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December 15, 2008 Centers for Medicare and Medicaid Services ATTN: CMS-4138-IFC2 P.O. Box 8016 Baltimore, MD 21244-8016 Submitted Electronically: http://regulations.gov RE: 73 Federal Register 67406 (Nov 14, 2008) To whom it may concern: The Medicare Rights Center appreciates the opportunity to comment on the November 14, 2008, interim final rule setting forth new limits on compensation that Part C and Part D plans can pay to agents or brokers for enrollment of Medicare beneficiaries. Through its national hotlines and its in-person counseling services, Medicare Rights Center caseworkers and volunteers have learned first hand the consequences for older adults and people with disabilities when they are enrolled in Medicare Advantage (MA) or prescription drug plans (PDPs) that do not meet their health care needs. Among the most common consequences of such inappropriate enrollments: • Individuals can no longer receive care from longstanding primary care doctors or specialists, because these providers are not in the plan’s network or do not accept the plan. • Individuals must interrupt a course of treatment, such as chemotherapy or home health care, because the provider is not in the plan’s network or does not accept the plan. • Individuals face interruptions in drug therapy because their medicines are not on the plan’s formulary or are subject to utilization management restrictions. • Individuals face cost sharing for medical services or prescription drugs that is substantially higher than they paid previously. • Individuals find that, after 12 months in a MA plan, they have lost guaranteed issue rights for a Medigap supplement and face higher premiums because of their age or medical condition. • Individuals lose access to supplemental coverage sponsored by a former employer after enrolling in an MA plan. In our experience, beneficiaries often face these adverse consequences because the independent agents and employed plan representatives did not properly explain the consequences of enrollment in a MA plan (aggressive marketing of stand alone drug plans is much less common). Typically, marketing representatives will highlight one benefit of the plan—a debit card for over-the-counter drugs and medical supplies or a limited dental benefit—but neglect to explain how enrollment may impact access to physicians or medicines. Plan representatives generally emphasize the premium savings under MA plans but do not adequately explain beneficiaries’ liability for cost sharing for medical services. Enrollees are almost never told that the benefits offered one year can change radically in the next or that they have only limited rights in returning to coverage under a Medigap supplement. Besides incomplete and self-serving explanations of the consequences of MA enrollment, beneficiaries are often subject to bullying, deception and outright fraud. It is because of the widespread reports of abusive marketing tactics that Congress, in the Medicare Improvements for Patients and Providers Act, directed CMS to strengthen its oversight and regulation of MA marketing practices and to establish guidelines to “ensure that the use of compensation creates incentives for agents and brokers to enroll individuals in the MA plan that is intended to best meet their health care needs.” In an effort to follow Congress’ directive, CMS set out a rule on agent commissions that has two principal components. First, MA plans must establish a compensation structure that pays agents for enrollees who are new to the MA program a first year commission that is exactly double the renewal commission that is paid each of the subsequent five years. Agents are also paid this lower renewal rate for enrollees who are switched from one MA plan to another. This structure is designed to dissuade agents from “churning”—switching enrollees from one MA plan to another solely for the purpose of earning a commission. Second, commission rates must be based either on the MA plan’s initial commission rate it paid in 2006 adjusted by a factor reflecting the increase in MA payments since 2006 or on prevailing commission rates for the plan type in the market in 2006 and 2007 trended forward by the same factor. This structure appears designed to have all MA commissions fall within an acceptable range but allow plans flexibility to establish their commission rates and to vary those rates based on geographic markets and product types (HMO, PPO, PFFS, MA v. MA- PD etc.). Unfortunately, the compensation structures promulgated by CMS in the interim final rule do not establish the incentives that Congress intended. In fact, the compensation structures outlined by CMS allow, and may even require, MA plan sponsors to create incentives for agents to push enrollment in MA plans that are contrary to the interests of Medicare beneficiaries and to the financial health of the program. Current incentives encourage unsuitable MA enrollments. By focusing on churning, CMS addresses just one aspect of the marketing problems—the one that was a concern of MA plan sponsors who were losing enrollees to competitors. While churning has been a problem, in our experience the most serious and widespread marketing problems concern enrollees who are switched from Original Medicare—with retiree or private Medigap coverage or with Medicaid as a secondary payer---to an MA plan. The current commission structure, by paying twice the commission for enrolling beneficiaries new to MA, encourages agents to focus their marketing activities on beneficiaries enrolled in Original Medicare. It is precisely these beneficiaries—those who stand to lose supplemental coverage from a former employer, who have all Medicare cost sharing and additional benefits paid by Medicaid, or who are accustomed to the wide provider access, protection against catastrophic expenses and predictable monthly expenses of a supplemental plan—for whom a MA plan is often unsuitable. Although this commission structure mirrors the structure for Medigap commissions, the underlying differences between Medigap and MA benefits mean that the incentives no longer align with beneficiaries’ interests. Since Medigap plans are standardized and guaranteed renewable an incentive structure that discourages switching from plan to plan has little impact on whether beneficiaries will continue to receive the most suitable coverage from year to year. On the other hand, MA benefits, including provider networks, formulary coverage, hospital co-payments and out-of-pocket limits, change from year to year, and it is incumbent on beneficiaries, with or without the advice of an agent, to review and potentially switch to a more suitable plan. The current structure provides little incentive for agents to assist clients in that review process; the real money is in pulling new clients into the MA program. Finally, the current commission structure encourages agents to focus on older adults who have recently aged in to Medicare, the healthiest, lowest cost cohort of the Medicare population. Such incentives only exacerbate the pre-existing tendency of MA plans to cherry pick the healthiest beneficiaries, leaving Original Medicare and Medigap plans with a risk pool