The Senate Finance Committee heard testimony Thursday that marketing abuses continue in the Medicare Advantage program, despite steps taken last year by the Centers for Medicare and Medicaid Services and the insurance industry to clean up the problem.

Several witnesses urged the panel to respond by moving legislation giving states joint authority with the federal government to crack down on abusive sales tactics, a step Committee Chairman Max Baucus, D-Mont., indicated after the hearing he will take when he moves Medicare legislation later this year.

But testimony by an official with Humana, one of the biggest insurers in the Medicare Advantage program, suggested the company might resist such a step. And it appears likely that the Bush administration will do so as well.

“State regulators receive frequent reports of a variety of problems,” testified Michael McRaith, director of the Illinois Division of Insurance who spoke on behalf of the National Association of Insurance Commissioners (NAIC). Those problems relate not only to private fee-for-service plans, but other types of plans in Medicare Advantage, the private health plan side of Medicare, he said. They also concern private prescription drug plans that offer coverage in Part D of the Medicare program, he added.

Problems include “marketing and sales practices that pressure beneficiaries to enroll into inappropriate or unsuitable plans,” McRaith said. Other practices lead Medicare beneficiaries “to enroll into Medicare Advantage plans without fully understanding that enrollment would lead to the loss of traditional Medicare and Medigap plans,” he added. In other cases, seniors are misled about whether their doctors are in a plan’s network or about how much they will have to pay out-of-pocket, McRaith testified.

They also are subject to “cross-selling,” a tactic in which “agents use Medicare Part D as a pretext to develop a relationship with a senior and then sell the senior an unrelated and often unsuitable product” such as a Medicare Advantage plan or a life insurance policy, he said. In other cases, seniors are the victims of “outright common law fraud.”

George Harper, a 73-year-old resident of Mayflower, Ark., told the committee that he was a victim of such fraud. Harper said he got repeated phone calls from a sales representative urging him to sign up for “extra help” he could get from the Medicare program. “I got tired of him and I didn’t want to argue with him on the phone, so I finally just said ‘Ok, come on by,’” Harper recalled. “I told him I was satisfied and I didn’t want to change,” but the salesman wouldn’t leave.

He finally left a blank form for Harper to sign if he decided to enroll, but Harper insisted that he never signed anything. Yet the plan enrolled him anyway based on a form that had a signature that wasn’t his, Harper said. It took three months to become disenrolled from the plan but in the meantime money was taken out of Harper’s Social Security check to pay premiums and he and his wife incurred medical expenses that have been only partially reimbursed, he said.

“Mister Harper’s story is all too common,” said another witness, Peter C. Hebertson, director of outreach for Salt Lake County Aging Services in Utah. “We get to deal with people who have these problems every day.” Hebertson added that many of the marketing problems are not illegal but add to the confusion of older adults. A common complaint “is the huge quantities of marketing materials seniors receive through the mail. We have had seniors come to our office with a stack of mail between 3-4 inches thick asking what they can throw away.

“We have had reports of seniors who threw away critical documents because they thought they were marketing materials, or responded to marketing materials because they thought the were official letters. Seniors tell us they can’t differentiate the material from private plans from official Medicare or Social Security documents,” Herbertson said.

He added that seniors say they get aggressive telemarketing calls even if they are on the “Do Not Call” registry. “We also receive complaints from seniors who attended free dinner seminars hosted by Medicare Advantage companies. Seniors have reported to us that they felt pressured into signing applications. Many report they did not understand what was being presented or what they were signing up for.”

Another problem is that independent agents sell plans they don’t fully understand, nor do they understand what it means for the health care of the particular beneficiary involved. “We have also received reports from individuals about aggressive agents who would not leave the home without an application being signed.”

An official with Humana, which has been hit by over $1 million in fines for marketing and sales abuses, told the panel it has taken numerous steps to ensure that agents are properly trained and that seniors aren’t misled. It also has fired almost 150 agents for unscrupulous practices and cut back on the use of outside sales agents, said Patrick O’Toole, vice president of Medicare sales at the company.

O’Toole also noted that the insurance industry’s main trade association, America’s Health Insurance Plans (AHIP), adopted industry “principles” last year governing qualifications for sales agents and marketing staff, training and recertification, monitoring compliance with accepted sales practices, assuring beneficiary understanding of plans and their intent to enroll, and investigating complaints, among other provisions.

CMS also has taken steps to crack down on abuses, including implementing requirements for a call-back system in which seniors confirm that they want to enroll in a plan and that they understand how it changes their Medicare coverage. Other provisions include requirements that plans administer agent training and “secret shopper” programs to determine what sales pitches seniors are getting.

