEN. Nobody is talking about kicking the Federal

Government out of the process. What we are talking about, as advocated by Mr. McRaith, is a State supplemental role, just as we

have had in the Medigap area. Clearly, it makes no sense in a national economy, one like ours, to have 50 standards. I think Chairman Kohl and our whole group that has worked on this has felt

strongly about that from the outset. But while we want a uniform

approach with respect to marketing and we want a uniform approach with respect to authority over the companies, we do want

to give the States serious enforcement authority.

I am looking forward to the written views you will give us on S.

1883. I remember during the Medigap days we had to do a lot of

back-and-forth between consumer advocates and people in the industry and the States. I think we are in the same position today

as we try to advocate for legislation that is actually going to fix

this. So, I am hopeful we will get a favorable response from you

all on S. 1883.

That is really my last question for now. I would like to hear from

any of you who would like to comment on this. One of the things

that has pleased me about Medigap—and I go back to the days

when I was co-director of the Oregon Gray Panthers and I had a

full head of hair and rugged good looks and all that [laughter]—

is the Medigap law has really worked. It has worked for the senior

citizens. They do not have these abuses that Mr. Harper has talked

about so eloquently.

We do not get complaints from people in the industry. You can

walk in to pretty much any senior citizen’s center in the United

States and the counselors can take you through your choices, the

standardized choices in the Medigap area, and it has really worked

for everybody concerned, for seniors, for their families, for regulators, for the many responsible people in private insurance.

One of the reasons I want to clean house here, Mr. O’Toole, is

I am one of the people in the U.S. Senate who thinks that there

should be a very significant role for the private sector in fixing

health care. It is right at the heart of our Healthy Americans Act.

We have six Democrats, six Republicans for this first bipartisan

universal coverage bill that we have had in the U.S. Senate in decades. But if the private sector continues to engage in these exploitative practices, it gives the entire industry a bad name and will

hurt our effort to forge a bipartisan coalition.

So my question, and I would like to throw it open to any of you

who would like to comment, maybe start with you, Mr. McRaith,

has the Medigap law not worked for the reasons that we have been

28

talking about this morning? Does that not serve as a pretty good

model now for proceeding?

Mr. MCRAITH. Senator, the Medigap process and the Medigap

regulation, in the current regulatory environment, has worked extremely well for Illinois seniors, and it is my understanding from

discussions with my colleagues around the country that the process

of a uniform benefit design, as well as uniform sales and marketing

information, has been extremely well received by the senior community.

Then in the event there is a problem, the fact that State regulators are able to participate and work with seniors to resolve those

problems has been especially helpful. You described the situation

that we have encountered in the State of Illinois where, if a senior

has a problem with a plan, it takes months to get it resolved.

Under the——

Senator WYDEN. Under the memorandum of understanding.

Mr. MCRAITH. Under the memorandum of understanding that

would continue. Under S. 1883, which would empower the States

to enforce, we could do what we do every day with private health

plans, and that is call on behalf of a consumer, resolve a problem,

and often those problems are resolved within one phone call. So

that approach, converting to the Medigap model, take that as a

template, apply it to this situation, we think would work very well.

I want to take issue with one comment that, respectfully, Mr.

O’Toole said. This is not an entitlement program. Medicare Advantage and the prescription drug plans are private insurance programs in which people like Mr. Harper and Senator Stabenow’s

constituent pay premiums. These are not entitlement programs.

These are programs where vulnerable consumers need protection,

and that is what the States can provide. We do it every day, and

we have been doing it for decades.

Senator WYDEN. Mr. Hebertson, you are on the front lines. I go

back a lot of years with the Area Agencies on Aging. I think they

perform an invaluable service. Have you found that the Medigap

model has been a good one and has worked for all of those associated with your good programs?

Mr. HEBERTSON. Yes. Absolutely. The reason why is because it

is standardized and we can explain it to people in a way they understand. Then they can make their decision based on their understanding, given their income and health needs. That is why it

works. It is very difficult, particularly for a senior on their own, to

have that same kind of understanding through the Medicare Advantage products. So, to make it so we can assure that they can

have that same type of understanding again so they can make that

decision based on their health needs and their life and their income, that would be terrific.

Senator WYDEN. That is such an important point. I remember,

prior to the enactment of Medigap, that I would very often get calls

from somebody who would be a lawyer or an accountant in their

40s, and they would say, Ron, I am working with my mother on

her Medigap policy and I cannot figure this out. Now we have

much the same thing with these private fee-for-service policies. In

other words, history has repeated itself.

29

When Mr. Harper comes and speaks for the many older people

who are being taken advantage of out there today, it sounds very,

very reminiscent of the kind of things that I heard in the days

when I was co-director of the Gray Panthers, and we thank you.

So a question for you, Mr. O’Toole. Has your company had any

problems with Medigap? I mean, I talk to folks in the private insurance industry. I have not heard of people at Humana saying

that Medigap is going to cause a lot of heartache. In fact, we have

not had any concerns about Medigap now for years and years. I

want to give you a chance to comment as well.

Mr. O’TOOLE. Well, Senator, I can speak not just as a vice president with Humana, but I was a licensed producer in the State of

Florida. In my opinion, Medigap is a great program, but it does not

provide the type of choice and innovation, nor the opportunity for

innovation, that the Medicare Advantage programs provide. Like

any program, there is always an opportunity for something to go

wrong. I have been in the home of more than one Medicare recipient who actually had multiple Medicare supplement plans. They

did not realize it happened.

Senator WYDEN. Well, that is a violation of the law.

Mr. O’TOOLE. Absolutely.

Senator WYDEN. And you can tell me in more detail, Mr.

McRaith. We wrote the Medigap law so that, except in very rare

circumstances, as a matter of law, someone could only have one

Medigap policy. So, if it does not fit into that area where it specifically involves people with these unique needs, it is a violation of

the law and we ought to come after those people with hob-nail

boots. So, if you see instances of that, please get that to Mr.

McRaith and the commissioners.

Mr. O’TOOLE. The point being, Senator, that there are imperfections with everything. I think, with a strong collaborative relationship between the Federal Government and the States through this

aggressive memorandum of understanding, we could really accomplish a lot of really good things.

Senator WYDEN. The only thing I would differ with you on is that

we have acknowledged from the very beginning, in working with

the NAIC and Chairman Kohl and others, this is a different product than Medigap. Medigap was a private product to supplement

Medicare, and this is clearly a Federal program. But in terms of

the basic principles of consumer protection, the issues remain the

same. Is that not correct, Mr. McRaith?

Mr. MCRAITH. That is correct, Senator. The key is, is the consumer purchasing a policy that is appropriate for that consumer,

as Mr. Hebertson said.

Senator WYDEN. So we are going to continue to keep our doors

open to you, Mr. O’Toole, and all of those in the private sector so

we strike the right balance. We think you have a valid point with

respect to not wanting to have 50 States out there with different

programs as it relates to marketing abuse and different programs

with respect to authority over the companies, which is why S. 1883

does focus on uniformity in that area. What we have to resolve is

getting these tools to the States that are so important for all the

reasons that we have outlined.

30

Mr. Harper, I have gone on for a pretty fair run here, and I want

to give the last word to you. What it always comes down to, it

seems to me, is not just legislators and lawyers and legalese and

the like. When it comes to the legalese, a lot of this is pretty hard

to follow, but it really comes down to the points that you have been

talking about, which is that older people deserve a fair shake. So

you have had a chance this morning to listen to this, and I would

like to give you the last word for this morning.

Mr. HARPER. Well, thank you, Senator. I do not have too much

more to say, other than I really appreciate you all taking time out

and giving me this opportunity to be here and to speak freely about

what I feel. As a senior citizen, we do need someone to keep us safe

in the few days of life that are left. We do not ask for much, just

enough to get by and be happy. I thank you very much.

Senator WYDEN. I thank you. I think Senator Snowe, who has

been a wonderful advocate—here we are. The last words, for purposes of today’s hearing, are going to come from our colleague from

Maine, who has been a real champion for the cause of senior citizens for a lot of years. So it is great to have you here, Senator

Snowe, to conclude the hearing.

Senator SNOWE. Thank you. I appreciate it, Mr. Chairman.

Thank you for being such a great advocate. I appreciate it. I will

not delay the committee hearing any further, but I do want to ask

some questions because I think this is a critical issue for so many

seniors in trying to get it right.

The very nature of the program and its complexities is illustrated

by this manual. When you talk about the private fee-for-service,

which is another 28 pages beyond that, specifically, there are more

than 110 pages. I think that it is pretty remarkable that we would

expect seniors to have to work their way through this maze of

issues and provisions in order to decide which plan works for them.

I know that, Mr. Harper, you were talking about the fact of the

difficulties that you had in trying to discern which program works

for you. I know you had problems with people making those cold

calls and approaching you, but were you able to go through and

sort through all of this in order to make decisions for your own coverage?

Mr. HARPER. You mean, in the papers that he brought, the

forms? Is that what you mean?

Senator SNOWE. Yes.

Mr. HARPER. Well, I really did not have time because, as I stated,

my full time was devoted towards my wife mostly. And I did not

even read anything that he brought and left until the gentleman

came by the next day and explained to me. Then I picked them all

up and read the most important part of it. This one point on the

paper that he left really stuck out. On these forms, there is a picture of your Medicaid card. In that Medicaid card, you’re supposed

to sign your name and your Social Security number.

The papers that he left, I still have them. I never did sign anything. When I requested them to send me a copy of the paper as

proof that I had signed, they missed where the form was filled out.

The Social Security number that was on this form was not my Social Security number, and it was not my wife’s or my signature.

Then I read what the thing said, the form that he left. That is the

31

way it went until I got in touch with Senator Blanche’s office because I could not reach him any more. Also, they sent me the papers and it just did not correspond with anything that he brought

previously.

Senator SNOWE. Well, in our State of Maine, we passed, recently,

legislation to ban cold calls and door-to-door or cross-selling of

products. Frankly, that is probably something that we ought to consider on a national basis. I do not know if you have addressed that

at all, but would you agree?

Mr. MCRAITH. I absolutely agree, Senator. If I could follow up

really briefly, I think the booklet you have just shown emphasizes

the importance of agents in any kind of insurance transaction. It

also emphasizes the importance of properly regulating the relationship between the agent and the company. It also emphasizes the

importance of accountability. The companies need to be responsible

for the actions of their agents. Even sophisticated lawyers have

trouble reading a 110-page document to understand the benefits of

their health insurance policy.

Senator SNOWE. Yes. This is virtually impossible. It makes it

inordinantly difficult. I know I have heard from my constituents as

well, and sorting through to make the right decisions for themselves. You are right that the companies have to be accountable for

those agents and responsible for how they conduct themselves, and

the information they transmit.

Mr. O’Toole, that leads me into the question I was going to ask

you anyway, because Humana has had, in essence, more than a

million enrollees, as I understand it. You are one of the seven

major providers of Medicare Advantage plans, and you have agreed

to voluntarily suspend marketing private fee-for-service since 2007.

You mentioned in your own statement that there were 1,595 Medicare Advantage sales allegations last year, and the State of Illinois

determined in the 2005 and 2006 examination period that 84 of

your 2,237 agents who sold Medicare products did so without even

a proper Illinois license.

