[Senate Hearing 110-207]
[From the U.S. Government Printing Office]

                                                        S. Hrg. 110-207



                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION


                             WASHINGTON, DC


                              MAY 16, 2007


                            Serial No. 110-8

         Printed for the use of the Special Committee on Aging

  Available via the World Wide Web: http://www.gpoaccess.gov/congress/

38-618                      WASHINGTON : 2007
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                       SPECIAL COMMITTEE ON AGING

                     HERB KOHL, Wisconsin, Chairman
RON WYDEN, Oregon                    GORDON H. SMITH, Oregon
BLANCHE L. LINCOLN, Arkansas         RICHARD SHELBY, Alabama
EVAN BAYH, Indiana                   SUSAN COLLINS, Maine
THOMAS R. CARPER, Delaware           MEL MARTINEZ, Florida
BILL NELSON, Florida                 LARRY E. CRAIG, Idaho
KEN SALAZAR, Colorado                NORM COLEMAN, Minnesota
ROBERT P. CASEY, Jr., Pennsylvania   DAVID VITTER, Louisiana
CLAIRE McCASKILL, Missouri           BOB CORKER, Tennessee
SHELDON WHITEHOUSE, Rhode Island     ARLEN SPECTER, Pennsylvania
                      Deb Whitman, Staff Director
            Catherine Finley, Ranking Member Staff Director



                            C O N T E N T S

Opening Statement of Senator Herb Kohl...........................     1

                                Panel I

Abby L. Block, director, Center for Beneficiary Choices, Centers 
  for Medicare and Medicaid Services (CMS), Baltimore, MD........     3

                                Panel II

Sean Dilweg, Wisconsin Office of the Commissioner of Insurance, 
  Madison, WI....................................................    14
Kim Holland, Oklahoma Insurance Department, Oklahoma City, OK....    43
Sherry Mowell, Georgia Office of the Commissioner of Insurance, 
  Atlanta, GA....................................................    55
Albert Sochor, vice president and director of Marketing, Old 
  Surety Life Insurance, Oklahoma City, OK.......................    60

                               Panel III

Karen Ignagni, president and CEO, America's Health Insurance 
  Plans, Washington, DC..........................................    70
Heidi Margulis, senior vice president, Humana Inc., Louisville, 
  KY.............................................................    86
Peter J. Clarkson, senior vice president, Distributions 
  Operations, UnitedHealth Group, Minnetonka, MN.................   108
Gary Bailey, vice president, Medicare Operational Performance, 
  WellCare, Tampa, FL............................................   116


Prepared Statement of Senator Robert P. Casey....................   143
Responses to Senator Kohl's Questions from Abby Block............   143
Responses to Senator Smith's Questions from Abby Block...........   144
Responses to Senator Lincoln's Questions from Abby Block.........   149
Responses to Senator Smith's Questions from Commissioner Dilweg..   157
Responses to Senator Lincoln's Questions from Commissioner Dilweg   159
Response to Senator Kohl's Question from Commissioner Holland....   160
Responses to Senator Smith's Questions from Commissioner Holland.   160
Responses to Senator Smith's Questions from Sherry Mowell........   161
Responses to Senator Smith's Questions from Albert Sochor........   162
Responses to Senator Smith's Questions from Karen Ignagni........   163
Responses to Senator Smith's Questions from Heidi Margulis.......   167
Responses to Senator Lincoln's Questions from Heidi Margulis.....   174
Responses to Senator Smith's Questions from Peter Clarkson.......   176
Responses to Senator Smith's Questions from Gary Bailey..........   188
Additional information submitted by the Oklahoma Insurance 
  Department.....................................................   206
Statement submitted by Janet Stokes Trautwein, executive vice 
  president and CEO, National Association of Health Underwriters.   260
National Insurance Producer Registry User's Guide................   263




                              ----------                              --

                        WEDNESDAY, MAY 16, 2007

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 11:49 a.m., in 
room SD-106, Dirksen Senate Office Building, Hon. Herb Kohl 
(chairman of the committee) presiding.
    Present: Senators Kohl, Wyden, Whitehouse, and Smith.


    The Chairman. I thank you all for being here today, and I 
apologize for having kept you waiting an hour. As you know, 
there were a series of votes on the floor of the Senate, which 
delayed the beginning of this hearing.
    Nevertheless, we would like to welcome you all here today. 
We particularly want to thank our witnesses for taking time out 
of their busy schedules in order to be with us.
    Today, we will examine the sales and marketing practices 
involving Medicare Advantage plans. I want to make it clear at 
the outset that we are not taking any position on the benefit 
or relative cost of Medicare Advantage. These plans may be 
appropriate and beneficial for many individuals under the right 
    Rather, this focus and our concern today is with the 
numerous and widespread complaints involving the sale and 
marketing of Medicare Advantage plans, which are being 
aggressively promoted all around our country.
    For those of you not familiar with Medicare Advantage 
plans, they are private-plan options ranging from managed care 
to private fee-for-service plans, which are offered to Medicare 
beneficiaries as an alternative to traditional Medicare.
    While they have been in existence for some time, Medicare 
Advantage plans are now the fastest growing segment of the 
Medicare world and are an increasingly profitable enterprise 
for many plan sponsors. Unfortunately, widespread confusion 
and, in some cases, outright misrepresentation and even fraud, 
have been associated with the sale of these plans. Complaints 
appear to be nationwide and a troubling pattern has emerged.
    So today we will hear from two distinguished State 
insurance commissioners, Sean Dilweg of Wisconsin and Kim 
Holland of Oklahoma. They will outline the problems associated 
with Medicare Advantage plans and tell us what some States, as 
well as the National Association of Insurance Commissioners, 
are doing to address them.
    Our investigation has revealed a disturbingly consistent 
picture, one which only seems to be growing. Countless seniors 
purchasing Medicare Advantage plans have been preyed upon and 
unwittingly taken advantage of by insurance agents.
    Seniors have been removed from traditional Medicare without 
their knowledge, signed onto plans that they cannot afford, 
mislead regarding coverage and told that their doctors accept 
these plans when, in reality, they do not. This, of course, is 
not acceptable.
    One of the most troubling problems that we have seen 
involves insurance agents misrepresenting and marketing 
Medicare Advantage plans in inappropriate manners in place such 
as within nursing homes. We will hear more about that from 
Sherry Mowell, an investigator from Georgia.
    Just as seriously, many insurance-sales agents simply do 
not understand the important differences between traditional 
Medicare and the multitude of other plans available to seniors, 
including the Medicare Advantage plans that they are peddling. 
Too many of our seniors are paying a terrible price for those 
frauds, misunderstandings and outright ignorance.
    We will also be learning about the sales training received 
by the insurance agents selling Medicare Advantage plans. At 
our request, plan sponsors have provided the Committee with an 
array of well-developed and impressively written training 
manuals and programs required for those who sell Medicare 
Advantage. Sadly, what is on paper does not always translate 
into the real world. In this case, not by a long shot.
    Last, we will examine the details of the Federal-State 
oversight partnership, as it concerns Medicare Advantage sales 
and marketing. Based on current law, CMS has exclusive 
authority to investigate and discipline plans marketing and 
selling Medicare Advantage products.
    The States have been permitted to investigate and enforce 
violations against insurance agents only. This unusual 
arrangement, which some might call a ``preemption of 
authority,'' seems to have left a sizable enforcement gap that 
has exacerbated the problems found by the Committee.
    To address this, I have begun working with the National 
Association of Insurance Commissioners and other stakeholders 
to develop legislation that would give States expanded 
authority to oversee plans and agents.
    We are not suggesting today that CMS has done nothing to 
address these problems or that CMS officials are unconcerned 
about them. According to some State officials, CMS regional 
offices have made legitimate efforts to lend a hand, as they 
should, particularly when fraud and confusion have left our 
seniors with health-insurance gaps and unnecessary additional 
costs. Nevertheless, it is clear that a major disconnect in 
oversight exists; one that needs to be addressed immediately.
    I am pleased that today's hearing is already having a 
positive effect. In the last weeks, Medicare Advantage plans 
announced initiatives to reform their marketing-and-sales 
practice guidelines.
    The Americas Health Insurance Plans, AHIP, is here today to 
discuss its new initiative to strengthen training for its 
member agents and brokers. This is a good start, but it is only 
a start.
    As we know, the number of Medicare Advantage plans being 
offered to beneficiaries is growing rapidly. So we must remain 
vigilant in our oversight of these plans, and I intend to do 
    If more hearings are necessary to hold feet to the fire, 
then we will do that. Cleaning up these marketing-and-sales 
practices is a high priority of mine. So let me be clear: This 
issue will not go away after this hearing; and, of course, 
neither will I.
    We look forward to hearing from our witnesses today, with 
whom we will work to identify and address and shortcomings in 
the marketing and selling of Medicare Advantage plans.
    At this time, we would like to call our first panel 
witness, who is Abby Block. She is from the Centers for 
Medicare and Medicaid Services, CMS. Ms. Block is the director 
of the Center for Beneficiary Choices at CMS. Prior to assuming 
her current responsibilities, she was a senior advisor to the 
CMS administrator.
    She has worked extensively with the States' health plans 
and beneficiary advocacy groups on Medicare Advantage plans and 
the issues we are discussing today. She is a very well-versed, 
very knowledge expert.
    We are very pleased to have you with us today, Ms. Block, 
and we would be pleased to receive your testimony.