But McRaith said that the results of the CMS efforts are “mixed” based on an informal NAIC survey, and he told Oregon Democratic Senator Ron Wyden that it’s “absolutely correct” that problems continue. “Some states report clear improvement for consumers during the past year, while other states, such as Illinois, report neither a clear improvement nor a clear worsening of the situation,” McRaith said.

“There are too many problems and abuses,” Baucus said. “And it is not in just a few states. It is in most states.” Baucus added that the Medicare Payment Advisory Commission said in December that it found in interviews with beneficiaries in 12 focus groups that “at least one member [in each group] mentioned horror stories about marketing abuses.”

There “are some areas that CMS did not address,” commented Iowa Senator Charles E. Grassley, the top Republican on the committee. “Commissions, for example, continue to give agents the wrong incentives.” Witnesses said bonuses are so attractive that they goad agents into unscrupulous practices.

“The plans themselves have told me they wish someone would intervene to regulate commissions,” Grassley said. “When one plan is paying half or a third the commission of another, it seems to me the agent will recommend the other plan. Another problem is that some agents tell beneficiaries that they are from Medicare. Or they say that they need to meet with the beneficiary to explain Medicare’s new benefits. This is a violation of federal regulations. But it continues to happen.

“Door-to-door sales are barred in Medicare,” Grassley added. “Cold calling is not. And an agent may visit if a beneficiary has indicated an 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.

“A key question is whether CMS guidelines and enforcement action are enough to protect beneficiaries,” he said. CMS is expected to testify on that matter in a hearing by the committee next week.

But McRaith said CMS needs help in overseeing the private plans in Medicare, noting that states shared oversight of such plans with the federal government until the Medicare overhaul law (PL 108-73) stripped states of that power.

“The Illinois Division of Insurance regularly receives complaints and inquiries from seniors who were sold unsuitable Medicare private plans, but is without authority to call the company and clarify or correct the problem. The only recourse for the senior is to call Medicare, wait for a live person to answer the phone (a process that can take 20 to 30 minutes), report the violation to CMS, and sometimes wait weeks or months for CMS to respond. Seniors deserve better,” McRaith said in his written testimony.

States have authority to regulate agents themselves, but the way to address widespread marketing and sales abuses “is by addressing the financial incentives that drive the behavior — the marketing plans and agent compensation policies developed by the companies,” McRaith said. He added that “there needs to be a regulator that is able to respond to an individual complaint.”

Current problems in the Medicare marketplace are “startlingly reminiscent” of the marketplace confusion in the early days of Medigap plans, which cover many expenses not paid for by Medicare. The variety of plans created “confusion and financial distress,” but Congress intervened to let the NAIC develop national, state-enforced standards, something Congress should now do in the Medicare Advantage market, McRaith said.

NAIC is calling for passage of S 1883, introduced by Sen. Herb Kohl. D-Wis., which would grant NAIC similar authority in the case of Medicare Advantage and Part D plans. Oregon Democrat Ron Wyden, one of the cosponsors of the measure and the author of earlier legislation targeting Medigap abuses, said his earlier measure has cleaned up abuses and confusion in that market.

But O’Toole of Humana would not give a yes or no answer when Wyden pressed him on the company’s position on S 1883, and Wyden characterized the insurance industry as opposed.

Mohit Ghose, a spokesman for AHIP, the insurance industry lobby, said his organization does not have a position on S 1883. But he added that “We are totally supportive of increased requirements when necessary, including prohibitions on door-to-door marketing and requirements for call-backs, and the use of scheduled appointments to clarify which insurance companies are contracting with which brokers.” Ghose added that “we want to fix things, and we want to work with all the relevant regulatory agencies to do so.”

Baucus said after leaving the hearing that “we’ll decide next steps” on S 1883 after CMS testifies next week. “But clearly action is needed,” Baucus said. “It’s important that the Medicare reputation not be blemished.” He said the measure would “probably” be part of a larger Medicare bill the committee will develop later this year to handle physician payment issues.

However, it appears that CMS and the Bush administration will oppose S 1883 when the agency does testify. A CMS spokesman said “The actions described [in the hearing] are already prohibited by regulation and contract requirements with the plans, so legislation is not necessary. We have implemented — and enforced — wide-ranging efforts to address Medicare Advantage — and Part D — marketing violations and have imposed sanctions against those plans whose sales agents have taken advantage of Medicare beneficiaries,” the spokesman said.