How is it that, with your experience, your company’s experience

in the industry for more than 20 years, you would have unlicensed

agents selling this product on behalf of Medicare, given your track

record in Medicare overall?

Mr. O’TOOLE. Well, Senator, I would say we certainly have

learned from our experience, and, with the expansion of these

plans through the MMA, I think the response and the growth in

membership in those plans was probably more than anyone expected, us included.

Just to clarify for the record, we had some issues in Oklahoma

that were referenced earlier that really were not about unlicensed

agents, they were about sales occurring in border areas where an

Oklahoma resident would go into Texas or a surrounding State and

the sale was actually facilitated by a licensed agent in that State,

but they were not properly licensed in the State of Oklahoma.

In Illinois, we did have some infractions that actually involved

unlicensed agents. As a result of that, we took a good, hard look

at our systems and made the necessary internal improvements to

safeguard against that occurring again, to safeguard the Medicare

beneficiary and to protect the integrity of the sales process.

32

Senator SNOWE. So if your policy, as you stated from the outset,

was to appoint and license your agents, what went wrong?

Mr. O’TOOLE. There was a breakdown in some of our internal

systems. I could not comment at all on the specifics and would be

happy to supplement the record in writing, but we had some issues

there that have been subsequently corrected.

Senator SNOWE. Have you ever had any other non-compliance

issues? I know CMS in general has said that there have been noncompliance issues with HIPAA standards, for example, or beneficiary security breaches. Have you had problems in either of those

areas over time?

Mr. O’TOOLE. I would have to answer that question in writing.

Senator SNOWE. All right. Please do that.

Also, you mentioned the fact that commissions are withheld if

the beneficiary cancels their coverage within 90 days. But you also

point out, it is likely past the open enrollment period. Frankly, I

think that may well work if you are within the enrollment period,

but unfortunately the beneficiary is stuck with the plan if it has

gone beyond that time. So, frankly, it is not helpful in that regard

for the beneficiary.

I happen to think that a cooling-off period, perhaps of 60 days,

might be worthwhile to consider as well for legislation, simply to

give people an opportunity, given the complexity of this program

and all the rules and regulations and different enrollment periods,

depending on which category you are finding yourself in, or which

program, it might be worthwhile to have a cooling-off period so that

people can adjust and shift if there was a mistake in the process.

Would you agree?

Mr. O’TOOLE. Senator, I am not sure I entirely understood your

statement in reference to the cooling-off program.

Senator SNOWE. Well, so that if people went beyond the period

of enrollment, that there would be a cooling-off period so that, if

they signed up for a specific program and they found out that was

not exactly what they wanted, that they would have the opportunity. For example, if a beneficiary canceled, therefore, you said

that commissions are withheld. But it is not helpful for the beneficiary if they have already gone beyond their enrollment period.

Mr. O’TOOLE. All right. I think I follow you now, Senator. First

of all, the way our structure is in terms of internal compliance

monitoring, and also our charge-back policy on commissions, we

certainly feel as though we do not incentivize an agent to do an improper thing. So just to make that clear, we do not incentivize the

wrong thing.

But second of all, if, in the event there is an issue where, for

whatever reason, a beneficiary is inappropriately enrolled in a plan

or makes an improper decision, either on the part of the agent or

some form of misinformation or misunderstanding on the part of

the consumer, there are protective measures, as established by

CMS, that allows them greater flexibility beyond the open enrollment period.

Senator SNOWE. Can they switch plans?

Mr. O’TOOLE. Under certain circumstances, and certainly as

would be defined by what you are saying, yes. There are protections built in to allow them flexibility.

33

Senator SNOWE. In that instance, do you know, Mr. McRaith, if

that is true?

Mr. MCRAITH. I think Mr. Hebertson probably can answer that

better than any of us.

Mr. HEBERTSON. I know that we have helped people who are outside the enrollment window switch back through an appeals process through CMS, but we can certainly get you some more information on that on the written record. So I think he is correct that

there are some ways to appeal that if certain guidelines apply, if

the person was misled or not understanding the policy that was explained to them. But we can certainly get you information for the

record.

Senator SNOWE. Yes. But you have not used that process to determine whether or not it is workable or not.

Mr. HEBERTSON. No, we have.

Senator SNOWE. And it has worked?

Mr. HEBERTSON. We have helped some people, but it is not a lot.

I would like to get more information for you.

Senator SNOWE. So maybe a cooling-off period is necessary. I

guess the point here is giving people an opportunity to be able to

shift in the event, from the time in which they discovered that this

was not their plan, or they misunderstood, or it was misrepresented, or whatever the case may be, they had a period in which

they could shift.

Mr. HEBERTSON. Yes.

Senator SNOWE. So I think that is the point here. So maybe it

is a workable system. I do not know. I will look into it. But that

is the question, whether or not they should go beyond that. Especially for the agent misrepresenting what the situation is, what the

plan represents to the consumer, that they would have the opportunity to make that shift, if it is beyond the enrollment period, for

example. If we have a system in place that is workable, then fine.

But if not, there may be another way of addressing it through a

cooling-off period of 60 days.

Mr. O’TOOLE. Senator?

Senator SNOWE. Yes?

Mr. O’TOOLE. There are special election provisions that exist

presently, and we would be happy to supplement the record in

writing just to better inform the committee of those provisions.

Senator SNOWE. Now, in the enrollment period, speaking of enrollment periods, one final question. I understand the Medicare Advantage enrollment period has now shifted to the first quarter of

the year, but the Part D prescription drug program is still going

to be into the November–December period. Do you think that there

should be a shift as well for that enrollment period, or do you think

it is fine as it is?

Mr. MCRAITH. Senator, I would suggest, first of all, that a cooling-off period would be appropriate, given the significance of the

decisions and the relative lack of resources that many of the people

making those decisions have. They should have the opportunity to

meet with a SHIIP volunteer nearby, or reach out to someone who

might have a more sophisticated understanding and can counsel

them. A cooling-off period is a good idea.

34

In terms of the enrollment periods, I think what is more important to us as State regulators is to see an expansion of the current

45 days at the end of the year over the holiday season, where it

puts an awful lot of pressure on people to make very significant decisions, because they cannot change those decisions easily. It is a

laborious process that requires somebody with limited resources already to now have to kind of swim upstream and reverse course;

very difficult to do.

I would add, I want to clear up something. I alluded earlier to

an Oklahoma problem that Humana had. They did have 68 unlicensed agents operating in the State of Oklahoma at that time, and

in Illinois they had 67.

Senator SNOWE. All right. Thank you. I appreciate your comments. When I hear an appeals process, it sounds to me so complex, arduous, and rigorous. Really, most people are not going to

avail themselves because it is that difficult and, as you say, the resources of time and wherewithal to be able to do it, as a senior citizen to get out there and do it—I just know the difficulties in making the decisions they do in choosing their plans from year to year.

Also, even determining the enrollment period. I mean, there are so

many different enrollment periods, it is extremely confusing for

anyone under the best of circumstances. So, I appreciate that.

I thank you all very much for taking the time and for being here

today.

Thank you, Mr. Chairman.

Senator WYDEN. I thank my colleague.

I just had one last question to Mr. O’Toole because of a response

you gave to Senator Snowe. She asked about this issue which she

described as a cooling-off period. You said, ‘‘We do not incentivize

our agents to do the wrong thing.’’ Well, the chart that Senator

Baucus is talking about is, in effect, an ongoing program. The incentive program is green, really green. It is clear that that is going

on today because the dates, essentially, are from January to April.

So given the fact that you told Senator Snowe that there are no

incentives for doing the wrong thing, I gather that you believe that

there is nothing wrong with this ad and this is part of an approach

that has the correct incentives. Is that right?

Mr. O’TOOLE. Senator, I am glad you asked that question. First,

I would submit to you and the committee that, if we adopt the recommendations of the standardized level based on a percentage of

premium recommendation that we made in our written and oral

testimony, that issues like this would go away.

Now, in speaking to that specifically on behalf of Humana, if you

were to look at our individual contracted agent compensation inclusive to this bonus program, we would still be, based on the information available to me, in the bottom third of the industry.

Senator WYDEN. So you think the ad is part of the right message

that you want to send?

Mr. O’TOOLE. No.

Senator WYDEN. Because Senator Snowe asked you a very good

question, and I listened very carefully to your answer. You said, we

do not want to have anything that sends the wrong message to our

agents. I just look at this and it sure does not look like rocket

science. It is ongoing and it just says this is all about green, green,

35

green, as Senator Baucus said. I gather from your answer that you

do not think that this sends the wrong message, and I think that

is very unfortunate.

Mr. O’TOOLE. Senator, that is actually incorrect. I was

talking——

Senator WYDEN. Well, tell us about the ad. Does the ad send the

right message——

Mr. O’TOOLE. No. No, it does not.

Senator WYDEN. So the company does not feel that that——

Mr. O’TOOLE. No.

Senator WYDEN. Thank you.

Mr. O’TOOLE. We have a very stringent internal review process

for anything dealing with the Medicare beneficiaries.

Senator WYDEN. So will the ad be taken out? This will not run

in the future?

Mr. O’TOOLE. It was actually retracted as soon as we were made

aware that it went out for distribution. It was an internal associate

who did not follow an internal process. And no, I do not agree with

the message of the ad, but certainly its content, as it relates to contracted agent compensation, I wanted to separate the two.

Senator WYDEN. All right.

Senator Snowe, anything else you want to add?

Senator SNOWE. No.

Senator WYDEN. All right.

We thank all of you. We like to give the witnesses the last word.

Do any of you want to add anything?

Mr. MCRAITH. Thank you for your time, Senator Wyden and Senator Snowe.

Senator WYDEN. Mr. Harper, we thank you. We thank all of you.

The committee is adjourned.

[Whereupon, at 12:15 p.m., the hearing was concluded.]

(37)

SELLING TO SENIORS: THE NEED FOR

ACCOUNTABILITY AND OVERSIGHT OF

MARKETING BY MEDICARE PRIVATE PLANS

(PART II)

WEDNESDAY, FEBRUARY 13, 2008

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 10:05 a.m., in

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus

(chairman of the committee) presiding.

Present: Senators Rockefeller, Wyden, Stabenow, Salazar, Grassley, Hatch, Snowe, and Sununu.

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The hearing will come to order.

The author D.H. Lawrence said, ‘‘Never trust the artist, trust the

tale.’’ In large part, the story of sales by private Medicare plans is

a tale of trust. Seniors justifiably trust Medicare, but there are

sales artists who are abusing that trust.

Last week, the Finance Committee held the first of two hearings

on the subject. Last week we had several witnesses who had different points of view, who came from different parts of the country.

But three separate witnesses testified that insurance sales agents

are using abusive tactics to sell private Medicare plans. All three

witnesses shared the same story. Private plans and their agents

are pushing private Medicare plans using methods that are aggressive and too often abusive or fraudulent. CMS guidelines are just

not enough to stop the abuses.

Sales agents gain easy entry into a beneficiary’s home. Often

they appear to represent Medicare. CMS may have prohibited doorto-door sales, but sales agents are skirting that prohibition. When

the agents are in the beneficiaries homes, they ask the beneficiaries to call their neighbors on behalf of the agents. The agents

tell the beneficiaries that their neighbors can get a same-day appointment. Beneficiaries may place the calls just to get the agents

out of their homes.