                         BALTIMORE, MD

    Ms. Block. Thank you for inviting me to discuss Medicare 
Advantage and, in particular, marketing compliance.
    Medicare Advantage is a valued, important option for 
millions of people with Medicare. Working closely with 
Congress, we have refined Medicare Advantage over the years to 
promote strong plan participation across the country.
    With a vibrant marketplace of plans for 2007, beneficiary 
enrollment is now at an all-time high. I am proud of these 
successes and stand committed to work with you in the days 
ahead to preserve choice for people with Medicare.
    I am pleased to report that this year, beneficiaries 
selecting a Medicare Advantage plan are receiving, on average, 
an estimated $86 per month in benefits over and above what 
original Medicare provides. Such additional benefits vary by 
plan, but can include: lower cost-sharing, enhanced Part D 
prescription drug coverage, Part B and D premium reductions; 
and, access to items and services like hearing aids, routine 
physicals or vision exams that original Medicare does not 
    Regardless of the programs' successes, CMS takes recent 
reports of aggressive marketing of some products very 
seriously. We have stepped up supervision. I want to talk today 
about some of the ways that CMS is building upon lessons 
learned and information gathered during 2006.
    CMS enforcement for marketing violations ranges from 
issuing a warning letter or corrective action plan to 
suspending enrollment and even, ultimately, terminating a plan 
from the program. This year alone, we have fined plans more 
than $400,000 in civil monetary penalties for failing to 
provide information to beneficiaries in a timely manner. Also, 
at present, 98 Medicare plans are on a corrective action plan 
to fix identified problems and allow CMS to monitor their 
    Our experience shows that, on occasion, private fee-for-
service plans have not been clear about what they offer our 
beneficiaries and what they don't provide. Therefore, for 2008, 
we will require plans to include specific, unambiguous language 
in all marketing materials, enrollment materials and sales 
presentations laying out what a beneficiary can expect if he or 
she signs up for a plan, and call all new applicants to confirm 
that they do, in fact, understand the features of the plan and 
wish to enroll. In fact, in some of our corrective actions 
underway now, we already have those requirements in place.
    Our utmost concern is to aid and protect the beneficiary. 
Therefore, beneficiaries and enrollees mislead by a plan are 
given an opportunity to switch to another plan. In addition, 
during the first quarter of every year, all enrollees already 
have the opportunity to switch out of private fee-for-service 
plans or any other MA plan for any reason and select another 
    Marketing complaints are handled differently, depending on 
the nature of the issue. For example, CMS handles violations of 
our marketing guidelines. Issues involving fraud and abuse go 
to the medics, our program integrity contractors. Allegations 
of fraudulent marketing and enrollment go to the OIG. Finally, 
States handle complaints about licensed agents and brokers.
    CMS is taking many steps to identify organizations in need 
of compliance intervention, including monitoring complaints by 
conducting secret shoppings of sales events across the country. 
In addition, stressing relationships with State regulators are 
key to ensuring that marketing is conducted appropriately.
    Specifically, CMS works cooperatively with the National 
Association of Insurance Commissioners and State departments of 
insurance to develop a model compliance and enforcement 
Memorandum of Understanding. So far, 20 States and Puerto Rico 
have signed the MOU that will enable us to share information 
about non-compliant marketing activities.
    CMS plans to issue soon a proposed rule that will 
facilitate oversight for Medicare Advantage plans and Part D 
prescription drug plans. The rule proposes new provisions to 
strengthen and reinforce Medicare's compliance provisions for 
detecting, preventing and correcting fraud, waste, and abuse.
    These are only the initial steps we are taking to ensure 
that Medicare beneficiaries are not being misinformed, misled 
or defrauded. We are holding plans responsible for the actions 
of both employed and independent agents selling their products. 
This includes requiring documented training of marketing agents 
and brokers.
    Finally, I want to assure you that the vast majority of 
seniors who bought Medicare Advantage products are satisfied 
with their plans and the services they are receiving. I am 
confident we will see continued high levels of plan compliance 
with marketing requirements, along with significant 
improvements where necessary on this critical front.
    Thank you again for the opportunity to speak with you 
today. I look forward to answering your questions.
    The Chairman. Thank you, Ms. Block.
    Before we get to questions for you, we would like to hear 
from our Ranking Member, Senator Smith, as well as Senator 
    Senator Smith. Thank you, Senator Kohl, for calling this 
important hearing on a very vital issue.
    I want to apologize to our witness. You have heard me 
complain in the past that the leadership of the Senate should 
check with the Aging Committee before they schedule votes. We 
apologize to the witnesses. We thank you for your indulgence 
and your time. We respect it deeply, especially this particular 
    I want to make a distinction, which I hope folks who are 
interested will understand. I find abhorrent the stories which 
I have recently read, particularly, in the New York Times, that 
talk about marketing and abuse. These things must be routed 
out. All stakeholders who would like to see this program 
continue need to understand that, if left unchecked, this will 
undermine confidence in the program.
    Having said that, I want to make clear my belief that 
Medicare Advantage and Medicare Part D are not bad simply 
because they are private delivery systems. These programs are 
working. They can work better. But to all who have an interest 
in the continued success of these programs, it comes to each of 
us individually to do all that we can to fix the problems and 
to fix them fast.
    What I did when I was Chairman and now, as Ranking Member--
and I share the Chairman's concern--what I began to do in the 
109th Congress is to provide oversight. Some of what I am 
learning, I don't like. It needs to change. So we will continue 
that oversight with the view, at least, from my view, to 
preserving and strengthening these programs that do so much 
good, help so many people, particularly, in rural places.
    So any company with an interest in either prescription 
drugs or Medicare Advantage: Get on top of this and get on top 
of it fast.
    The Chairman. Thank you very much, Senator Smith.
    Senator Whitehouse.
    Senator Whitehouse. Mr. Chairman, I just want to say thank 
you for holding this hearing. I think it is very important. I 
am glad that you and the Ranking Member are leading on this 
    As an attorney general in Rhode Island, I saw over and over 
again how seniors were targeted for all sorts of scams and 
fraud and abuse; how lists of seniors were traded among people 
who played in this arena. I saw firsthand how easy it is to 
target the senior population.
    The other thing that I have seen is a senior population 
that depends on the provision of healthcare services--any risk 
to that is extraordinarily frightening for them. When you 
combine those two together--the fear that so many seniors have 
related to their continued provision of healthcare coverage, 
and their vulnerability as well, this kind of marketing hits in 
a particularly dangerous area.
    So I think it is really important that we are doing this, 
and I appreciate the testimony of all the witnesses.
    The Chairman. Thank you very much, Senator Whitehouse.
    Ms. Block, in a front-page article in the May 7th New York 
Times, you were quoted as saying, concerning Medicare Advantage 
sales and marketing, that, quote, ``Providers and people with 
Medicare clearly do not understand this product,'' unquote.
    I would like to ask you what you meant by that comment and 
what is CMS doing to ensure that beneficiaries and insurance-
sales agents do understand the Medicare Advantage product 
before they purchase it.
    Ms. Block. Well, the comment was addressed specifically to 
the private fee-for-service product and not the Medicare 
Advantage product, in general. I truly believe that many 
people, including providers, as well as beneficiaries, have 
found the private fee-for-service product confusing. Some of 
that confusion, unfortunately, has been perpetuated in the way 
that product has been marketed.
    So we are taking a number of very meaningful steps, 
including and in addition to the specific things that we have 
specific plans doing, under Corrective Action Plans (CAPS) that 
are already in place because of marketing violations that have 
occurred in 2006 and 2007.
    But we have added some very specific requirements, 
including documentation of training programs by the plans and 
disclaimer statements. I even have some examples with me of 
drafts of what those statements will look like. These 
statements, which are for both beneficiaries and providers, 
explain very clearly what a private fee-for-service plan is 
and, more importantly, what it is not, which is what I think is 
what confuses beneficiaries.
    We are going to require all of the plans in every 
presentation in all of their materials to include these 
statements--these very clear statements--for both beneficiaries 
and providers so that there will be true transparency, true 
accuracy of information.
    We are also requiring all of the plans to do callbacks to 
people who enroll in one of the private fee-for-service plans 
to make sure that, in fact, they, first of all, actually chose 
that plan--that they actually signed the application--and then, 
second, that they truly understand the provisions of the 
product they have purchased and that they truly intend to be in 
that plan because they believe it meets their needs.
    The Chairman. Thank you.
    Senator Smith.
    Senator Smith. Thank you, Mr. Chairman.
    Ms. Block, thank you again for being here. I believe we 
will hear from members of the second panel that States are 
frustrated by the preemption provision in the Medicare 
Modernization Act. This prohibits them from taking action 
against Medicare plans in their States that may be engaged in 
inappropriate and often-illegal marketing and enrollment 
    I believe we will also hear from the second panel that CMS 
is not living up to its responsibilities to police these plans. 
So with this in mind, is there value in considering rolling 
back the preemption policies, creating a better partnership 
between the States and CMS; or, at a minimum, reestablishing 
the State appointment laws?
    Ms. Block. Well, I can't tell you how critical I believe it 
is that CMS and the States work closely together. We are strong 
advocates of a partnership between CMS and the States on this 
issue. We understand that we share the concern for the well-
being of Medicare beneficiaries.
    For that reason, we worked with the National Association of 
Insurance Commissioners to develop the Memorandum of 
Understanding, which, now, will help us to communicate better, 
to share information, to make sure that each of us is holding 
up our end in terms of what needs to be done to make 100 
percent sure--and you will hear again and again today--and I 
said it at the last hearing that I was at--there is zero 
tolerance for Medicare beneficiaries being deceived in any way 
about the products that they are being sold.
    We are in total agreement on that.
    Senator Smith. But does the Medicare Memorandum of 
Understanding--is that sufficient, or do we need to roll back 
this preemption provision?
    Ms. Block. I think that the Memorandum of Understanding 
needs to be given a chance to work. We have 20 States that have 
signed the memorandum so far, and Puerto Rico. I would like to 
see the rest of the States do that as well.
    We have a group working closely with the NAIC to work 
through how this is going to work in terms of processes, 
procedures and so on. I think that, clearly--and I know the 
comparison has been made to Medigap and the State supervision 
of Medigap. However, Medigap is something that beneficiaries 
purchased with their own money.
    The Medicare Advantage plans are heavily federally funded. 
So I believe it is critical that the Federal Government 
maintain supervision and oversight of those plans. They are our 
contractors. There are huge amounts of Federal funds going into 
that program. It is a Federal program. I think we need to work 
as closely as possible with the States, and I can't emphasize 
that enough. But I think the Federal Government, rightfully, 
has the supervisory authority.
    Senator Smith. Would there be value, then, in 
reestablishing the State appointment laws in the interim?
    Ms. Block. Well, I think that is something that we could go 
back and think about. I understand that there has been some 
confusion about the appointment laws and, also, I understand 
that some of the plans actually do appointments voluntarily. So 
that is something that we could, certainly, go back and look at 
and talk with NAIC and the States and the Committee about.
    But the critical point, I think, is that this is a Federal 
program and we want to work as closely as possible through the 
mechanisms that we have developed to do this jointly with the 
States in a way that, basically, achieves our common goal, 
which is to protect the beneficiaries.
    Senator Smith. Well, one plan that I believe is testifying 
today has an excerpt from a document that reads, ``Now is the 
time to sell aggressively. Use the urgency of the impeding 
deadline to drive decisions with a 'Buy now or miss out' sales 
proposition.'' I am wondering if, in your view, Ms. Block, this 
is standard-operating sales pitch. Is this common: ``Buy now or 
miss out''? Are their agents unable to answer beneficiaries' 
questions? Does any of this violate CMS guidelines?
    Ms. Block. Well, certainly, agents are required to be able 
to answer beneficiaries' questions, and that is the point of 
the documented training.
    It is absolutely critical that everybody who is out there 
selling this product--whether the agent is actually employed by 
the plan or whether it is a contract broker or agent--first of 
all, understands the Medicare rules clearly and, second, fully 
understands the product that they are marketing. So that is 
something we are monitoring very, very carefully.
    Again, we stepped up our supervision of the training 
programs for the coming year to make sure that the people who 
are out there selling know the product that they are selling.
    Senator Smith. Does CMS have a sense of urgency that some 
of the unscrupulous things that may be going on may be 
undermining the whole effort?
    Ms. Block. Absolutely. We share the sense of urgency. We 
believe very strongly that we need to get this under control, 
that we need to make sure--and I do want to say I think we are 
talking about some bad apples. Bad apples cannot be tolerated. 
I don't want to see the whole program disparaged as a result of 
the really unacceptable behavior of----
    Senator Smith. Well, I don't either. I don't want to see 
that happen either.
    Ms. Block [continuing]. Some actors.
    Senator Smith. I think we we will see it succeed.
    Many of the beneficiaries who were enrolled in policies 
that don't meet their needs, they are going to end up returning 
to traditional Medicare. Doing so, I am wondering what the 
unanticipated impact might be on the Medicare program; that is, 
if beneficiaries, who have been stuck in an unsuitable MA plan 
for an entire year due to lock-in provisions, go without needed 
medical care due to lack of provider access and/or cost and 
then return the Medicare during the next enrollment cycle, are 
we going to be dealing with a sicker and more costly patient--a 
patient population that is just cycling back in?
    I mean, this is the danger. We are not making it better. We 
are making it worse if the bad apples aren't harvested real 
quick and thrown out.
    Ms. Block. Senator, just let me say about that if any 
beneficiary has enrolled in a Medicare Advantage plan because 
they have, in any way, been misled or deceived, they can 
immediately request that they be returned either to original 
Medicare or have the option of electing a different Medicare 
Advantage plan. That is in place. We give a special enrollment 
period to any beneficiary in that situation.
    Senator Smith. Great. Thank you.
    The Chairman. Just one additional question, following up on 
one of Senator Smith's points--later on this morning, one of 
our State insurance commissioners will testify that a letter on 
the Medicare Advantage sales and marketing practices, 
representing the views of the National State Commissioners 
Association, took 10 months to be answered by CMS. This was 
during a period when the sales problems were growing rapidly in 
the States.
    How do you account for that fact that it took almost a year 
to respond to a complaint regarding sales practices, when, at 
the same time, you are saying that you attach a great sense of 
urgency to prevent these kinds of practices?
    Ms. Block. Well, Senator, let me say that you all are 
aware--and we have stated repeatedly that we had some startup 
issues at the beginning of the program, mostly systems issues, 
that needed to be addressed.
    So during the initial period, probably the time that you 
are talking about, we were very much focused on those issues 
and those issues that involved enrollment and making sure that 
we got the enrollments right and that people ended up in the 
plan that they had selected and so on.
    Much of that, of course, was connected with the new 
prescription drug program and the fact that we were moving 
about 6 million from Medicaid coverage to Medicare coverage, so 
my apologies for any delay in responding to correspondence. 
Believe me. I hope we are doing better now. I think we are.
    But if there was an inordinate delay at one point in time, 
I am sure it was because we were caught up in trying to solve a 
lot of problems that, fortunately, in 2007, have diminished 
dramatically so that we are not in that situation now.
    That is one of the reasons that we can now turn our 
attention to these marketing issues and focus on them with the 
same attention that we gave to the systems issues that we had 
at the beginning of last year.
    The Chairman. Well, we thank you very much, Ms. Block. You 
have been a very good witness. Obviously, you are more than 
willing and eager to cooperate in improving the program. We 
look forward to working with you.
    Ms. Block. Thank you, sir.
    The Chairman. Thank you.
    [The prepared statement of Ms. Block follows:]