that is increasingly comprised of the highest cost beneficiaries with the most severe and expensive conditions. Current Incentives Encourage Marketing of Low-Value Plans CMS’ efforts have been unsuccessful in restraining both the absolute level and the variation in commissions. Although CMS has not made MA commission rates publicly available, we have seen documents and reports showing initial commission rates as high as $550, a rate that can generate as much as $1875 in agent income over five years for one enrollment. Commission rates of this magnitude are likely to fuel aggressive and deceptive marketing tactics and are a poor use of the taxpayer subsidies paid to MA plans. We have also seen substantial variation in commissions under the current structure, with rates varying as much as $200—between $350 and $550—for competing MA plans with drug coverage. The variation is of particular concern as it appears to bear no relationship to the value of the benefits provided under the competing plans. Plans with no out-of-pocket limit on medical expenses, for example, pay substantially higher commissions than plans with out-of-pocket limits substantially below the level recommended by CMS ($3,350). Such variation encourages agents to sell lower value plans to earn higher commissions, an incentive structure that actively discourages sale of products that “best meet” the health care needs of beneficiaries, in direct violation of Congress’ directive. The variation in commissions also allow plan sponsors to pay higher commissions in particular counties, encouraging plan sponsors' pre-existing practice of cherry-picking counties where MA payment benchmarks generate the highest profits. Such incentives exacerbate the drain on Medicare dollars caused by the current payment structure for MA plans. Conclusion and Recommendations: Our analysis shows how the variability of commission rates, both among competing plans and alternative product types and among different categories of prospective enrollees, create incentives that work against selection of the most appropriate MA plan or PDP for the individual's health care needs. To the extent that independent agents and brokers provide valuable advice in selecting the most suitable drug and health coverage for people with Medicare, the objectivity of such counseling is best assured when agents financial incentives to target particular beneficiaries or to push particular plans or product types is minimized. The argument put forward by CMS—that larger commissions compensate for the additional time required to educate beneficiaries who are new to the MA program or to explain the ramifications of both MA and PDP enrollment is specious. There is no evidence that paying higher commissions actually results in agents providing more thorough explanation of the consequences of enrollment. Indeed, volume-based incentives by their very nature encourage agents to maximize the number of enrollments, rather than the quality of the service. Recommendation #1: CMS should put forward regulations that minimize or eliminate variation in commissions among plan sponsors and among product types. It is evident, from the recent bidding war for agents among MA plan sponsors, that a nationwide ceiling, if it is low enough, will likely result in uniform commissions as plans set their commissions at the ceiling in order to avoid being “outbid” by competitors. One option would be to set a single commission ceiling for all product types—PDPs, MA-only plans and MA-PDs, which would eliminate any incentive to steer beneficiaries toward one product over another. A second option is to set three separate ceilings—one for PDPs, one for MA-only plans and one for MA-PDs. This would equalize commissions among competing sponsors, eliminating any incentive to steer enrollees toward low-value products to earn higher commissions, but allow variation in commission that is tied to the value of the benefit package. Recommendation #2:CMS should put forward regulations that eliminate incentives to target particular beneficiaries. A flat MA commission rate that is the same for renewals, switches among MA plans, or new MA enrollments, eliminates any incentive to target dual eligibles and beneficiaries with retiree or private Medigap coverage who have been the most negatively impacted by abusive marketing. It maintains incentives for agents to assist clients in the annual review of MA and PDP coverage, which, because of the absence of standardized benefits under either program, is subject to significant yearly changes in benefits. We are well aware that CMS' previous attempt to require MA plans to pay renewal rates for all enrollments resulted in exorbitant commissions schedules paying $500 or more per year for five years. It is incumbent on CMS, therefore, to establish hard limits on the commission rates that plans can pay. These limits should reflect an overarching policy goal to limit the share of per capita payments to MA plans that is diverted away from extra benefits or lower cost sharing to paying for marketing costs. The MA market is already severely distorted by the current payment system; any effort to have commission rates reflect market forces only exacerbates these distortions. Recommendation #3:CMS should put forward regulations that provide uniform and reasonable limits on the agent commission rates paid by MA and PDP plans. We recognize that such limits on agent compensation may cause MA plans to adopt new strategies, such as hiring salaried agents or investing heavily in advertising, which would defeat the policy goal of limiting the share of MA subsidies that is spent on marketing. In addition, we share CMS’ concern that compensation of field marketing agents can be used to undermine the incentive structures established for street-level agents. We therefore encourage CMS to use its existing authority to regulate marketing practices, as well as its authority to review plan bids, to limit the amount MA and PDP plans can spend on marketing activities, taking into account mandatory marketing activities, such as the dissemination of the Annual Notice of Change. In particular, plans that have sub-par performance on existing quality of care measures should have strict limits on the amount they can spend on marketing activities. Recommendation #4:CMS Should Establish Overall Limits on Plan Marketing Expenditures. Finally, we would like to note that purported policy goal of allowing MA subsidies to be used to pay commissions—that agents will provide beneficiaries with advice and counseling on plan selection—would be better served by increasing the funding and capacity of State Health Insurance Assistance Programs and community based organization that use volunteer and trained caseworkers to provide objective advice on plan selection and to help resolve consumer problems with all facets of the Medicare program. Enhanced funding can be secured by increasing the user fee assessed on MA plans and PDPs. We appreciate the opportunity to comment on this interim final rule. If you have any questions concerning these comments, please contact Paul Precht, Director of Policy and Communications for the Medicare Rights Center, at 202-544-5561 or pprecht@medicarerights.org .