Last week, one beneficiary, George Harper of Mayflower, AR,

told the committee that a sales agent came to his house. Mr. Harper testified how the agent tried to sell him insurance that he did

not want, he did not need. Mr. Harper told how an agent forged

his signature to enroll him and his wife in a private Medicare plan.

38

The Harpers had a devil of a time getting out of the plan and getting fully reimbursed for their expenses. Those were expenses that

they could not afford, expenses they should never have had to pay.

Sales agents canvass senior housing complexes. They offer free

meals at restaurants to talk about ‘‘new Medicare benefits’’ to

make it look and sound as though they represent Medicare, but

they are really selling a private plan.

The committee heard how economic incentives are fueling an aggressive sales environment. The government pays private insurance companies generously. In Medicare Advantage, the government pays private insurers 13 percent more than the traditional

program. Plans, in turn, offer big financial rewards to their sales

agents. Humana, for example, is offering a $10,000 bonus to agents

who enroll 150 seniors into private Medicare plans by April 1.

The Illinois insurance director testified that the financial incentives to sell private Medicare plans, plus the absence of rigorous

Federal oversight, invite abuses by companies and their agents. He

likened the current marketplace for private Medicare plans to the

early days of Medigap. Back then, lax Federal regulation allowed

confusion and distress for seniors.

The committee also heard proposals to clean up marketing practices and strengthen oversight. Even Humana offered five recommendations. Among other things, Humana proposed more stringent Federal standards for marketing practices, new Federal requirements for sales commissions, and more Federal cooperation

with State regulators on complaints.

I commend Humana for making these recommendations. I might

say that in my State, my office gets many, many more complaints

about Humana than any other single company, partly because

Humana is a big company. So, I am impressed to learn that even

Humana is asking CMS to do more than it is doing today.

Witnesses also proposed that the Federal Government allow

States to expand their oversight. State’s insurance regulators are

calling for a Medigap approach in which States are permitted to

enforce national safeguards promulgated by HHS. Congress gave

CMS exclusive authority to regulate insurers selling Medicare benefits. The idea was that a Federal program should be regulated by

a Federal agency with one set of rules.

Today we will hear from CMS about the rules that they have set

and how they are clamping down on bad sales practices. Mr.

Weems, many Senators are skeptical that CMS has institutional

knowledge, expertise, and willingness to do the job. Many doubt

that CMS is taking a strong regulatory posture. Many question

whether CMS can construct and enforce marketing rules that truly

protect and assist seniors.

We need tough rules and they need to be enforced. We need more

than just guidelines, otherwise private companies who care most

about profits will find it too easy to take advantage of the elderly

and disabled people just to make a buck.

Mr. Weems, today I hope that you will offer the committee solutions to the many problems that we heard last week. I hope you

will move quickly to restore the trust of people like the Harpers in

the Medicare program. Plainly, seniors should never trust these

shady private Medicare sales artists, though we want to maintain

39

seniors’ trust in Medicare. Mr. Weems, I trust that you will tell the

tale of how we can do so.

I would now like to welcome our witness. We will hear from Mr.

Kerry Weems, the Acting Administrator for the Centers for Medicare and Medicaid Services. Thank you, Mr. Weems, for taking the

time to speak with us today. As a reminder, please limit your oral

statement to 5 minutes, and your entire statement will be included

in the record.

STATEMENT OF KERRY N. WEEMS, ACTING ADMINISTRATOR,

CENTERS FOR MEDICARE AND MEDICAID SERVICES, BALTIMORE, MD

Mr. WEEMS. Good morning.

The CHAIRMAN. Good morning.

Mr. WEEMS. I thank you for the opportunity to appear today. I

am pleased to be here to discuss CMS’s oversight efforts of marketing practices under the Medicare Advantage program. My focus

today will be on relatively recent activities and the Agency’s plan

for further improvements for marketing oversight in the year

ahead.

At the outset, I want to indicate my unequivocal commitment to

protecting people with Medicare from marketing abuses and to giving beneficiaries the information they need to make informed

choices about health care.

Since September of 2007 when I began my tenure as Acting Administrator, I have made it a top priority for CMS to be more

proactive and more transparent in overseeing the Medicare Advantage program. We have made significant strides in strengthening

our oversight.

Our activities fall into three major categories, as outlined in the

chart before you: promoting transparency; strengthening our oversight tools; and taking enforcement action where warranted. I

would like to discuss our efforts in each one of these categories.

In the interest of transparency, we implemented a 5-star rating

system for Medicare Advantage plans last fall which expanded on

the existing rating system. This web-based tool provided the public

with a powerful new way to comparison-shop Medicare Advantage

plans for the 2007 open enrollment period.

We have also made information available regarding compliance

actions. The CMS website now contains information on more than

90 corrective action plans which outline the binding steps plans

must follow to fix performance deficiencies. It also contains a list

of all enforcement actions taken against Medicare Advantage and

prescription drug plans since January of 2006. We believe that all

these efforts toward increased transparency are shaping the Medicare Advantage plan behavior in ways that we had hoped, and

helping beneficiaries to make informed decisions.

In addition to promoting transparency, we are taking steps to

strengthen our regulatory framework and enforcement tools. For

example, following the voluntary marketing suspension of 7 private

fee-for-service plans last summer, CMS established rigorous audit

protocols to review each plan’s internal controls and processes. I

personally reviewed each audit, and in several instances sent the

40

auditors back and required further proof of compliance before lifting a plan suspension.

Our experience with these 7 plans led to the development of a

stringent new surveillance strategy for private fee-for-service organizations across the board. For example, we now require private

fee-for-service plans to conduct outbound verification calls to confirm beneficiary enrollment and ensure enrollees understand fundamental plan rules.

The enrollment verification process is supported by new strategies to quality-check private fee-for-service call centers, enrollment

materials they distribute, and their agent training and testing materials.

We have also greatly expanded our secret shopping initiative

begun in the fall. Working with private contractors, CMS secretly

audited plan marketing events to verify compliance with marketing

guidelines. Contracted auditors and roughly 30 senior CMS officials, including myself, shopped 240 marketing events across 39 jurisdictions and 30 sponsored plans.

Our efforts identified 696 marketing violations. We took immediate action to address high-risk issues and to prevent further deficiencies. For example, one plan was placed on an immediate enrollment and marketing freeze which extended for the duration of open

enrollment. Two other plans were placed on corrective action plans.

Warning notices were issued to any private fee-for-service plan

with at least one violation of CMS marketing rules.

Of course, with the benefit of recent reforms such as those included in the December 2007 compliance regulation, we will have

even greater ability to go after bad actors and protect beneficiaries

in the future.

Mr. Chairman, I understand the urgency of improvement in this

area, so I would like to close by sharing a second chart with you.

While the first chart depicts a significant increase in CMS oversight activities, the second chart begins to tell a story of significant

decrease in marketing complaints, beginning in December when

our compliance activities began.

I believe our increased oversight is paying off. We will continue

to study indicators of plan compliance in the months ahead, and we

are prepared to take further actions that may be required for further improvement. In conclusion, let me say that I am personally

committed to taking whatever steps are necessary to ensure that

people with Medicare are not misled or harmed by Medicare Advantage plans or their agents. We have made significant progress,

and we are going to continue along this path. We are not done.

Thank you, Mr. Chairman, for the opportunity to speak this

morning, and I look forward to answering any questions you may

have.

The CHAIRMAN. All right. Thank you, Mr. Weems.

[The prepared statement of Mr. Weems appears in the appendix.]

The CHAIRMAN. I have a couple of questions. One, on your secret

shoppers program. First of all, I commend you for undertaking generally that sort of an effort to try to determine abuses. I have a

couple of questions, though. One is, if there are 696 violations, it

sounds like not much corrective action is taken. You mentioned one

plan out of 696 frozen, and you mentioned two placed on corrective

41

action plans. I have no idea what that is. Only 71 letters. That is

roughly one-tenth of those where violations were found that got

any kind of recognition of abuse, and that was just a warning letter. That sounds pretty soft to me. One out of 10 was just a warning letter.

Mr. WEEMS. Mr. Chairman, we were——

The CHAIRMAN. If a highway patrol comes along, does he just

give 1 out of 10 tickets and the 9 he is just warning? Or does he

say, all right, you are speeding, you were over the limit, so here

is a ticket? I doubt that the ratio is 1 out of 10.

Mr. WEEMS. Mr. Chairman, we issued a warning letter for every

violation that was found. Many plans had multiple violations,

which would mean that there were letters which had multiple violations in them. The marketing and enrollment suspension that we

undertook, it was very evident to us, and evident very quickly—our

surveillance system was in place—that this particular plan, across

the Nation, was not in compliance with our rules. We took action

swiftly.

The CHAIRMAN. What did you do?

Mr. WEEMS. What did we do?

The CHAIRMAN. What was the nature of the action?

Mr. WEEMS. We had them suspend marketing and enrollment for

the entire period of the enrollment.

The CHAIRMAN. That is one plan.

Mr. WEEMS. That is one plan.

The CHAIRMAN. Out of 696.

Mr. WEEMS. That is one plan which had multiple violations within that 696 number, sir.

The CHAIRMAN. That is a pretty low percentage, though.

Mr. WEEMS. This was an extremely severe set of violations.

The CHAIRMAN. And the others were just de minimis, negligible?

Mr. WEEMS. The others were brought to their attention and we

asked them to correct them immediately. We can see the effects of

the actions that we took. The number of violations that we saw diminished, the number of complaints that we received diminished.

The CHAIRMAN. They are going up.

Mr. WEEMS. We think our actions were effective.

The CHAIRMAN. But they are going up.

Mr. WEEMS. Mr. Chairman, I never want this committee to think

that I am deceiving you. Our most recent data is before January.

This is the kind of thing that you typically expect at the beginning

of a plan year when a beneficiary begins to use their plan. They

have made a change and they say, whoa, what is this change? Is

this due to a marketing violation? We put those on the chart for

you. I will give you this data every month. I expect the data to fall

in February, I expect it to fall in March. The effect that we see in

January——

The CHAIRMAN. It did not go down in prior years.

Mr. WEEMS. We did not have this in prior years, sir, and you did

not have me.

The CHAIRMAN. This is the secret shopper program. What about

all the door-to-door problems that we have?

Mr. WEEMS. Door-to-door problems are——

42

The CHAIRMAN. What enforcement action do you have to monitor

door-to-door abusive sales practices?

Mr. WEEMS. If we find that a plan has engaged in door-to-door

sales activity, we will respond appropriately with progressive enforcement, beginning with a warning letter and then moving to

sanctions and civil monetary penalties as necessary.

The CHAIRMAN. I am just curious. How do you monitor door-todoor? Do you just wait for the complaints to walk in the door? Do

you just wait for the complaints to come in or do you monitor the

door-to-door activities? First of all, door-to-door——

Mr. WEEMS. Is a violation.

The CHAIRMAN. Is a violation.

Mr. WEEMS. It is.

The CHAIRMAN. But a lot of agents do go door-to-door. They get

around it.

Mr. WEEMS. There have been reports of door-to-door.

The CHAIRMAN. They take the leads that are sold to them from

the earlier cold calls, they take those leads, and they go to homes.