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    The Chairman. We would like to call the second panel at 
this time.
    Our first witness on the second panel will be Commissioner 
Sean Dilweg, who is from my homestate of Wisconsin. 
Commissioner Dilweg heads up the Wisconsin Office of the 
Commissioner of Insurance.
    Following Mr. Dilweg, our second witness will be 
Commissioner Kim Holland of the Oklahoma Insurance Department.
    Following Commissioner Holland, we will hear from Special 
Agent Sherry Mowell, of the Georgia Office of the Commissioner 
of Insurance.
    Finally, we will hear from Mr. Albert Sochor, who is the 
vice president and director of marketing for Old Surety Life 
    We welcome you all here this morning.
    We will commence with your testimony, Mr. Dilweg.

                   OF INSURANCE, MADISON, WI

    Mr. Dilweg. Senator, thank you for the opportunity to 
appear before you today. I am happy to see you in the 
Chairmanship and look forward to working with you and your 
Committee on this very important issue.
    My name is Sean Dilweg, and I am commissioner of the 
Wisconsin Office of the Commissioner of Insurance. I also 
currently serve as the Chairman of the Senior Issues Task Force 
of the National Association of Insurance Commissioners, which 
represents chief insurance regulators from 50 States, the 
District of Columbia and five U.S. territories.
    Although I am not testifying in my NAIC capacity today, I 
will be supplementing some of my views with the collective 
views of the Nation's insurance commissioners on today's topic. 
We are still working this issue through our organization, but 
we have been surveying our States on the number of complaints 
that we have seen over the last year.
    Today, I will touch upon those marketing complaints. We 
have surveyed all of our members and have responses from 43 
States and find a pervasive similarity in what we are seeing 
throughout the Nation.
    In addition, I would like to focus on one potential 
solution, which was mentioned earlier, in order to solve the 
problems that seniors are facing today with the program. That 
is the Medigap solution. As I turn and look as to what model 
might be on the shelf to take off and look at, I turn the 
    This is a program where the States work very well with CMS 
and the plans and the consumers. We worked well with CMS to 
develop minimum standards for Medigap. That was delegated to 
the States to meet those minimum standards. It allowed seniors 
stability--something that they seek.
    Right now, under the Medicare Advantage plans, we have 
changes that occur from year to year. You have the potential 
for almost product-dumping in one year, where a plan has zero 
cost and gets ramped up in the next year. That is not the type 
of continuity that we like to see in our world of insurance.
    To start out, the primary objective of State insurance 
regulation is to protect the consumers. My office was vested in 
our State constitution because consumers throughout our State 
were facing very complicated products. Let me say that the 
Medicare Advantage is one of the most complicated products we 
have seen to date. All health-insurance products are very 
complicated. These are not, simply, term-life policies that we 
wrestle with.
    Annually, in Wisconsin, we receive over 8,000 complaints. 
We take all of those seriously. Senator, I have a family with 
two young children. If I were to sit down and fill out a three-
page complaint, I would hope that that would be taken seriously 
by the agency that handles it.
    In our complaint process in our State, the company is 
required to respond in 10 business days to the consumer. An 
average case in Wisconsin lasts 40 days before it is resolved. 
I would say that about 50 percent of those--this is across the 
board--this is not only in health plans--but I would say that, 
on average, 50 percent of those go in favor of the consumer and 
50 percent in favor of industry.
    In this role across the Nation, insurance departments 
receive the whole spectrum of consumer complaints about the 
Medicare program. As I stated before, the NAIC has surveyed the 
experience of all department across the country and we have 
found a common theme as it relates to high-pressure sale 
tactics and tactics that, under our State laws, are considered 
unethical at best, and fraud at worst.
    We have seen sales by unlicensed agents and brokers; agents 
improperly portraying that they were from Medicare or from 
Social Security to gain people's trust, seniors who were merely 
asked for information about a plan or filled out a sign-in 
sheet at a health fair and later discovered they were dis-
enrolled from their old plan and enrolled in a new plan without 
consent, mass enrollments and door-to-door sales at senior 
centers, nursing homes or assisted-living facilities.
    Under other circumstances, these types of marketing 
practices I have described are either prohibited by State laws 
or unfair or deceptive practices in the business of insurance 
or would be questioned by watchful State regulators and 
controlled by the State regulatory structure. However, since 
these cases involve Medicare Advantage and Medicare Part D, our 
hands are tied as it relates to the companies. We obviously 
have oversight of the agents.
    But when my Governor turns to me and says, ``What do we 
need in our regulatory toolbox to handle these issues?'' I say 
that, as a State regulator, we have all the tools that we need. 
We are simply preempted. We do not have the authority over the 
    You and the Federal Government need to decide if the 
Medicare Advantage plans are either insurance products or, 
simply Federal contracts with a number of vendors. I would 
argue that these should be treated as insurance products. As I 
stated before, when I look at a potential solution, I turn 
simply to the Medigap solution as a model.
    You have a number of seniors in our State--over 800,000 
seniors--who are wrestling with very complicated products. As I 
go through my complaints, I see sons and daughters of these 
seniors who have PhDs and legal degrees who are having trouble 
navigating these products.
    In conclusion, in order for these programs to be successful 
and valuable to the marketplace, this issue needs to be 
resolved as soon as possible. The baby boomers will hit the 
market in full force by 2010, and the fastest growing segment 
of our senior population is over 85.
    I look to you for action and I hope that we can all work 
together--Congress, State regulators, CMS, the insurance 
industry, agent groups and consumer advocates--to provide 
products that our seniors can utilize.
    Chairman Kohl, thank you again for this opportunity to 
testify today.
    [The prepared statement of Mr. Dilweg follows:]