Mr. WEEMS. There have been incidences of that, and that is a

violation of our rules.

The CHAIRMAN. What are you doing about those? How many instances of violations have you come up with?

Mr. WEEMS. I do not have the number of door-to-door readily

available, but I certainly can provide it to this committee.

The CHAIRMAN. I guess what is kind of concerning, even Humana

wants you to do more. Here is a private company that wants you

to do more than you are doing.

Mr. WEEMS. And so do we, sir. We have further administrative

actions that you will see from us that will deal with commissions,

that will deal with beneficiary contact, and will deal with civil

monetary penalties.

The CHAIRMAN. When will we see those?

Mr. WEEMS. I hope in the coming weeks, sir.

The CHAIRMAN. Why are these not in the nature of regulations

as opposed to guidelines? Regulations have a lot more potency and

are more powerful than guidelines.

Mr. WEEMS. Senator, these are administrative actions, and regulations may also be in the nature of administrative actions. I am

not eliminating regulations as a possibility in that.

The CHAIRMAN. All right. I have more questions.

Senator Sununu? He is pointing to Senator Hatch, but you are

next on the list, Senator.

Senator SUNUNU. Thank you, Mr. Chairman.

The CHAIRMAN. We might as well go by the rules here.

Senator SUNUNU. That is quite all right with me.

Mr. Weems, you mentioned corrective action plans, that you had

issued a number of corrective action plans. Of course, you expect

those to be followed. Are those legally binding? What enforcement

powers or penalties can you impose if one of the plans is not following the corrective action plan that has been laid out? What is

the range of penalties that you can impose?

Mr. WEEMS. We have a range of actions that we can take. A corrective action plan is a plan that a plan has agreed to. If they continue not to make progress on that plan we can, depending on the

43

severity of it, impose civil monetary penalties or kick them out of

the program.

Senator SUNUNU. So there is no real limitation to your ability to

take action if they are not acting in a way that is consistent with

the corrective action plan? In other words, you do not need additional statutory power, additional regulatory power to enforce the

plan?

Mr. WEEMS. We certainly do not need, in our view, additional

statutory power. There may come a point when we need to clarify

our regulatory authority in this area.

Senator SUNUNU. One of the suggestions that I have read about

to address perceived shortcomings in the regulatory and enforcement process on these plans is to allow the States, I think, to regulate marketing practices in the way that I believe States are currently allowed to regulate the marketing of Medigap policies. The

National Association of State Commissioners, Insurance Commissioners, I think has put out either a proposal or they have their

own guidelines regarding the marketing practices of Medigap.

Could you perhaps, to the best of your ability, compare what is

allowed at the State level for the marketing of Medigap with what

you are trying to put into place or requiring in the marketing of

these plans? How do the restrictions compare? What is allowed at

the State level that might not be allowed with the marketing of

these plans?

Mr. WEEMS. Medigap plans are uniform plans and, therefore,

much easier for the States to regulate. For Medicare Advantage

programs, the wide variety of State regulatory and enforcement

schemes, we think, would make the Medicare Advantage program

very, very difficult to administer. So, for instance, if a State required call center representatives to be licensed brokers or licensed

agents, as some States do, that would effectively end the ability of

plans to be able to have centralized call centers in the way that

they do now. Plans would also be subject to a variety of State regimens of enforcement. Our first priority is protection of the beneficiaries. We think we have taken significant steps to do that. We

think that we can regulate this product.

Senator SUNUNU. Senator Baucus spoke of a witness, I think,

whom we had here who was approached on a door-to-door basis,

the sales of one of these plans. You have indicated that under the

guidelines you have issued that is not allowed, that that would be

an activity subject to enforcement and penalties if it were identified.

Mr. WEEMS. Right.

Senator SUNUNU. Are Medigap plans allowed to be sold door-todoor under State regulations?

Mr. WEEMS. I do not believe they are. No.

Senator SUNUNU. They are not allowed to be sold door-to-door?

The CHAIRMAN. It depends on the State. It is up to the States.

Some States allow it, some do not.

Senator SUNUNU. But some States do allow that.

The CHAIRMAN. Some disallow it.

Senator SUNUNU. Thank you very much.

Thank you, Mr. Chairman.

The CHAIRMAN. Senator Grassley?

44

Senator GRASSLEY. Yes. I will put a statement in the record because I was not here for the opening.

[The prepared statement of Senator Grassley appears in the appendix.]

Senator GRASSLEY. Thank you for coming.

Mr. WEEMS. Good morning.

Senator GRASSLEY. We appreciate it very much.

Last summer, CMS imposed a moratorium on marketing and enrollment of 7 of the Medicare Advantage private fee-for-service

plans. In the past few months, CMS has suspended marketing and

enrollment of several other plans. In one case it was for marketing

violations. Suspension for marketing and enrollment is a major

sanction. How severe do marketing violations have to be for CMS

to suspend a plan’s marketing and enrollment activities?

Mr. WEEMS. Let me reflect on my own experience in this area,

Senator. The plan that underwent the enrollment and marketing

suspension was actually a plan that I secret-shopped in Illinois.

During that period, throughout the marketing program, the plan

consistently failed to tell beneficiaries about the plan’s limitation

on access to physicians, even when probed. So they would say you

could go to any physician. I probed, and I said, ‘‘Any physician?’’

They said, ‘‘Well, any physician who accepts Medicare.’’ That is not

correct.

They also told another person present at the marketing session

that they represented Medicare. They do not represent Medicare,

they represent a private company. After I shopped that particular

incident, we went back and we looked. This particular company

had this violation essentially all over the country. We were finding

it everywhere in this particular company. This was a product either

of poor training or deliberate corporate strategy. In either case, the

plan was absolutely deficient in its responsibilities. We notified

them, and we suspended marketing.

Senator GRASSLEY. Were the violations so blatant the Agency

had to act or did the plan refuse to improve the practices after

CMS alerted them?

Mr. WEEMS. We did not give them that option, Senator. We suspended marketing. Their actions were so egregious that we did not

enter into a negotiation. We said we are suspending marketing

until you complete retraining of your agents and can start marketing right.

Senator GRASSLEY. Let me refer to some testimony that we heard

last week. These witnesses said that they themselves or beneficiaries have been subject to repeated unsolicited cold calls from

Medicare Advantage or prescription drug plans. We also heard that

often seniors will just agree to a meeting to get the agent to stop

calling them. Given all these problems, why does CMS not just ban

cold-calling altogether?

Mr. WEEMS. Thank you, Senator. As I told the chairman and

members of the committee, CMS is considering further administrative actions, whether it is enforcement actions or whatever. One of

those actions will include contact with beneficiaries, exactly how an

agent can make contact with a beneficiary.

Senator GRASSLEY. So then I think the answer to the question

is that you might take some action that would prohibit cold-calling?

45

Mr. WEEMS. We will take action in the range of approaches to

beneficiaries. Cold-calling will be one of those areas that we look

at. We are also looking at other things, such as approaching somebody in a parking lot.

Senator GRASSLEY. Yes.

The States license and regulate insurance agents/brokers, so

CMS does not really have authority over agent and broker behavior

except through the plans. Here I am using the words ‘‘agent’’ and

‘‘broker’’ interchangeably to mean the guys selling the product.

Two questions. When CMS gets complaints about agents, how

are they communicated to the States? Do you hold the plans responsible for the behavior of their agents?

Mr. WEEMS. First of all, Senator, when an agent’s behavior is

brought to our notice, we share that information with the State.

We have a memorandum of understanding with all but a few

States that allows us to do that. Also, the States share information

with us regarding behavior of their agents. And, yes, we do hold

the plans responsible for the behavior of their agents.

Senator GRASSLEY. All right.

Mr. Chairman, I had a little time left, but I think that answers

my questions.

The CHAIRMAN. All right. Thank you, Senator.

Senator Hatch, you are next.

Senator HATCH. Well, thank you, Mr. Chairman. It is nice to

have you here, Mr. Weems. We really appreciate the tough job you

have. If there is an impossible job in government, you have it, that

is all I can say. It is very, very difficult.

At last week’s hearing we had a SHIIP counselor from Salt Lake

City who testified, and he said that, while there are still problems

in Utah, they are not as prevalent as in other States. Now, he attributed that to the relationship that the SHIIP, the State Health

Insurance Information Program, counselors and other State office

holders have with representatives of the Medicare Advantage

plans. In fact, he told us that the Utah SHIIP counselors met every

month with a plan representative to discuss relevant concerns and

issues within the State.

Now, is that something that CMS would be interested in encouraging in all 50 States? It seems to me that it would make a lot of

sense. It works very well in Utah, and it would open up the lines

of communication so that Medicare beneficiaries get the best information and are also given the immediate assistance with the problems that may exist rather than federalizing this and having onesize-fits-all answers to everything.

Mr. WEEMS. Senator, it does sound like a practice that we should

promulgate and promote. It certainly sounds like a best practice to

be shared across the many States. We have conferences among the

plans. I would be anxious to get the leader of the Utah SHIIP there

and discuss that with the plans.

Senator HATCH. You might want to do that, because they apparently have had a very workable situation that might be applied

elsewhere.

What are your views regarding federalizing the regulations on

marketing practices of Medicare Advantage plans? I ask that question because I am a little bit concerned about doing that because

46

there are States like my State of Utah that are doing a pretty

darned good job. I am worried about the impact those regulations

would have on my State, as well as others. Do you have any suggestions on how this should be addressed so seniors are not taken

advantage of?

Mr. WEEMS. We are strengthening our own oversight and regulation of the plans. We think our relationship with the States is extraordinary helpful, especially the relationship where the plans

have to meet the solvency test of the States, and also that agents

have to be licensed by the States. But for marketing and marketing

materials, we believe that we have the oversight capability to be

able to carry that out and ensure that we have uniform information

across the country.

Senator HATCH. Well, I want to work with you, and I want to

help you any way I possibly can. It is a tough job. I applaud you

for implementing the secret shopper program. Your testimony

states that there were 240 marketing events at which a secret

shopper was present. Only 59 had no marketing violations of those

240. That means that 75 percent of the events did have a marketing violation, and that is not a very good compliance record.

So my question would be, given that number of violations, why

do you think that CMS acting alone can do a better job than it

could in partnership with the States in making sure that the plans

follow decent and honorable marketing rules?

Mr. WEEMS. One of the things that we noticed is the number of

violations fell off as we began a more determined enforcement regimen. In fact, again, one of the secret shopper activities that I was

in, this time in Woodbridge, VA, the agent was explaining the callback procedures to verify the enrollment. The beneficiary asked

and said, ‘‘Well, that seems to be an unnecessary complication.’’ In

a moment of irony, the agent said, ‘‘Well, we know CMS is watching.’’

Senator HATCH. I am not sure you want to make that point very

strongly after reading 1984.

Mr. WEEMS. Well——

Senator HATCH. I am only kidding. Please forgive me. I just cannot help myself sometimes.

Mr. WEEMS. My point being that the sentinel effect and the situational awareness that we have created with the surveillance system that we have put into place gives us confidence that we are

going to be able to spot marketing violations and act on them

quickly.

Senator HATCH. Sure. Well, we appreciate you.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you, Senator.

Senator Stabenow?