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    The Chairman. Thank you very much, Mr. Dilweg.
    Ms. Holland.

                       OKLAHOMA CITY, OK

    Ms. Holland. Mr. Chairman, thank you for allowing me to be 
here today, Senator.
    My name is Kim Holland, and I am the Oklahoma State 
insurance commissioner, an elected office I have held since 
January of 2005. The primary obligation of my agency is to 
protect the consuming public. I and my staff of over 150 
dedicated individuals take this obligation very seriously, and 
this is the main reason I am here today.
    The Oklahoma Insurance Department is responding to an 
unacceptable number of complaints caused by the inappropriate 
and sometimes fraudulent marketing of Medicare Part C and Part 
D products by certain insurance companies and their sales 
    Over the past year, we have received hundreds of complaints 
from our citizens, who have been misled or deceived during a 
    The Medicare Modernization Act of 2003's preemption of 
States' authority to oversee the licensure, market conduct and 
financial solvency of Medicare Part D agents and carriers and 
the marketing practices of Medicare Advantage carriers has led 
to virtual lawlessness in Oklahoma.
    Unlicensed agents are setting up shop in pharmacies and 
Wal-Marts and nursing home lobbies to prey upon seniors' 
confusion and concern over their medical-care coverage. Certain 
insurers are exploiting their exemption from regulatory 
oversight with aggressive and frequently misleading 
advertising, agent financial incentives that encourage high-
pressure sales tactics, lack of responsiveness, if not outright 
neglect, of a vulnerable population caught in the middle of an 
unbridled free market.
    As insurance commissioner, I currently have greater 
authority to address a consumer's problem with pet insurance 
than I do ensuring the protection of the 500,000 Oklahoma 
senior citizens covered under a PDP or Medicare Advantage plan.
    Since the rollout of Medicare Part D in November 2005, we 
have communicated with CMS on numerous occasions, attempting to 
forge a partnership in educating and protecting our senior 
citizens. Yet, at the earliest stages of the program rollout, 
we found ourselves challenged by the inadequacy of CMS's 
resources in providing the necessary support to our seniors and 
by further attempts to preempt our authority over agent 
    Senators, I am grateful to Congress for the passage of the 
MMA, as it has made access to affordable medications possible 
for 20 percent of my population, a large measure of whom depend 
solely on Social Security for their livelihood.
    The creation of new and affordable programs under Medicare 
Part C and D means that many of our seniors no longer have to 
choose between a meal or their medication. But it is this 
reality--a pressing demand for coverage and a growing supply of 
available plans--that necessitates adequate regulatory 
oversight to ensure what insurance commissioners across the 
Nation strive for: a healthy marketplace, wherein robust 
competition and vigorous consumer protections are balanced to 
create choice and value.
    While I can offer you many examples of how our seniors are 
now dangling on the short end of this teeter-totter, I would 
like to use my remaining few moments to focus on a recent 
targeted examination we conducted on one of America's largest 
providers of Medicare Advantage plans, which will illustrate 
clearly the inadequacy of Federal oversight.
    In June 2006, we initiated a targeted examination of 
Humana, due to the escalation in number and nature of 
unresolved complaints involving the sales tactics of agents 
selling their product. The examination report, submitted with 
our written testimony, provides numerous examples that 
illustrate the scope and gravity of the types of complaints 
made against this company.
    When finally completed, the examination exposed chronic and 
blatant disregard for State regulation and for senior 
policyholders. Advantage plan products were sold throughout our 
State by untrained, unlicensed individuals, in violation of 
Oklahoma law and similar laws enforced in every State in the 
    Our appointment process, which creates a critical 
accountability link between insurer and agent was consistently 
circumvented by guidelines promulgated by CMS prohibiting 
States from enforcing this important consumer protection. The 
examination illustrated the company's indifference to 
complaints and concerns registered by senior consumers, leaving 
some Medicare beneficiaries waiting months for any kind of 
    It is important to note that throughout the past year and a 
half, we--Oklahoma, individually and collaboratively, through 
the NAIC--have made numerous requests of CMS to act to address 
company sales-and-marketing issues.
    We have made beneficiary-complaint referrals, as required, 
provided information, negotiated and entered into a Memorandum 
of Understanding for information sharing--whatever we could do 
to encourage a swift and appropriate response to these 
unnecessary and unlawful activities. The senior citizens of my 
State are still waiting for that response from CMS.
    In August of last year, we made a Freedom of Information 
request to CMS regarding a company selling Part D products 
under a CMS waiver, without having been licensed in their 
homestate or any State, as required by Federal law. We are 
still waiting for that information from CMS.
    Due to the gravity of the findings from the Humana exam, I 
traveled to DC to meet with CMS officials in March of this 
year. I provided a copy of the examiner's draft report and 
voiced my concerns and frustration over our ongoing and 
unresolved issues. I left CMS with no assurances and with the 
impression that they are more concerned with protecting the 
program than the people. I am still waiting for a response from 
    So now I appeal to you, sir. Allow me to do the job I do 
every day to ensure the financial solvency of companies selling 
health plans in my State. Allow me to fully deploy the 
substantial and immediate resources of my office to protect the 
interests of all policyholders, regardless of their age and 
regardless of the private health plan that they have purchased.
    For the safety and security of all Oklahomans, I have not 
failed to act. I have not failed to respond. Yet, I am 
encumbered by unproductive, unnecessary and dangerous 
preemptions that expose my citizens to the neglect and abuse I 
have described.
    Please allow me to do my job. Thank you.
    [The prepared statement of Ms. Holland follows:]

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    The Chairman. Very good statement. Thank you very much, Ms. 
    Ms. Mowell.

                   OF INSURANCE, ATLANTA, GA

    Ms. Mowell. First of all, thank you, Senator, and the 
Committee for inviting me here.
    My name is Sherry Mowell. I have been employed with the 
Georgia Insurance and Safety Fire Commissioner, John Oxendine, 
since 1994. During the last year--I am just going to give you 
some examples of the types of fraud and abuse that we have 
found in the State of Georgia.
    Agents are allowing untrained sub-agents to sell the 
Medicare Advantage product. This is very problematic because 
the sub-agents have not been through the required training of 
CMS. By using the untrained sub-agents, the agents can later 
disclaim knowledge of any wrongdoing.
    Agents have obtained personal, identifying information from 
the agencies that they are affiliated with, which have the 
information on record from previous Medicare Part D sales. This 
personal information is being transferred to a Medicare 
Advantage plan application, with clients unwittingly signing.
    This is how it works: Agents ask potential clients to sign 
a form to prove to their boss that they have been to visit the 
client. When the client signs the form, they are unaware that 
they are signing the back page of a contract to purchase a 
Medicare Advantage product.
    Agents without prior appointments solicit individuals that 
have not requested any information on a Medicare Advantage 
program. Agents are soliciting door-to-door in areas of high 
elderly population.
    Agents have told potential clients that Medicare is closing 
down or running out of money, and if the customers do not sign 
up for the Medicare Advantage plan, they will lose all 
healthcare benefits. Some agents are even telling the potential 
customers that the Medicare Advantage product will not go into 
effect until Medicare actually closes down.
    Agents are not clearly and concisely explaining the 
benefits of the Medicare Advantage program. Agents have misled 
prospective enrollees by telling them that they are going to 
receive free eye care and free dental care for signing up, and 
that enrolling in a Medicare Advantage plan will not change 
their benefits.
    Individuals misrepresent that they are insurance agents. 
They have told prospective enrollees that they are from 
Medicare or that they are sent by the Georgia Department of 
Family and Children's Services. Agents in our State have signed 
up deceased individuals prior to the enrollment period using 
the deceased individuals' personal identifiers.
    Agents call on patients in personal-care homes without 
prior approval of the patients or their guardians. Agents 
misrepresented their identity and affiliation to the staff in 
the personal-care homes. They have told staff members that they 
are from Medicare. On one occasion, two agents called on a 
personal-care facility outside the normal operating hours. 
Agents have asked staff of healthcare facilities to visit 
patients in their room and not in the common areas. They have 
also asked the staff members not to accompany them to the 
    Consumers have been signed up for Medicare Advantage 
Programs even though they have never met with an agent or they 
have never discussed signing up for the program. We showed a 
group of elderly victims' applications with their purported 
signatures and none of the victims had signed the application, 
nor had they met with an agent.
    One agent who previously signed up individuals under 
Medicare Part D went to a mentally challenged facility and 
switched these patients, without their knowledge or their 
guardians' knowledge, onto a Medicare Advantage product. These 
individuals were also dual-eligible.
    Agents signing up Medicare Advantage to the dual-eligible: 
They are already eligible for both Medicaid and Medicare. Under 
the Medicare Advantage, they are charged co-pays up to $30 and 
$40 per doctor visit. We are talking about individuals who make 
less than $300, $400, $500 a month.
    Agents, on numerous occasions, have claimed that they were 
trained by the company to solicit customers in the manner in 
which they are operating or they were approved to conduct 
business in this manner by their field management office.
    Since January 2006, our office has received over 300 
written complaints from the public concerning the Medicare 
Advantage. This does not include the hundreds of telephone 
calls our office has received. Also, this office has received 
numerous complaints on the companies that offer the products, 
which allege the companies are not paying the claims, nor are 
they processing the cancellations that have been requested.
    Our office is trying to work hand-in-hand with the Centers 
for Medicare and Medicaid Services, trying to get these 
individuals the help they need.
    Our office has found, in some instances, the companies that 
have been contracted by Medicare to provide the coverage are 
not adequately prepared to handle the flow of business that has 
been written by the company. The State regulators do not have 
the authority to regulate the company or the product. The 
result is consumer frustration and dissatisfaction.
    Commissioner Oxendine's staff has arrested three agents on 
these fraudulent acts within the past 6 weeks and we have more 
investigations that we are working on at the present.
    [The prepared statement of Ms. Mowell follows:]