Senator STABENOW. Thank you, Mr. Chairman.

Welcome.

Mr. WEEMS. Good morning, Senator.

Senator STABENOW. Good morning.

First of all, just from an overall perspective when we look at

what CMS is doing, it seems to me CMS is churning out regulation

after regulation that cuts back on Medicaid and on Children’s

Health Insurance Programs, regulations that frankly are based on

47

policies that have been flat-out rejected by Congress. At the same

time, we are seeing a program, Medicare Advantage, with virtually

no regulation, a little bit of what you are talking about today.

But last week we heard from the Illinois State insurance commissioner. He called the private fee-for-service system a ‘‘wild west

with seniors caught in the middle.’’ So it is concerning to me that,

on the one hand, taxpayers are subsidizing private insurers. They

are supposed to be more efficient, supposed to be less costly, and

in fact are not. But we are not even requiring the private fee-forservice plans to report quality data.

At the same time, we are seeing more and more regulations that

prevent a child with disabilities or a person with mental illness

from getting any help through Medicaid. I mean, it just does not

make any sense to me, unless we are talking about ideology versus

just what makes good sense in government or the right kind of values in government.

So I wonder if you could speak a little bit more in terms of Medicare Advantage, in terms of what you are going to be able to do,

and why. Why do we see this dichotomy of going after Medicaid

and the access for Medicaid and Children’s Health Insurance, and

yet under Medicare Advantage we have an insurance commissioner

calling it the wild, wild west?

Mr. WEEMS. Well, thank you for the question, Senator. First of

all, with respect to quality data, by statute we cannot collect the

quality data from private fee-for-service plans. But looking at what

you——

Senator STABENOW. Do you think it would be a good idea to do

that?

Mr. WEEMS. Actually, yes. We supposed that in previous testimony.

Senator STABENOW. Thank you.

Mr. WEEMS. Looking at what you call the dichotomy, I guess I

do not see it that way, and perhaps we can differ on that point.

But on the Medicaid rules, those are targeting specific abuses that

the GAO, our own Office of Inspector General, has documented. So

you may say, well, what about similar abuses in Medicare Advantage? Just in the short time since marketing began this summer,

we put into place a number of stringent measures that include

compliance, that include surveillance, that include enforcement actions.

And, as we have said in testimony, we are not done yet. There

is still more to do. You can expect future actions from us with respect to contact with beneficiaries, the way that a marketing agent

can come into contact with beneficiaries, civil monetary penalties,

and also the way that agents are paid commissions.

Senator STABENOW. Well, I appreciate very much that you have

new guidelines that were issued in December, and so on. But do

you have the staff resources to do what you are talking about? That

is one of the things that my Budget Committee had hearings on

that I am very concerned about right now—the ability to actually

follow through with the resources that you have.

Mr. WEEMS. Well, you know, Senator—and I do not want anybody to mistake this for whining, this is just the pure budgetary

realities of the world that we live in—our 2008 appropriation for

48

CMS, for the operations part, was below the President’s budget.

For operations, I believe the number was about $170 million below

the President’s budget. For program integrity activities, which include oversight of Medicare Advantage, we requested an additional

$183 million and we got none of that. Much of that money—not

all—was targeted toward audits of Medicare Advantage programs.

So the budget that we requested, I believe, is sufficient to be able

to carry out these enforcement activities. Our 2009 budget is sufficient. We did not get our budget request in 2008. That leaves me

and the senior management team at CMS with some hard choices

to make about how we are going to spend those dollars.

Senator STABENOW. Well, hopefully we can work together so that

the President will not veto our Health and Human Services budget

again as he did last year, trying to increase that budget overall to

be able to do important things.

Mr. WEEMS. Thank you.

Senator STABENOW. Thank you.

The CHAIRMAN. Thank you, Senator.

Senator Snowe?

Senator SNOWE. Thank you, Mr. Chairman.

Thank you, Mr. Weems, for being here. Last week, we had an interesting session in discussing the compliance and non-compliance

of the Medicare Advantage program and the marketing tools. I

asked Mr. O’Toole of Humana as to why they had so many unlicensed agents, and also the allegations of marketing abuses that

they were also faced with as well. He cited the rapid growth in

plan enrollment as a contributing factor to the firm’s problem.

We have seen the growth of Medicare Advantage to the point

that it is 1 in 5 beneficiaries who is now enrolled, and that growth

is driven by the average subsidy. It has been more than 12 percent

above the fee-for-service under the traditional Medicare program.

So I think the question that I have for you is, exactly what kind

of oversight CMS is providing for compliance of the Medicare Advantage program, and also with respect to these marketing abuses.

Now, Director Orszag of CBO said last month, recently, back a

few weeks ago, that your Agency is not helping in providing the information necessary for him to evaluate this program, that he is

not getting the health data that he requires. In fact, he says he

‘‘continues to beg,’’ and those are his words, ‘‘the data from insurance companies on private Medicare Advantage plans. It is almost

like they are conducting a variety of experiments in disease management and various other things and they are doing so with public subsidies,’’ referring, as it says in this article, to the 12-percent

additional payments that are made above and beyond what we provide for traditional fee-for-service.

So obviously we have a problem here that needs to be corrected.

I mean, States are in the forefront. My State has passed legislation

banning cross-selling of products, cold calls, door-to-door. I think

that is critically important, and I am going to ask you about that

in a moment, whether or not we should have this as national legislation, in addition to a cooling-off period, which I think is also important.

But I would like to ask you specifically regarding non-compliance, how do you reconcile the rates of the non-compliance and the

49

lack of outcome data, the lack of data to evaluate these programs?

In fact, CMS issued warning letters to 71 percent of the plans and

notices of non-compliance to 63 percent, and required new business

plans from 28 percent. So, clearly we have a ways to go here in effective oversight.

I would like to have you answer that question, and also specifically why CBO is not getting the data that it requires to conduct

the oversight that is also essential, I mean, given the rate of subsidy the government is providing, $50 billion over 5 years. That is

a substantial subsidy by any measurement. So your Agency is accountable for evaluating that program and submitting the information so it can be independently verified.

Mr. WEEMS. Let me begin with Mr. Orszag’s comments. Mr.

Orszag was speaking about our disease management demonstrations, most of which are not required by statute. We do want to improve the way that we share information with him, but I think you

will also find that Director Orszag amended his remarks in a later

statement and that his remarks were confined to a very, very narrow piece of business, and he was not making a broad comment.

As I said, he amended his comment.

Senator SNOWE. So are you saying that he does not have any

problem with private fee-for-service and the reporting requirements?

Mr. WEEMS. I will let him speak for himself.

Senator SNOWE. Well, he said they had ‘‘a light reporting requirement.’’ Those are his words.

Mr. WEEMS. He did. But he amended is comments.

Senator SNOWE. So you are saying now that he feels comfortable

with the evaluation?

Mr. WEEMS. I think that he feels comfortable that he has an

entre ́e into CMS to be able to get the data that he needs, according

to the rules and agreements that we have set out. But again——

Senator SNOWE. When was that set up, just so we have some understanding?

Mr. WEEMS. Typically, even with other government agencies,

CMS, just for the protection of our beneficiaries, will have Data

Use Agreements so that we ensure that data are protected as we

share them, even with other government entities such as GAO. So

we have Data Use Agreements that govern the type of data that

we make available.

The CHAIRMAN. Thank you, Senator.

Senator Rockefeller?

Senator ROCKEFELLER. Thank you, Mr. Chairman.

I had high hopes for CMS when Secretary Leavitt came in. He

came in to visit West Virginia. I took him to the place where I had

been a Vista volunteer. He was very sympathetic. He brought his

16-year-old son with him. He visited a rural health center in a

place where very few people can even get to in West Virginia, and

I thought it made an impact. I was entirely wrong.

Had he been appearing this morning, I might have asked him

why it was that he had not resigned 3 or 4 years ago rather than

carry out what he has had to do at the administration’s orders, because he has turned, to me, from somebody who works to help people to somebody who simply follows the will of those in the adminVerDate 11-MAY-2000 17:51 May 20, 2010 Jkt 000000 PO 00000 Frm 00053 Fmt 6601 Sfmt 6601 55593.000 TIMD PsN: TIMD
50

istration. I do not mean to lay that on you, but I do mean to lay

that on him. It is one of the great disappointments of this administration, of which there are many, because I think he is such a good

person, and I do not know what happened to him.

An example. The purpose of this question is to highlight the fact

that the administration does not have the administrative authority

to limit CHIP coverage to children at or below 250 percent of poverty. Now, I can point to a whole lot of recent regulations where

your administration, you all, have gone well beyond the intent of

Congress or the law.

However, I would like to focus one question on Children’s Health

Insurance, though. That is, the regulation, the really malevolent

regulation, that you slipped in on August 17, you made it a CHIP

directive. It was cynical because you know it was not possible.

Ninety-five percent of all CHIP people at a certain level had to be

enrolled.

You cannot do that, and you know it. Leavitt knows it. The

President, I am sure, does not know it and would not be interested

if it was told to him. But it has caused great distress. You have

no authority to issue that directive. You have none, but it did not

bother you. You just went right ahead. You just went right ahead

and did it.

It should have been handled through the formal rulemaking

process. You were not interested in that. It was like you started

handing out Medicaid waivers just as fast as you possibly could.

Unfortunately, you gave your first one to West Virginia. That was

a terrible mistake by you, and a terrible mistake for our State. No

proper public notice, no comment, no unilateral subregulatory guidance.

So it is very interesting. You are coming to Congress and you are

seeking legislative permission to expand the malevolence of August

17th—I am going to ask you to defend yourself—to States wanting

to cover children at levels higher than 200 percent of poverty, when

you did not come to Congress the first time around. So do you believe that August 17th, the guidance then, has the force of law or

that it is interpretive?

Mr. WEEMS. Senator, I have not had the opportunity to——

Senator ROCKEFELLER. Yes, you have.

Mr. WEEMS [continuing]. Speak to counsel on the——

Senator ROCKEFELLER. You know the answer to this question. Do

not give me the counsel business. You are number-two up there.

Mr. WEEMS. Senator, we took this action believing we had the

legal authority to do so.

Senator ROCKEFELLER. All right. So then there is a little case in

New Jersey, State of New Jersey v. U.S. Department of Health and

Human Services. It states that, ‘‘The language of the State Health

Organization letter itself demonstrates that CMS does not intend

the policy guidance to have the force of law.’’ But still, you do it

and you make it law because nobody stands up, because health

care is not grabbing enough attention.

Why was this comprehensive policy change handled through a

letter to the States, for heaven’s sakes, when it is an impossibility

for States to conform to? There may be one or two that can do that.

We cannot even come close. So you cut the legs right out from unVerDate 11-MAY-2000 17:51 May 20, 2010 Jkt 000000 PO 00000 Frm 00054 Fmt 6601 Sfmt 6601 55593.000 TIMD PsN: TIMD
51

derneath us. I mean, that was the case before the President vetoed

the CHIP bill twice. I really wonder why it is that you decided to

slip that through in an administrative letter to the States and not

come to us, honorably, with some kind of courage and integrity.

Mr. WEEMS. CMS takes many actions through State Medicaid directors’ letters. This was one.