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    The Chairman. Thank you very much, Ms. Mowell.
    Mr. Sochor.


    Mr. Sochor. Thank you, Senator Kohl, for having this 
meeting. I feel honored to be here.
    I am vice president of Old Surety Life Insurance Company. 
Old Surety is an Oklahoma-based insurance company. It has been 
in business since 1932. We have been operating for 20 years in 
the Medicare arena--helping seniors make choices and helping to 
train agents about Medicare.
    I have been invited to speak here because of my personal 
involvement with some of these problems and on behalf of 
companies and other agents out there that are running into 
problems with these Medicare Advantage plans and the marketing 
tactics that they are using to promote these plans.
    I want to make it clear: I am not against the Medicare 
Advantage plans. But, I am against how they are marketing the 
plans and the tactics that they are using.
    What I am going to share with you today is what is 
happening in the field and what beneficiaries and agents are 
dealing with on a day-to-day basis.
    It has already been mentioned that seniors go to enroll in 
a prescription-drug plan; yet, they come to find out that they 
really didn't enroll in a prescription-drug plan only. They 
were actually enrolled in a Medicare Advantage plan. But 
frequently they find out too late. They don't find out what 
they have done until they go to a provider and then the 
beneficiary receives a claim several months later. That's when 
beneficiaries discover they were actually disenrolled from 
Medicare. That is when they find out. Sometimes, it is too 
    The senior, or the enrollee, will then contact CMS or the 
Medicare Advantage company and ask for help or assistance. CMS 
and the Medicare Advantage companies tell these seniors that 
they can't do anything and the are locked in until the next 
enrollment period.
    I have helped many seniors resolve this problem by 
referring to page 60 of the ``Guide to Medicare'' supplement 
that CMS distributes. I tell CMS and these MA companies to 
``Look at page 60.'' These beneficiaries, in their trial 
period, have the right to try these plans and get out; but it 
is taking my intervention to get that done.
    Some Medicare beneficiaries have been told by agents that 
with Medicare Advantage plans--''You can go to any physician,'' 
``It works the same as Medicare,'' ``It works the same as a 
Medicare supplement,'' ``You can use it and you won't notice 
any difference with your plan,'' but the beneficiaries can lose 
    Consequently, many Medicare recipients join the plans only 
to find out that their doctors don't accept the plan. Even if a 
doctor does accept the plan, he can opt out.
    What happens, is that it leaves some people without 
coverage unless they want to travel a long distance, to where a 
provider is located. Many doctors and facilities choose not to 
accept these Medicare Advantage plans. In rural areas, provider 
access is limited.
    I am aware that CMS and the MA companies know that these 
beneficiaries can get out of the lock-in period but they aren't 
informing consumers. At no time in the history of Medicare have 
recipients been locked in any plan where they couldn't make a 
    I have actually called CMS and MA companies and spoken to 
their customer service and have been told that the 
beneficiaries were locked in. It has taken me an hour, in some 
cases, to get to the right person to be able to ask them to--
''Look at page 60 of the Medicare guide.''
    I have talked with CMS customer service, which is actually 
outsourced. They are outsourced! They are not really employees 
of CMS. These service reps have a list of SEPs that CMS tells 
them they can use and I have argued with them about the 
Medicare guide. They do not even have the ``Guide to Medicare'' 
booklet available to them to look at.
    Now, a 70-year-old senior is not going to be able to push 
the buttons that I can; to get to the right person; to find out 
that they need to submit a letter to the regional office to do 
a retroactive dis-enrollment or get dis-enrolled because of 
their trial period. Most seniors are afraid to push the 
buttons. If they are told, ``No,'' they stop.
    Many agents and companies are negligent they don't always 
take into consideration what is best for the beneficiaries, I 
feel. Agents do not fully disclose how the plans work. They 
fail to tell the beneficiaries about the downfalls of the plan 
and all the co-pays and co-insurance the beneficiaries will be 
required to pay. They fail to explain the potential out-of-
pocket costs for many of the plans benefits and how much they 
could be at risk for, if the plan has no out-of-pocket max. 
They leave out the part that plans can, and probably will, 
change benefits, co-pays and premiums each year.
    I have found that if agents give full disclosure to those 
who are interested in the plans, that many individuals choose 
not to enroll. Once they are told everything about the plan, 
they usually stay with original Medicare; not because the plans 
are bad, but because the plans do not fit their needs.
    Medicare Advantage companies have training--a certification 
process--that agents have to go through to sell the plans. This 
meets the CMS requirements. The certification process covers 
laws, marketing practices and product knowledge. However, they 
tend to leave out a lot about ethics, about consumer interests 
and how to handle the problems that I have discussed.
    I have been to these certification meetings. I am a 
licensed agent. I have sat there and been told that if I don't 
get onboard, that I will lose my Medicare-supplement business 
that we have with clients. It is more motivated by commissions 
than it is by compliance.
    The driving force behind this confusion, I feel, is money; 
not the cost of the product, but what companies and agents can 
make selling the product. Almost every day, I receive 
solicitations to appoint with agencies to sell Medicare 
Advantage plans, telling me how much money I can make.
    First-year commissions run as high as $700 per enrollee--
and these agents are advanced these commissions every time they 
enroll someone in a Medicare Advantage plan. Agents have made 
hundreds of thousands of dollars in a very short time. Each 
year, these agents can enroll the beneficiaries in new plan to 
again gain access to that first year's commissions.
    I never understood how much money could be made until we, 
as a company, started being solicited to sell our company at 
more-than-market value. There is a lot of money to be made by 
both the companies and the agents in this plan. We at Old 
Surety Life have not accepted any offers.
    It brings back memories of why Congress established OBRA 
1990. Companies would bring out new Medicare supplement 
products every year to try to ``wine and dine'' and have people 
to enroll in their plans. There wasn't any way to compare 
apples to apples it was very confusing for beneficiaries.
    Agents would go out and move beneficiaries every year just 
to get those high first-year commissions. So Congress 
standardized Medicare-supplement plans. This stopped the 
confusion. They levelized commissions. Agents lost their motive 
to churn the business. The market became stable and complaints 
dropped considerably.
    In conclusion, we all know--we looked in the newspaper this 
morning--in the Washington Post--there are problems going on 
with the Marketing of Medicare Advantage plans. The marketing 
concepts have seniors ending up in situations they weren't 
aware of. We can't keep saying things are going well when it 
seems like it is getting worse.
    CMS, the industry and the industry sales force need to 
understand that they are dealing with one of the most 
vulnerable segments of our population--our seniors, our poor 
and our disabled. If we, as an industry, do not do our jobs in 
a professional and ethical manner, we are doomed. If CMS 
doesn't respond quickly to help Medicare beneficiaries, trust 
will diminish.
    CMS should stand up and be an advocate for Medicare 
beneficiaries against these plans when they don't fit the 
client's needs or they didn't understand what they were getting 
into--not tell them they are locked in! Have 1-800-Medicare 
service reps ask questions to determine if this beneficiary is 
eligible for any of these enrollment options.
    Get rid of the lock-in. Give beneficiaries freedom to 
choose. Make CMS be an advocate and help Medicare recipients 
who have made a mistake and need to change coverage do so!. 
Have them become more like counselors than they are, not just 
    Hold companies and agents accountable for unlawful or 
deceptive sales practices. Standardize the Medicarae Advantage 
plans, the Medicare Advantage Prescription Drug plans and the 
Prescription Drug plans to help stop the confusion. Levelize 
commissions to stop the unnecessary churning of business.
    These are our parents--our moms, our dads, our friends--is 
this how we want to treat them?
    I thank you for your time. I appreciate it. Have a great 
    [The prepared statement of Mr. Sochor follows:]

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    The Chairman. It is pretty hard to do that after your 
testimony. Very good.
    Before we call on Senator Wyden, I will ask just a couple 
    Mr. Dilweg, CMS has informed the Committee that they 
consider the Memorandum of Understanding a working document; 
that the agency has already begun to supply additional 
information to States. As a result, is that your view of the 
status of this document? In fact, why haven't 30 States signed 
on as yet?
    Mr. Dilweg. I think, Senator, when we look at it--
obviously, this has arisen out of how we handle confidential 
information between CMS and the insurance commissioners as 
    But as we looked at it and surveyed our States, some simply 
don't have all the problems that Wisconsin may have seen or 
Oklahoma may have seen. They don't have the driving force to 
get involved or they are simply taking their time in getting 
around to it.
    Part of the problem is we have been told that we would have 
a secure Web site that we could deal with and have not seen 
that Web site. So before you get involved in exchanging 
confidential information between State agencies and Federal 
agencies, you want to kind of see the environment you are going 
to be operating in. So it is a work-in-progress.
    The Chairman. Many of the agents who are operating in the 
State of Wisconsin are operating in a manner which you would 
describe as scandalous, fraudulent? Is that true?
    Mr. Dilweg. We have surrounding Medicare Part D and 
Medicare Advantage--we have about 400 complaints over the last 
year. To put that in perspective, when something like credit 
scoring came out for automobile or home insurance, we had 42 
complaints. So this is quite high----
    The Chairman. But you have the right to crack down on every 
one of them, right?
    Mr. Dilweg. On every one of the agents.
    The Chairman. You do?
    Mr. Dilweg. Yes.
    The Chairman. All right. I just want to make that--you 
know, understand so that we don't only look at the company or 
CMS. We all are involved in this together, including this 
    Mr. Dilweg. Right.
    The Chairman. But in terms of the responsibility--clear 
responsibility--to deal directly with agents who are acting in 
ways which are fraudulent, misrepresentative or crooked, you 
have the opportunity, the right, if you had enough personnel. 
But the right to crack down on them is centered in your office?
    Mr. Dilweg. Correct.
    The Chairman. Ms. Holland, how would you respond? You have 
the right----
    Ms. Holland. We certainly have that right. As you can tell 
from my testimony, we have exercised that right immediately and 
    One of the challenges, however, Senator--first of all, in 
my State, what we identified from our examination is we had 
unlicensed agents--numerous unlicensed agents--selling product. 
I have no way to track--unless I go to the company and demand 
that information, I don't know that there is an unlicensed 
person there.
    As we discussed in testimony, we are dealing with folks, 
oftentimes, that are fragile and may not get all the 
information they need, may have gotten a business card that has 
misleading information or inadequate information. So it is very 
difficult for my office to track down someone who is an 
unlicensed agent.
    Additionally, with the absence of an appointment, again, 
that creates that critical link where the agent is actually an 
agent for the company--he is not a freewheeling person out 
here. He may act like one, but he is an agent for the company.
    That creates that tie that allows me to go back to the 
company and hold them responsible as well and help me to crack 
down on an agent that is not performing the way we would have 
them do so in our communities.
    The Chairman. So you have the right to do that?
    Ms. Holland. I have the right to address an agent that is 
    Under the current circumstances, I am somewhat challenged 
in going back to the company and holding them accountable 
because the absence of appointment doesn't create that direct 
link. Hopefully, I am going to compel the insurer to step up 
anyway. But it creates a difficulty in us creating that 
contractual link between the agent and the company to hold the 
company responsible for the performance of their agents in the 
    The Chairman. OK.
    Ms. Mowell, you talked movingly and very well about the 
misrepresentations and fraud that are going on in your State. 
Again, you do have the opportunity and the responsibility and 
the opportunity, again, to deal with them--each and every one 
of these individual misrepresentations--don't you?
    Ms. Mowell. We have the authority over the agents, yes, 
sir. But, there, again----
    The Chairman. That is a considerable authority, isn't it?
    Ms. Mowell. It is a considerable authority. However, there 
are only six investigators for the entire State of Georgia for 
all types of insurance fraud. Right now, we cannot keep up with 
all the problems on this and our other duties.
    The Chairman. That is fair enough.
    It would also be very helpful, wouldn't it, if the 
companies themselves could be held severely accountable for 
their representatives out there, selling fraudulent packages?
    Ms. Mowell. Yes, it would make it much nicer for us to be 
able to go to the companies and say, ``What are you doing about 
it?'' because at this point in time, we do not have that 
authority to go to them and make them speak for their agents 
and bring their agents in, or to even look at the allegations.
    The Chairman. Very good.
    Mr. Sochor, what do we need to do to eliminate this 
    Mr. Sochor. The problem is when agents never really appoint 
with many of these Medicare Advantage companies. These 
companies set up independent-marketing organizations that 
contracts the agent. The contract is between the agent and that 
marketing organization. That is why the States have no way of 
knowing who is appointed with whom and have not been able to 
try to track down agent records.
    These companies advance commissions to the agents. The 
marketing organizations are actually responsible for the 
payment. Then, later, the marketing organization get--
reimbursed--by the Medicare Advantage companies. This is how 
the payment system works. I think allowing the agents to 
appoint with the MA companies and licensing the agents with the 
State insurance departments, has to be done. Then there is some 
kind of record where you can track of the agents and develop a 
database, because without that, there is no way to know what is 
going on.
    The Chairman. Very good.
    Senator Wyden.
    Senator Wyden. Thank you very much, Mr. Chairman. It has 
been an excellent panel. I commend all of you for it.
    I am going to spend most of my time with you, Commissioner 
Dilweg and you, Commissioner Holland.
    I was the principal author of the Medigap law in the early 
1990's and, essentially, came to it after, really a 15-year 
history. I have been the director of the Oregon Gray Panthers 
for about 7 years. I ran a legal aid office for the elderly, 
and then I was on the Aging Committee in the House and spent a 
lot of time on it.
    I have been struck by the number of parallels between the 
climate before Medigap was enacted and which you all are 
describing today. In fact, what is so helpful about the 
wonderful service you are performing, Ms. Holland and you, Mr. 
Dilweg, is we really got it going in the late 1980's because a 
handful of insurance commissioners like yourselves really spoke 
out and blew the whistle.
    In fact, the language you are using today--the language of 
lawlessness--is exactly what a handful of insurance 
commissioners said back then. We talked about how the Medigap 
market was pretty much like Dodge City before the marshals 
showed up.
    In fact, when you think about it, the situation between the 
Medicare Advantage abuses you are describing today and Medigap 
back then--other than the fact that in the Medigap market, you 
could sell these multiple policies and it was common for a 
senior back then to have a shoebox full of policies--you know, 
15, 20 policies--and they would have these subrogation clauses, 
and, eventually, they wouldn't be worth the paper they were 
written on--there is pretty much a parallel here between the 
Medicare Advantage abuses and what went on in Medigap.
    Now, my question to you--my first one--is back then, what 
we essentially did was bring in the National Association of 
Insurance, you know, Commissioners, led by a handful of 
commissioners like yourselves, and we used the National 
Association of Insurance Commissioners to develop a model so 
that the States would have aggressive tools to deal with the 
abuses and we would have these uniform, standardized kind of 
policies. Then, it would be backed up by Federal authority. In 
other words, if a State didn't go forward and there was a 
specific, you know, timeline, then the Federal Government could 
step in.
    It strikes me that most of that model makes sense today. 
They are different products, obviously. Medicare Advantage is a 
different product than Medicare supplement. But most of what 
made sense back then for Medigap looks like a pretty good model 
today for us under Chairman Kohl's leadership to proceed with. 
I would like to get your views on the record on that. Then I 
want to ask some other questions with respect to how it would 
go forward.
    Commissioner Dilweg and then Commissioner Holland.
    Mr. Dilweg. Thank you, Senator. Your reputation is quite 
well-known as it relates to Medigap. I appreciate that.
    When I turned to my staff and said, ``What could work 
here?'' it was, really, that model. It is really--you know, 
with other Federal agencies in the State of Wisconsin--we have 
the EPA--delegates their authority to our natural resources 
department over the environment. This is really a very similar 
situation. How does CMS delegate their authority to the 
insurance commissioner's office, which is on the front lines of 
    It was that regulators--where NAIC worked with CMS and 
built those minimum standards. Then States were given, I 
believe, 12 months or 18 months to adopt the standards. Now, 
some States, they don't want to, and so the power remained with 
CMS. But I think it is a good model to look at. It may have to 
be tweaked.
    Senator Wyden. Eventually every State came around, I think.
    Mr. Dilweg. Yes, I believe so.
    Senator Wyden. So you feel it is a pretty good model.
    Commissioner Holland.
    Ms. Holland. I would concur, Senator Wyden.
    I think that it demonstrates the kind of partnership that 
we are looking for between the States and the Federal 
Government. It creates a framework that gives the States the 
opportunity and authority to respond quickly to the needs of 
our consumers in our State and to hold the insurers accountable 
for the products and the activities that are being rendered.
    I am the Vice Chair of the Healthcare and Managed Care 
Committee, of which your commissioner, Joel Ario, serves as 
Chair. We work very closely. I can tell you that the Healthcare 
Committee, which also supports the Seniors' Issues Task Force, 
of which Commissioner Dilweg is a Chair, would welcome the 
opportunity to work with you and to work with CMS is revising 
and re-looking at guidelines and regulations to more model 
    Senator Wyden. My understanding--and you correct me 
otherwise--is that Chairman Kohl, to his credit, has already 
begun some of these efforts with NAIC. I am going to support 
him in this because I don't think we have to reinvent the 
    I think the idea is to get with NAIC, give the States the 
opportunity to indicate what tools, specifically, they need, as 
it relates to this market. You have given us valuable 
information about the advertising abuses. I am going to ask 
about the companies in a second--and try to turn this around 
    I mean, it took us, literally, 12 years--I mean, in terms 
of actively working for the Medigap, you know, law--to get it 
done. I don't think seniors and their families can afford to 
wait for another decade in order to get the tools in your hands 
to protect them and their well-being.
    Now, on this question of the companies and the sort of line 
of demarcation about how you all don't have the authority with 
respect to companies themselves, let me make sure that I 
understand this. You can go after brokers and agents even under 
the limited authority that came out of the Medicare Advantage 
program. Is that correct?
    Mr. Dilweg. Yes. They are licensed in our States.
    Senator Wyden. Are there any limits at all with respect to 
your ability to go after the agents and brokers?
    Mr. Dilweg. No, I deal with enforcement action every day on 
agents and brokers, and----
    Senator Wyden. Yes, please.
    Ms. Holland. The only thing I would add to that is the 
issue with the appointment, Senator. That does create a 
limitation for us.
    Senator Wyden. So what you all would like, essentially, as 
it relates to the companies, is some ability along the lines of 
what was done with Medigap to make sure that the companies 
would have to come in advance and, essentially, show you their 
materials, show you their marketing kind of practices. From 
that point on, you would have authority--oversight authority 
and regulatory authority--over the companies. Is that 
essentially what you want?
    You seemed to touch on that Commissioner Dilweg, on page 
five. You have got a variety or points with respect to tools 
that come out of the Medigap law that you would like to have in 
Medicare Advantage. But aren't those the key points?
    Mr. Dilweg. Yes, page six of my written testimony shows a 
    Senator Wyden. Oh, yes.
    Mr. Dilweg [continuing]. Of what authority we have under 
    This is not--you know, with private health insurers, we 
look at their marketing aspects, we look at their 
representations. We are then able, as complaints come in, to 
really perform market-conduct studies and look at--you know, if 
we see an outlier of 30 complaints coming in on an issue, we 
can then get in there with the companies and, ``How are they 
treating their agents?'' We audit that relationship with their 
agents and have full access to that.
    So these types of tools are--like I said, we don't need to 
reinvent the tools that the States currently have. I believe we 
have them.
    Senator Wyden. OK.
    Well, you all have been very helpful. Bouquets to you, 
Special Agent Mowell and Mr. Sochor, for you all speaking out 
as well. This is exactly the kind of thing that has to be done 
so we don't have to wait another decade to make sure that the 
government and regulators are on the side of seniors.
    I really thank our two commissioners, because this doesn't 
happen unless people like yourselves who, under McCarran-
Ferguson, essentially have the primary responsibility to kind 
of step in and advocate for people. We wouldn't even know about 
this for the most part, other than angry folks--you know, going 
to senior centers--unless you all had those toll-free lines and 
the capacity, at least, to find out about brokers.
    So I am very much committed. I hadn't even seen page six. 
It has been a crazy day, here, Commissioner Dilweg. But I am 
especially committed to taking the Medigap model, which we know 
has worked--it worked better than I could have dreamed of. I 
mean, it really drained the swamp.
    It is very rare today that you get a complaint about a 
Medigap practice. I would be curious if your offices are 
picking up something else. But it happened almost overnight, 
because the fact that there was uniformity, the fact that there 
was standardization, the fact that you had authority over a 
company--essentially what we saw is the sleazy operators, 
essentially, couldn't go in that kind of environment; and 
people who could make a marketplace work, sell a private policy 
that was responsible and of good quality, did just fine under 
    So it worked for seniors. It worked for responsible people 
in the industry. I am glad Chairman Kohl is taking the lead 
with the National Association of Insurance Commissioners and 
the States, because we don't have to wait forever to get this 
done again.
    Thank you, Mr. Chairman.
    The Chairman. That was very good, Senator Wyden. I think 
you succinctly and clearly highlighted the problems as well as 
pointing out the things we can do to not only rectify, but, 
maybe, to eliminate most of these problems.
    We thank you all for being here. Your testimony and your 
ability and willingness to respond to our questions have been 
very helpful and we will continue to be in touch with you.
    Our first witness on the third panel will be Karen Ignagni 
of the American Health Insurance Plans. She serves as AHIP's 
president and CEO.
    Second witness on this panel will be Heidi Margulis of 
Humana. Ms. Margulis is a senior vice president for that 
    Third, we will hear from Peter Clarkson, Senior Vice 
President of distribution operations for United Health Group.
    Finally, we will hear from Gary Bailey of WellCare. Mr. 
Bailey is vice president for Medicare operational performance 
at WellCare.
    Ms. Ignagni.