Senator ROCKEFELLER. That is an outstanding answer. It gives

me a lot of comfort. I understand the way you are looking at me,

because it is exactly the same way I feel looking at you. You consider us a harassment. You consider us unnecessary. You do something that takes away health insurance from thousands and thousands of children by setting up an impossible situation.

Can I ask whether or not Secretary Leavitt suggested to the

President that he veto the Children’s Health Insurance bill?

Mr. WEEMS. I never heard the Secretary communicate that to the

President, but I am certain he has communications with the President outside of my earshot.

Senator ROCKEFELLER. When I read that he did—so my time is

out and I feel a lot better for having said some fairly negative

things to you, which I hope you will carry to the Secretary.

Mr. WEEMS. I will convey them to the Secretary, sir.

The CHAIRMAN. Mr. Weems, why not just ban in-house sales, period? That is just a huge problem. I mean, you have door-to-door.

You have banned door-to-door directly. Why not just ban in-house?

This fellow, Mr. Harper. A salesman visited him. Why? Because the

salesman was at his brother’s home and the salesman got the

brother to call him, Mr. Harper, to skirt the door-to-door ban. Why

not just bad in-home sales? These agents get in someone’s home,

and boy, that gets pretty abusive. That is high-pressure stuff.

A lot of times these seniors will sign anything to get the agent

out of there, or do anything. They will make telephone calls. Sometimes the form will come down, sign here, Mr. Senior Citizen. Now,

if you change your mind, you can tell us later. But once it is signed,

it is pretty hard to get back out of it. That is the problem Mr.

Harper faced. I do not think that is isolated. Why not just ban inhome sales?

Mr. WEEMS. Senator, that is certainly something that they are

considering. A matter of personal interest to me, one of the things

that I noticed while, again, I was on one of these secret shopping

episodes, was at one point toward the end of the marketing episode

I asked for an application. I said, ‘‘Can I have an application so I

can fill it out and apply?’’ I was told, ‘‘No. We would like to come

to your home to do it.’’ To me, that is a clear indication of highpressure marketing activity. I have seen it first-hand.

As I said, as we are deliberating with urgency——

The CHAIRMAN. When are you going to decide?

Mr. WEEMS. You will see something probably within the coming

weeks, sir.

The CHAIRMAN. On this question?

Mr. WEEMS. On the question of contact with beneficiaries, yes.

The CHAIRMAN. I am talking about in-home sales.

Mr. WEEMS. We are considering a range of things.

The CHAIRMAN. I am sure you are, by definition. I am narrowing

in on one.

52

Mr. WEEMS. I am not going to say to you absolutely, sir, that we

will ban in-home marketing. It is one of the things that we are considering. If our actions do not meet your standards, I am sure you

will want to talk to me about it.

The CHAIRMAN. One thing that is interesting to me is a signal

that you are not doing enough. Here is the signal: we are not getting a lot of complaints from the Medicare Advantage plans saying,

hey, get CMS off our backs. We do not get that at all. In fact, just

the opposite. We hear Humana say, we want CMS to do more. I

just do not hear, get them off my back, get them off my back, and

all that kind of a thing. I do not know if anybody in this committee

ever does. I have not heard any complaints. That, to me, is a signal

that you are not doing enough.

Mr. WEEMS. As I said, we are considering more. You will see

more from us in the future. I hope that the surveillance system

that we have set up is a better sentinel of abuses than the calls

that you might get.

The CHAIRMAN. An organization can have all kinds of flow charts

and diagrams and all that stuff. All that is pretty irrelevant. What

really counts is results.

Mr. WEEMS. Yes, sir.

The CHAIRMAN. I do not know about that. That is going up. It

is not going down, it is going up.

Mr. WEEMS. Again, I am not going to try to deceive this committee by cutting that off in December.

The CHAIRMAN. Well, I appreciate that.

Mr. WEEMS. I am going to show you the data, and I am going

to live by the data, sir.

The CHAIRMAN. And the data is going up. All I am saying is, by

results, I mean I do not get a lot of complaints. I have not heard

a single complaint, not one, from any plan saying that CMS is too

aggressive on our marketing plans. I have not.

Mr. WEEMS. Again, Senator, I——

The CHAIRMAN. On the contrary.

Mr. WEEMS. I do not know what kind of measure——

The CHAIRMAN. I think that is a pretty good rough measure.

Also, on the contrary, just to repeat myself, one major company

says you are not doing enough, you should do more, you should

crack down more on abusive practices.

Mr. WEEMS. They will likely get their wish.

The CHAIRMAN. Well, we will see.

Senator Wyden?

Senator WYDEN. Thank you, Mr. Chairman.

Director Weems, first, let me apologize. It has just been, even by

Senate standards, a crazy morning.

Mr. WEEMS. It is always good to see you, Senator.

Senator WYDEN. You as well.

Let me start by saying that I am prepared to say that I think

efforts that you have taken—the secret shopper program, the regional offices effort, the memorandum of understanding—these

kinds of steps have been useful. But we were told by the National

Association of Insurance Commissioners and their representative

last week that the problems are still ongoing, that the swamp has

53

not been drained in terms of the marketing abuses and the rogue

agents and all of these kinds of problems.

So my question to you is, what is wrong with saying, as we do

in our legislation, S. 1883, led by Chairman Kohl, that the Federal

Government is going to address the concern that you have in terms

of uniformity, that there is a strong Federal role here? We deal

with the companies in a uniform way, marketing issues, ensure

that CMS is a significant role in it.

What is wrong with saying that the States should not be able to

supplement that, which is what S. 1883 does? So I think it would

be helpful, first, on the record: does the administration support

1883, yes or no?

Mr. WEEMS. There are aspects of it that we support. I do not

know that we have come up with a uniform statement of ‘‘yes, we

support it’’ or ‘‘no, we do not.’’ We certainly support the spirit of

1883.

Senator WYDEN. So the door is open then to working with Chairman Kohl, myself, and others?

Mr. WEEMS. That door is always open, Senator.

Senator WYDEN. Well, I appreciate that.

So then let us kind of unpack it and have you tell us, first, what

is wrong with the effort to have the States play this supplemental

role? Because they really feel that a lot of seniors are getting hurt

or are falling between the cracks with the current system because

they cannot supplement what the Federal Government is doing in

the consumer protection area in a timely way. In other words, they

can take it from beginning to end and walk it all the way through

the system. Conceptually, what is wrong with that?

Mr. WEEMS. Well, Senator, we would want to make sure that

there was complete uniformity and that we were not having 50 separate enforcement regimens—50 separate, as you said before, regulatory regimes where the program might become literally ungovernable having to respond to that many regulatory regimens.

Senator WYDEN. So with a uniform approach, which is what I

think Chairman Kohl has been seeking, certainly I support him as

well, you could see supporting cutting the shackles off the States

and giving them a supplemental role as well?

Mr. WEEMS. It is something we can talk about in the nature of,

it has to be very, very uniform. We have these kinds of relationships with States under some very narrow circumstances. I will

also say, Senator, that this kind of help is not going to come for

free. We might consider giving CMS the resources that it asked for

first before taking these steps. As I said previously, CMS’s operations budget was substantially less than what we had requested

in the President’s budget. Right now in CMS, we have a hiring

freeze on just to be able to make payroll for the year.

Senator WYDEN. Here is what Mr. McRaith said when he was

speaking for the insurance commissioners. He said, ‘‘There needs

to be a regulator that is able to respond to an individual complaint

and go look at a company or respond to a pattern of complaints,

as almost every State is receiving, look at a company and really

scour that company and its business practices to understand and

evaluate it so it complies with the national uniform standard.’’

54

Is that something that you could find a way to support? We will

have to work on the details. I think there is concern that you all

will just rule out supporting 1883 altogether. But do you think

there is validity in what Mr. McRaith and the insurance commissioners are saying there?

Mr. WEEMS. Well, certainly those are the kinds of things that we

are trying to accomplish, and, Senator, I think it is something we

can talk about.

Senator WYDEN. All right.

Mr. Chairman, I think my time has expired, and I will wait for

another round.

The CHAIRMAN. All right. Thank you very much.

Senator WYDEN. Thank you.

The CHAIRMAN. Senator Snowe?

Senator SNOWE. Thank you, Mr. Chairman.

Mr. Weems, you were speaking about the rate of audits. Can you

tell me exactly how much you are spending on audits? As I understand it, it has declined by half since 2001. So exactly what are you

spending on audits, and what is the rate, comparatively speaking?

Mr. WEEMS. I can get that for you. Typically, I think this year

we will—and it depends on which audit you are talking about. If

it is the financial audits where we are required to do roughly a

third——

Senator SNOWE. Correct. Right.

Mr. WEEMS. Those audits——

Senator SNOWE. Auditing the records.

Mr. WEEMS. Right. Again, within the operations budget that we

have, we are hopeful that we will be able to do a third of the plans

this year, but I am not in a position right now to be able to make

that——

Senator SNOWE. And how much are you spending on audits?

Mr. WEEMS. I will have to get that for the record.

Senator SNOWE. I mean, how does that compare year to year? Is

it true it has declined significantly?

Mr. WEEMS. We actually——

Senator SNOWE. Given the fact of the rate of subsidy here, it is

all the more important, is it not, to make sure that these companies are audited in their records, given the dimensions of marketing abuses and practices that are totally unacceptable in the use

of taxpayers’ money?

Mr. WEEMS. In 2008, we had planned substantial increases in

that area. I can get you the year-to-year time series.

Senator SNOWE. A substantial increase. But is that a net increase over time or does that just happen to be——

Mr. WEEMS. Yes.

Senator SNOWE. Well, you would not happen to know what that

is?

Mr. WEEMS. Our plan for this year, using the program integrity

funds, I believe was to dedicate another $25 million to audit activities.

Senator SNOWE. Yes. That may well be. But the question is, what

did we spend in the past, which was far more significant than it

is today?

Mr. WEEMS. I will get that for you.

55

Senator SNOWE. Would you agree with that?

Mr. WEEMS. I——

Senator SNOWE. And given the rate of growth of the Medicare

Advantage plans and the level of subsidy, all the more important

to be engaged in aggressive oversight. That is a concern. It is troubling, the fact that those audits and the amount that is devoted to

audits—you are talking about a $50-billion subsidy over 5 years. If

the rate of audits has declined by almost half, that is even more

troubling since 2001.

Second, Glen Hackbarth, the chairman of the Medicare Payment

Advisory Commission, mentioned that approximately half of these

subsidies were retained by plans in the form of administration

costs and profits. Would you not say that that is very high?

Mr. WEEMS. I would say that our actuaries review the plan bids

for administrative matters and for profit and make a judgment as

to whether those administrative costs are reasonable. They have

agreed that, in the bids, they are.

Senator SNOWE. And you examine the commission structures?

Mr. WEEMS. We are going to take a look at commission structures.

Senator SNOWE. I see. It is not something you have done so far?

Mr. WEEMS. Well, certainly we have looked at it. The question

is, are we——

Senator SNOWE. Well, I would think there would be. It is very

disturbing that much of it is directed to commissions through very

objectionable sales and practices. I mean, it is a recipe for disaster,

so I think it is absolutely critical that that occurs within your agency.

Mr. WEEMS. As I have told the——

Senator SNOWE. And sends a very important message.