    Ms. Ignagni. Thank you, Mr. Chairman. Good morning. Good 
morning, Senator Wyden. It is a pleasure to be here. We thank 
you for the opportunity to testify.
    You will hear shortly that our members are strongly 
committed to the long-term success of the Medicare Advantage 
and Part D programs. Today at AHIP--and we represent all of the 
companies at the table and, virtually, all of the members who 
are participating in both programs--we are announcing a new 
initiative that will be giving beneficiaries additional peace 
of mind by strengthening protections against improper conduct 
in marketing Medicare plans to beneficiaries.
    I would like to tell you, Mr. Chairman, what we did and 
what we didn't do. First, we did not try to size the problem 
and get a sense of, ``If this was a small problem, we would act 
in such a way; if it is a larger problem, we would act in such 
a way.'' In our view, this issue that is now occurring, that 
you have been talking about for the last several hours--any 
abuse is one too many. So we approached it through that prism. 
What I am going to tell you about is what our members have 
committed to do. In this endeavor, we are going to be 
partnering not only with CMS, but with the State insurance 
commissioners. I will outline specifically where.
    First, we are going to be requiring core competency 
training that meets standards that we are going to be urging 
CMS to establish. We think it is very important, as the 
insurance commissioners stated, that we have core standardized 
requirements for specific training. We are going to be 
requiring that threshold scores be achieved so that training 
not only is adequate, but the performance and efficiency and 
proficiency are there.
    Second, we are going to be ensuring that continuing-
education credits are available for the core competency 
training. We are going to be partnering with the broker 
organizations and with beneficiary groups to make sure that 
those objectives are achieved.
    Fourth, we are going to be requiring achievement of 
threshold scores on specific plan training; not only on the 
program itself, but specific plan training.
    Fifth, we are going to be requiring annual recertification 
through achievement of threshold scores.
    Sixth, targeted re-training throughout the year on specific 
topics required by CMS for special attention.
    Seventh, we are going to be requiring a new beneficiary 
attestation on enrollment applications to confirm that 
individuals understand the program that has been chosen.
    Eighth, we are going to be conducting oversight to verify 
the beneficiary's intent to enroll. We are not going to stop 
with an attestation. We are committing, for all products, to do 
post-enrollment outbound calls to confirm the intent and to 
make sure that we are doing systematic monitoring of intent-to-
    Next, we are going to be requiring that plans proactively 
track and analyze the performance of brokers, agents and plan-
marketing staff in such areas as beneficiary satisfaction, 
rapid dis-enrollment and complaints.
    We are going to be requiring that individual plans address 
verified complaints through an inbound call system to make sure 
that if there is any kind of a pattern that is being observed, 
that that is taken care of.
    Finally, we are going to be working with CMS and the NAIC 
to urge the establishment of a uniform process and criteria for 
broker, agent and staff misconduct--reporting of that 
misconduct to State agencies. Right now, we have a very uneven 
system. It is not clear. It is not the same in every State. We 
have been working very closely with the insurance 
commissioners. We think they can play an important leadership 
role here.
    We want to partner with them, partner with beneficiary 
groups and partner with CMS to make sure that the fabric of 
rules and oversight is there and it is consistent. We, then, 
will know what the rules are, how to report bad practice, 
practice that is sub-par, and we commit to doing that.
    Mr. Chairman, you also heard today considerable discussion 
about the issue of lock-in. I would like to make a comment 
about this. This is a new program, but we have a number of 
plans at the table who have been in this program, serving 
seniors for a number of years.
    In the old days, it was called the Medicare Plus Choice 
program. Now it is the Medicare Advantage program. At that 
time, the rules of the road were as follows: If an individual 
joined a plan and realized and found out that he or she was not 
happy in that plan, they were allowed to dis-enroll. We did not 
support the movement toward lock-in.
    We would be very comfortable and would endorse and support 
the idea of taking a look at that to go back to the way it used 
to be. We had very low dis-enrollment. But it did provide a 
safety net for beneficiaries and for advocacy organizations, 
knowing that, sometimes, people make the wrong choices.
    We are very comfortable with that. We are comfortable with 
what we put on the table. We intend to stand by it. We spent a 
great deal of time in 2006 working on a range of operational 
initiatives responding to pharmacy issues, physician issues.
    I just want you to know our personal assurance--my personal 
assurance--that we are going to make this a major priority so 
that when you have your next hearing, as you indicated earlier 
that you intend to do, we can give you a very positive report 
about specifically what actions have been taken.
    Thank you, Mr. Chairman.
    [The prepared statement of Ms. Ignagni follows:]

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    The Chairman. Thank you, Ms. Ignagni.
    Ms. Margulis.