Mr. WEEMS. That is one of the items that you will see from us

here soon.

Senator SNOWE. All right.

And, finally, on a cooling-off period, I happen to believe that a

cooling-off period would be very important so people can return to

their existing coverage if somehow they have been misled, the

plans have been misrepresented, mischaracterized, given all that

has happened. So would you support a cooling-off period so that

they could return, a 60-day cooling-off period so they could return

to their existing Medicare plan?

Mr. WEEMS. We have special enrollment periods now where we

can act very quickly. If somebody feels like they have been deceived

into a plan, we can disenroll them and re-enroll them prospectively

into the next month by calling 1–800–MEDICARE.

Senator SNOWE. Well, we heard——

Mr. WEEMS. Although there is an election period where beneficiaries can change from like to like coverage or return to original

Medicare.

Senator SNOWE. And we heard this last week in terms of even

the appeals process and so forth. I just think, given the complexities of this program, a 110-page guide and all that is happening

on the practices, I think it would be all the more important.

And speaking of enrollment periods, should we not synchronize

these enrollment periods between Medicare Advantage and Part D?

56

I understand Medicare Advantage is in the first quarter of the

year, and that is fine. But leaving the Part D program during the

course of the holiday season, there are many enrollment periods, it

is very confusing. Why not align them and synchronize them?

Mr. WEEMS. Well, we certainly perform education and outreach

during the same time period. We are looking at aligning a number

of our——

Senator SNOWE. Yes. The key is to be user-friendly. I think we

understand what we are all talking about here. I do think it is critical that you realign these enrollment periods. There are so many

of them. It is extremely confusing, let alone leaving the Part D during the holiday season, November and December. I think it is great

to move the Medicare Advantage to the first quarter of the year.

I think you ought to synchronize it in that regard. Thank you.

The CHAIRMAN. Thank you, Senator, very much.

Senator Rockefeller?

Senator ROCKEFELLER. Thank you, Mr. Chairman.

The CHAIRMAN. I might say, we have 13 minutes left on a vote.

Senator ROCKEFELLER. Oh. Well then, let me just say, how many

children, Mr. Weems, who are currently enrolled in CHIP today

will lose coverage because of the August 17th directive? And I do

not want you to tell me ‘‘none’’ because of the grandfathering part,

I want you to look out and say how many are going to lose coverage, do you think?

Mr. WEEMS. I do not have that number available to me, Senator.

Senator ROCKEFELLER. Would that not be something that would

be of interest to CMS?

Mr. WEEMS. Senator, CHIP is not the only coverage option for

children. Almost any proposal has crowd-out. Our policy of August

17th simply says we need to put the poorest children first. There

are States leaving behind poor children because children who are

wealthier are many times easier to find. It seems to be a noble goal

to be able to say, let us find the poorest kids and let us put them

on the rolls first before we reach to children of wealthier individuals.

Senator ROCKEFELLER. So in other words, if somebody is at 210

percent of poverty they can be ignored, but if they are at 200 percent of poverty they make it? Do you know what poverty is?

Mr. WEEMS. I do.

Senator ROCKEFELLER. Have you ever been to West Virginia?

Mr. WEEMS. I have.

Senator ROCKEFELLER. When, and what did you do there?

Mr. WEEMS. I have driven through it.

Senator ROCKEFELLER. On the way to the Greenbriar?

Mr. WEEMS. No, sir. I have never been to the Greenbriar. I grew

up in southern New Mexico, sir.

Senator ROCKEFELLER. All right. Then you ought to be seeing

things differently.

Thank you, Mr. Chairman.

The CHAIRMAN. Mr. Weems, why not let State insurance commissioners develop guidelines for States to enforce the guidelines

under which Medicare Advantage plans will be marketed and

guidelines under which then the State insurance commissioners

can then oversee the regulation, as in the case of Medigap? I do

57

not quite understand why the general approach that is taken in

Medigap does not also apply to Medicare Advantage. But do not

forget, Medicare Advantage is private companies. It is not government.

Mr. WEEMS. Yes.

The CHAIRMAN. It is not government at all. These are private

companies.

Mr. WEEMS. They are.

The CHAIRMAN. Medigap is private companies, private insurances.

Mr. WEEMS. They are.

The CHAIRMAN. Not Medicare, it is private companies. We have

this proliferation of Medigap plans that were being offered years

ago, lots of marketing abuses. It was a mess. People were taken advantage of. It was just an outrage. I got very involved with this,

as have other Senators, and it led to some Federal legislation. Senator Claude Pepper led a lot of it. As you know, it led to standardization of Medigap plans and States basically deciding how they

are going to regulate enforcement, and so forth.

Why can the same approach not be taken here? I do not know

that CMS is equipped, frankly. That is not a complaint. I just do

not know that you are equipped to do the job in the right way. You

are such a big agency, you cannot get out in all these cases the way

the State insurance commissioners can to know what is going on

and to do what is right. Why is that not just the right approach?

The Medigap approach. Why is that not the right approach here?

Mr. WEEMS. Well, Senator, it is a good question, and I think one

worthy of discussion here. I think you have hit on something very

key in discussing Medigap policies. That is that one of the consequences of that effort was standardization. For Medicare Advantage programs, they offer a different and wide range of benefit

packages. We believe that that is a good thing.

The CHAIRMAN. It is more complex, wider variety. Maybe that is

part of the problem. You know, you can only do so much when you

are insuring people for health insurance. You either get insured

with basic coverage, maybe with basic drug coverage and so forth.

I mean, when things get too complicated, little signals come up to

me that somebody is trying to make a buck rather than trying to

help serve people.

Mr. WEEMS. And again, Senator, I think it is a worthy conversation to have. In sitting and listening to the marketing of the plans

and trying to be objective, listening to the variety of products that

are offered, I think that you could see how different plans offering

different benefits were going to be helpful to a different set of individuals.

The CHAIRMAN. Well, maybe you can have 12 plans, or 10. It just

seems obvious to me that CMS is just not competent, not equipped,

not qualified to really cover the problem nationwide, and probably

for the reasons you are indicating. If there are so many different

plans being offered and such variety being offered, that is all the

more reason you cannot know about all of that. Let the States,

through standards regulations developed by State insurance commissioners nationwide—it is not just Medigap. That is applied in

other areas, too.

58

Mr. WEEMS. Yes. Standardization of benefits is not a result that

we would be looking for. We have made strides in standardization

of marketing material, standardization of contact with beneficiaries.

The CHAIRMAN. That is an interesting question. We have standardization of Medicare.

Mr. WEEMS. In fee-for-service——

The CHAIRMAN. We do in Medicare.

Mr. WEEMS. Well, that——

The CHAIRMAN. That is called Medicare. MMA is not Medicare.

Mr. WEEMS. Senator, there are variations in local coverage decisions. So what is covered in some areas is covered differently in

others. It is not a 100-percent uniform——

The CHAIRMAN. It is pretty close. You have Part A, Part B. It is

pretty close. It is pretty close.

Mr. WEEMS. There is variation in coverage, sir.

The CHAIRMAN. Pretty close, though. All right. I would just urge

you to think very seriously about maybe doing this a little bit differently. It partly is to gain the confidence of people, of seniors who

do have a lot of confidence and trust in Medicare, and it is maintaining that trust and confidence in Medicare. I might worry that

seniors are going to lose that confidence in Medicare based on what

you are doing, and we are then going to have a bigger problem on

our hands.

Thank you.

Mr. WEEMS. I think we share the same interest here. As you consider legislation and as we consider further rulemaking, I would be

interested in having a conversation. Thank you, sir.

Senator GRASSLEY. I hope you have a few more minutes here.

Then, Mr. Chairman, I will adjourn the meeting if nobody else

was——

The CHAIRMAN. Oh, no. I think Senator Wyden wanted to come

back.

Senator GRASSLEY. Oh, yes.

Mr. WEEMS. I will have time for you, Senator.

Senator GRASSLEY. I guess you will have to have time for other

members. All right.

First of all, I want to refer to a person who testified last week.

We had Mr. Harper testifying that he was fraudulently enrolled in

a Medicare Advantage plan. In an e-mail to my staff, the plan

claims that because Mr. Harper disenrolled, he technically was

never a member of the plan.

Two questions. If that is true, where does his money go? I guess,

three questions. Why was it not refunded? Then as kind of a conclusion, if you have not looked into this, would you please get back

to me on it?

Mr. WEEMS. Let me speak, in general, about this case. Senator,

I am a little reluctant to speak in specific because this case has

been referred to our Office of Inspector General.

Senator GRASSLEY. Oh. The IG? Yes.

Mr. WEEMS. Office of Inspector General. But let me speak in general.

Senator GRASSLEY. All right.

59

Mr. WEEMS. So if somebody believes that they have been fraudulently enrolled in a Medicare Advantage program or if they believe

that they have been deceived into enrolling, they should call

1–800–MEDICARE. They call 1–800–MEDICARE. At that moment

on that phone call, we can disenroll them from that plan and prospectively enroll them in another plan that will begin at the beginning of the next month. We can do that very quickly.

Now, if they have been in the plan for a bit and had incurred

some expenses, with retroactivity, we want to make sure that we

sit down with that beneficiary and, if they are changing plans, that

they understand there may be some change in their financial obligation if we disenroll them from the plan that they were in. For

instance, if they moved to a plan with different cost-sharing or different coverage. So, we want to go through that with them very deliberately.

So prospective we can do very quickly. Retrospective disenrollment and re-enrollment, we want to go through with the beneficiary very carefully so they understand the choices they confront

in doing that.

Senator GRASSLEY. In regard to the IG investigating that specific

case, even in writing I cannot get an answer from you?

Mr. WEEMS. I will see what we can do. We have just been asked

to withhold further comment.

Senator GRASSLEY. All right.

Federal preemption of State law in the Medicare+Choice program

was much less broad than it is now. Why is the very broad preemption of State law—especially with respect to marketing and sales—

for Medicare Advantage and Part D plans important? From CMS’s

viewpoint, were the States inconsistent in their regulation of

Medicare+Choice plans?

Mr. WEEMS. The Medicare Modernization Act brought growth opportunities for MA, as well as introduced Part D. Both C and D are

administered now currently in a consistent manner. The significant

growth in the number of enrollees in C and D would make it impractical to return to this previous regulatory approach. Having 50

States and territories set standards for MA organizations inconsistently would result in a program that could not be effectively administered.

For instance, if one State required customer service representatives to be licensed brokers if they provided just information on

Part C or D, it would make it impossible for plans to have centralized call systems as they do now. Likewise, State review of marketing materials would be inconsistent with the time frames and

the uniformity necessary to create a national program such as

Medicare Advantage and Part D.

Senator GRASSLEY. Another question I have involves the appointment of agents. In the 2009 Medicare Private Plan Call Letter, it

suggests that CMS will require the plans to file with the State Solicitor their appointed agents. Presumably CMS will keep the list

for itself. How does requiring appointment of agents at the State

or Federal level fit into CMS’s own enforcement plan?

Mr. WEEMS. This is part of the data use sharing information that

we have with States. We need to make sure that agents are propVerDate 11-MAY-2000 17:51 May 20, 2010 Jkt 000000 PO 00000 Frm 00063 Fmt 6601 Sfmt 6601 55593.000 TIMD PsN: TIMD
60

erly licensed and properly appointed and that CMS and the States

know who they are.

Senator GRASSLEY. All right.

I am going to turn to Senator Wyden. I am going to leave, Senator Wyden. I do not know what the plans are about other people

coming back. I will let you make that decision. Maybe even Senator

Baucus is coming back. I do not know for sure. I have to go.

Senator WYDEN. I thank my colleague, and I know we will be

working together on this and the whole health care agenda.

Let me turn now, if I could, to the commission structure again,

because I heard you talk to Senator Snowe, Director Weems, and

I do not get the sense that this is a big priority, reform in this area.

I want to see if maybe we can change your mind.

Here is what Mr. McRaith said. This is, again, talking about an

ongoing problem, not something that has been corrected: ‘‘Commission structure is important. Commissions that reward agents for

volume of submitted applications, that is a serious problem.’’ Last

week, Chairman Baucus held up a chart that had been used by

Humana until there was an effort to blow the whistle, and I really

commend Senator Baucus and Senator Grassley for highlighting

this, talking essentially about how there would be a paradise of bonuses, $10,000 bonuses.

That was ongoing. It did not talk about something in the past,

it talked about now. That would have been running, I believe the

date was, through April of 2008. Does not a whole lot more need

to be done to fix this problem of incentivizing commissions in a way

that damages older people? I mean, one of the reasons I feel so

strongly about this is that I think these practices are giving the

private market a bad name. Our Healthy Americans Act, with 12

Senators, is built around a private market. We are not going to

have a lot of confidence in America if these practices do not get corrected.

So I want to give you another chance on the commission issue

to see if you will amp up what is being done to control these

abuses, and abuses that, according to Mr. McRaith, are going on

now, not a thing of the past?

Mr. WEEMS. Senator, I agree with you. I agree that this is not

theoretical. As I have said in testimony today, we are under way

with further administrative actions that go directly to commissions.

You can expect to see that from us here in the coming weeks.

Senator WYDEN. Well, send a wake-up call. What kinds of things,

without giving up proprietary information, are you trying to go

after? I assume you want to deal with this outrageous ad of

Humana that was taken off the market. But what kinds of commission practices are you most concerned about?

Mr. WEEMS. I am most concerned about churning. That, I really

consider an objectionable kind of practice. Beneficiaries should be

in the coverage that is best for them, not best for their agent. They

should choose it and, if it is good for them from year to year, that

is what they should stay in and they should not be churned. I find

that practice objectionable.

Senator WYDEN. So what kinds of limitations would you be looking at in terms of churning? Just, again, I recognize we are not

putting out a rule here or writing a piece of legislation. But for purVerDate 11-MAY-2000 17:51 May 20, 2010 Jkt 000000 PO 00000 Frm 00064 Fmt 6601 Sfmt 6601 55593.000 TIMD PsN: TIMD
61

poses of this morning and sending a message that you as the Director are concerned about it, what kind of limitations would you see

as appropriate in the churning area?

Mr. WEEMS. There are certain industry standards right now

about churning that I think we are going to take a hard look at

and see if those should be codified.

Senator WYDEN. So you would see beefing up some of the restrictions in the industry rules and putting teeth in the enforcement?

Mr. WEEMS. Yes.

Senator WYDEN. And I hope that you will also take a look at

even beefing up the rules in addition to the enforcement. Are you

open to that?

Mr. WEEMS. We are open to that discussion. Yes, sir.

Senator WYDEN. All right.

Let me come back to one of the other questions that we touched

on, and that is making sure we deal with this quickly, that we not

have the back and forth that has gone on for months and months

over the CHIP legislation, and something is vetoed, and the like.

The States are ready to go now. They are equipped now. They are

ready to use their resources now to help consumers who are still

getting exploited now. So that is not a question of Federal resources.

Again, what can be done quickly to take the shackles off the

States so that they can do what they see is the essence of their

work and we do not have more people hurt as the Congress just

chews and chews and chews on this forever?

Mr. WEEMS. I think that, immediately, CMS can strengthen its

relationship with States so that, if there are things that the State

agents or State commissioners receive in terms of complaints, they

can get to us very quickly and then we can act very quickly. That

is an immediate action that we can take. It is certainly considered

in the memorandum of understanding that we have. We have some

instances of that. I think that relationship still needs to be

strengthened more.

Senator WYDEN. I think, again, that is constructive. As I touched

on, I mean, I have looked at your programs, the secret shopper. I

think they are useful. This is not a referendum on somebody saying

that they are lousy. I think that they are useful. But it is not

enough, and it is not enough on the basis of what the seniors are

saying, it is not enough from the standpoint of what the Area

Agencies on Aging are saying. It is just not getting it done.

I think the memorandum of understanding fits very much into

this category. I think it is useful but it does not carry the force of

law, the force of immediacy, the force of urgency, the force of consumer protection that these senior groups and the insurance commissioners feel is necessary.

So when do you believe you could get back to us on the administration’s position on S. 1883?

Mr. WEEMS. A couple of weeks. Is that satisfactory?

Senator WYDEN. Yes. That will be constructive. What I would

like, for the direction of Chairman Baucus, Chairman Kohl, myself,

the people who are involved, what parts of the legislation you can

support and what parts of the legislation you cannot support.

Mr. WEEMS. All right. We will do that.

62

Senator WYDEN. Let us talk for a minute about Medigap because,

as you know, I have had a lot of interest in this over the years.

I want to approach it in a different kind of way because, I think,

a lot of the Medigap discussion, particularly as it relates to Part

D, kind of misses the point. They are two different products and

we are trying to acknowledge that in 1883. They are just different.

The Medicare supplement is different than a program that is run

by the Federal Government.

But the real value of Medigap is that now you can walk into any

senior citizen center in the United States anyway—because I have

done this—and people can walk you through the Medigap choices.

They can take you through the 10 or so standardized packages, and

older people and their families can figure out what makes sense for

them and their particular needs. That is not true for Part D. People cannot sort this out. I get calls from somebody who is in their

30s or 40s who is a lawyer, an accountant, who says, ‘‘Ron, I am

working with my mom’s Part D. I cannot figure this out. Could you

please help me?’’

Do you not think there is a long way to go in terms of simplifying

this process and that the Medigap model—recognizing that it is a

different product, number one, recognizing that what we are talking about in our legislation is the Federal Government through

CMS playing this important role, uniformity on marketing, uniformity on jurisdiction over the companies—still has a lot to recommend it to us because people can sort the information out quickly, and they have not been able to do that in Part D?

Mr. WEEMS. Senator, with respect, I think our experiences are

different. By that, I am not in any way discounting your experiences. I spent a lot of time this year on Part D, going around the

country, talking to people, listening in on counseling sessions. CMS

has devoted a lot of resources to counseling to make sure that people get on the plan that they need. It has just been my view that

that has been, for the most part, easy, seamless.

With respect to the Medigap model, I think one of the things that

we would not want to do is to reduce the number of choices that

are available. Choice is a good thing. I believe our seniors are capable of choosing plans that are right for them. In fact, the data from

independent polling firms show great satisfaction with the Part D

benefit and the way it is administered. Eighty-seven percent. It is

pretty rare for a government program.

Senator WYDEN. So people have not been confused with this

large array of choices. Is that what you are saying?

Mr. WEEMS. My experience has been that people get the help

that they need so that they can make good and informed choices

in choosing a plan that is right for them, and that CMS has devoted considerable resources to making sure that that happens.

Senator WYDEN. Respectfully, the seniors, the witnesses who

have been here, the advocates to Area Agencies on Aging and the

National Association of Insurance Commissioners, disagree with

you. I hope you will take a look at this. I am asking you to take

a look at it, recognizing that it is a different product, it is a different system. But people can sort through their choices on something that, back when we started this, the abuses were flagrant,

arguably more flagrant than what we are seeing today, and it has

63

worked. It has worked for seniors and their advocates, and it has

worked for responsible companies.

Now, you mentioned that CMS can provide seniors who have

been misled into signing up for a Medicare Advantage plan—that

they can change the plan in a special enrollment period. On average, how long does it take for CMS to provide a special enrollment

period for a beneficiary who calls 1–800–MEDICARE?

Mr. WEEMS. There are two types of enrollments and disenrollments, and I want to make sure that we properly distinguish

between them. A beneficiary who calls 1–800–MEDICARE and says

I want to change plans, we can, on that call, disenroll them and

enroll them in a plan and their coverage will begin in that plan at

the beginning of the next month with one phone call.

Now, if there is a retrospective disenrollment and then re-enrollment, we want to make sure that we do not handle that on that

phone call. Instead, that goes to a case worker who can tell a beneficiary, you were enrolled in this plan, you may have received these

services. The plan you are going into may have a different costsharing or different coverage structure.

We want to work with them to make sure that they understand

that their financial liabilities might change—they might change in

either direction—and that the premiums are different. That takes

a little longer to work through because it is something we want to

make sure we get exactly right for the beneficiary. We handle those

on a case-by-case basis.

Senator WYDEN. Let us talk about disenrollment when you have

an individual who has been the victim of fraud. For example, in Oregon we have heard of cases where straightening this out has

taken 6 months or longer. There is a case in Wisconsin where it

took 8 months to sort out. Is this not an area where there needs

to be significant improvement?

Mr. WEEMS. Well, those were older cases where the enrollment

and disenrollment may have been handled by a contractor. CMS

handles those now. We are much more nimble in recent months.

Again, Senator, on enrollment and disenrollment where it is prospectively, we can do that very quickly and we can handle it in

that one phone call. Where the beneficiary may have used that

plan, we want to sit with them and go through very carefully how

their costs may have changed or any monies that they may owe,

or be owed to them.

Senator WYDEN. One of the reasons that I feel so strongly about

getting the States in this supplemental role is, when you say we

are going to sit with people—the Federal Government is not as

close to this as the States are and the Area Agencies on Aging, so

I hope you will incorporate them. I mean, it is even part of the

problem with the secret shopper. I have already told you, I think

the secret shopper is a good program, useful. But it does not get

the people in their houses, where so often a lot of the most outrageous conduct takes place.

Mr. Weems, we will wait your written report on S. 1883. I hope,

in sending you off, you can see how strongly Senators feel about

this, and particularly reflect on the views of Mr. McRaith and the

commissioners, and the seniors. They are saying that they think a

number of these steps that the Agency has taken have been useful,

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and they largely share my view. But they believe that the problems

are ongoing. As we speak today, this week, we still have older people falling between the cracks, taken advantage of.

It is giving the private sector a bad name, and it is time to put

all the tools that are available out there to deal with this, which

is what the point of S. 1883 is all about, to try to find that space

where the Federal Government can benefit from the States engaging in a complementary effort, not supplanting the Federal Government, but allowing the States to complement the efforts so we have

a beefed-up role in the consumer protection area.

I would like to give you the last word. Is there anything you

would like to add?

Mr. WEEMS. Just, thank you for the opportunity to appear. I admire your passion, and I hope you know I share it.

Senator WYDEN. Well, we thank you and look forward to working

with you.

With that, the Finance Committee is adjourned.

[Whereupon, at 11:39 a.m., the hearing was concluded.]

(65)

A P P E N D I X

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

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COMMUNICATIONS

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Æ