                      INC., LOUISVILLE, KY

    Ms. Margulis. Thank you, Mr. Chairman, Senator Wyden. Thank 
you for the opportunity to testify.
    I am Heidi Margulis, senior vice president, Government 
Relations for Humana. Humana has contracted, for over 20 years, 
with CMS to offer Medicare beneficiaries affordable, 
comprehensive health-plan coverage. We offer MA products in all 
50 States and Puerto Rico.
    We know you have valid consumer-protection concerns about 
the marketing of plans to Medicare beneficiaries. We share 
those concerns.
    Humana knows that CMS placed trust in us to provide health-
plan options for beneficiaries, many who are vulnerable with 
special needs. Our long-term success comes directly from 
satisfied beneficiaries who remain with us and trust us. Over 8 
out of 10 renewed with us this past year.
    We have zero tolerance for misconduct in sales practices. 
Last year, we terminated 78 agents. We are serious about 
wrongdoing and take action when found. We understand our 
responsibility to meet Federal and State requirements.
    Today, I will describe our marketing, training and 
oversight program, what has worked, how we can improve, suggest 
ways in which CMS States and plans can strengthen the program.
    All of our employed and contracted agents must comply with 
our marketing code of ethics. For years, we have had a 
verification process so beneficiaries understand the plan that 
they are enrolling in, that their plan is not a Medicare 
supplement plan, and that their providers accept Humana.
    Humana employs 2,000 sales reps who are licensed, appointed 
and certified to sell our MA product, and about 600 tele-sales 
agents. These Humana employees accounted for about 82 percent 
of agent-assisted MA sales in 2007.
    For these agents, we have a formalized process that 
includes extensive background checks, 12-part classroom and 
field training on everything from Medicare and ethics to plan 
suitability and communicating with seniors. We test, coach and 
    We field-monitor and investigate all specific complaints, 
taking appropriate corrective action ranging from coaching to 
termination and regulatory reporting. We now track dis-
enrollment rates. Commissions are not paid to agents if a 
member dis-enrolls in 90 days.
    Humana contracts with about 14,800 independent agents 
through agencies. These agents were responsible for about 18 
percent of our MA sales last year. These agents are licensed, 
appointed and certified to sell our products. These agents are 
also trained, monitored and overseen.
    As mentioned, we investigate every specific allegation we 
get, regardless of source. During 2006, we investigated about 
1,612 allegations, considerably less than one percent of sales. 
Of those, 304 were founded and corrective action was taken, 
with 78 agents terminated.
    In terms of oversight, in 2005, CMS identified an 
unapproved marketing piece and identified changes needed in our 
verification script and expressed concerns about sales 
complaints and marketing practices. Humana implemented and CMS 
accepted several corrective actions, including enhanced 
verification scripts, revised training, increased oversight and 
complaint-resolution staffing.
    Since 2006, Humana has reported findings from sales 
investigations on a bi-weekly basis to CMS. Last year, the 
Oklahoma Department of Insurance conducted a modified market-
conduct examination. They identified issues relating to 
licensure and appointment of agents.
    Even though CMS authority preempts State laws on 
appointments, we maintain that all but six of our agents were 
appointed consistent with Humana policy. Sixty-eight of 950 
agents failed to have non-resident licenses. Specific action 
was taken with these agents.
    Also, the department has been concerned about sales 
practices in the use of delegated agents. We share this 
concern, have made changes and decreased the use of delegated 
agents. In addition, we had 30 specific beneficiary sales 
complaints in Oklahoma investigated and took action on each. 
Nonetheless, we can all improve the system.
    Aside from more rigorous training and oversight efforts, 
some additional actions should be considered. First, there is 
Federal legal authority to implement changes. Federal laws do 
not need to change for all parties to improve efforts to 
eliminate sales-and-marketing violations.
    Second, we strongly support AHIP's principles to protect 
beneficiaries. In part, they call for CMS and the States to 
work together for uniform consumer protections. We believe a 
watch list, early detection registry, should be established 
similar to that in the area of information sharing for 
healthcare fraud, containing information on both agents 
terminated for cause and those who demonstrable trend in 
complaints. Humana does not want to contract with an agent who 
has been terminated by another plan or vice-versa.
    Humana continues to implement improvements. Plans for 
secret-shopper efforts and callbacks to new members to solicit 
their feedback on sales visits are in progress.
    Violations have occurred. While Humana's founded 
allegations are small in comparison to the number of sales, 
there is clearly room for improvement. You have our unqualified 
commitment to that objective. Humana strives daily to earn the 
trust that consumers place in us when they select our health-
plan coverage.
    I thank you and look forward to your questions.
    [The prepared statement of Ms. Margulis follows:]

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    The Chairman. Thank you, Ms. Margulis.
    Mr. Clarkson.


    Mr. Clarkson. Thank you, Mr. Chairman. Thank you, Mr. 
Chairman, for the opportunity to testify today.
    I am Pete Clarkson. I am the senior vice president of 
distribution operations for Secure Horizons, which is part of 
UnitedHealth Group.
    I was raised in rural America, and I have spent the past 20 
years working in healthcare. I am personally committed and 
UnitedHealth Group is personally committed to making sure 
seniors have access to quality coverage and that they have the 
information they need to make informed decisions.
    Today's hearing focuses on concerns about the sale and 
marketing of healthcare plans to people with Medicare. For 
UnitedHealth Group, the overwhelming majority of the issues 
that arose last year involved private fee-for-service plans, 
and these plans account for less than one percent of our 
overall Medicare business.
    In late 2005, UnitedHealth Group acquired PacifiCare Health 
Systems, which was ramping up its private fee-for-service 
business. At the time, no one could have predicted how fast 
this market was about to grow. The entire industry had about 
200,000 private fee-for-service beneficiaries then, but 
PacifiCare alone enrolled 178,000 new members for 2006, nearly 
as many as the entire industry had before.
    In early 2006, it became apparent that the systems and 
procedures that were put in place by PacifiCare were not 
keeping pace with the rapid growth. We added staff to our 
customer service and other support operations and we moved the 
administrative support for the plan in-house, to our shared-
services group.
    PacifiCare relied heavily on external brokers to sell 
private fee-for-service plans. There were reports of misconduct 
in 2006 and we took aggressive action. Between January and July 
of 2006, we terminated more than 80 individual brokers, 
including two entire agencies.
    After these events, the Centers for Medicare and Medicaid 
Services sent PacifiCare a letter on August 16th describing 
shortcomings in the sales and operation of private fee-for-
service plans. The letter directed PacifiCare to address each 
area of weakness and to demonstrate rapid improvement.
    We inherited these issues and we accept full responsibility 
for them. We have been working closely with CMS to address 
them. Among other things, we created a post-sale verification 
process in which we call new members to make sure they 
understand private fee-for-service and agree to be enrolled in 
the plan. Now, CMS plans to require all plans to make similar 
calls in the next annual enrollment period.
    In February, CMS provisionally accepted our corrective-
action plan and they continue to closely monitor our 
performance. Meanwhile, we continue to make improvements.
    Early this year, we launched a national quality-assurance 
team, which works full-time with brokers and sales agents to 
make sure members get the information that they need. If we 
find that a broker may not be explaining the plan well enough, 
depending on the situation, the quality team can do everything 
from providing additional training to making site visits and 
going out with the broker on sales calls. If the broker's 
performance doesn't improve, we impose sanctions up to and 
including termination.
    UnitedHealth Group is working with AHIP and others in the 
industry to develop best practices, but Congress and CMS could 
do two things to improve the overall structure of the private 
fee-for-service marketplace. The first involves the process 
known as deeming, which means accepting the terms and 
conditions of the plan.
    Unlike an HMO, private fee-for-service generally has no 
network. A member is free to seek treatment from any Medicare-
eligible provider, but the physician has to agree to the terms 
of the plan. A physician can decide not to provide services on 
any given office visit, even if the physician previously agreed 
to treat that same patient.
    We need a deeming structure that is good for both 
physicians and members to increase satisfaction and improve 
continuity of care.
    For our part, we will work with physicians and CMS to 
address the physicians concerns and help them become more 
willing to accept private fee-for-service plans.
    The second suggestion relates to the fact that whenever one 
company terminates a broker, that same person often starts 
selling for another competitor. The Federal Government could 
help by creating a national registry of sanctioned brokers, 
along with an appeal process to protect honest brokers.
    At UnitedHealth Group, we want only well-trained and highly 
ethical brokers selling our plans. We are committed to working 
with Congress, State and Federal regulators, health advocates 
in the industry, to enforce that standard.
    Thank you.
    [The prepared statement of Mr. Clarkson follows:]

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    The Chairman. Thank you, Mr. Clarkson.
    Mr. Bailey.


    Mr. Bailey. Mr. Chairman, Senator Smith and other members 
of the Committee, I appreciate the opportunity to testify about 
the marketing of Medicare Advantage programs.
    I am Gary Bailey, vice president, Medicare Operational 
Performance for WellCare Health Plans. At WellCare, I am 
responsible for monitoring and improving our Medicare Advantage 
and prescription-drug plans. Previously, I spent over 30 years 
at CMS, working to improve the operations of the Medicare 
program and the services delivered to Medicare beneficiaries.
    Today, I am proud to be working at WellCare, a company 
committed to providing top-notch services to Medicare 
beneficiaries. WellCare has a strong corporate compliance 
program and prides itself on continuous improvement, and I have 
seen this firsthand in our approach the Medicare Advantage 
sales and oversight.
    Today, I will speak about WellCare's efforts to go above 
and beyond the law to protect Medicare beneficiaries in the 
marketing of Medicare Advantage plans. WellCare has developed a 
corporate-wide compliance program known as the Trust Program. 
This has a zero-tolerance policy for the unethical marketing of 
our products, including Medicare Advantage.
    But first, let me tell you about WellCare. WellCare is a 
leading provider of managed-care services, with a longstanding 
commitment to Medicare and Medicaid. Founded in 1985, our team 
of over 3,000 associates currently serves more than 2.2 million 
Medicare and Medicaid members nationwide.
    We offer Medicare Advantage plans in 39 States and DC 
Because of this national scope, WellCare contracts with over 
8,000 State-licensed agents. These sales agents are carefully 
screened by WellCare before they interact with beneficiaries.
    Prior to contracting, agent must prove they are State-
licensed. Agents must pass a criminal-background check. Agents 
must be trained on product benefits, marketing guidelines and 
other important issues. Agents must pass a test with a 100 
percent score. Agents are monitored in the field. Agents are 
retrained and retested on plan terms and marketing guidelines. 
Agents must follow all Federal and State laws and must follow 
our own code of conduct. Agents are immediately investigated 
and subject to rapid resolution of any identified compliance 
    Also, in today's Washington Post: A situation involving 
unethical behavior of an agent was raised in the State of North 
Carolina. The Department of Insurance notified us on March 20, 
2007, that an agent was conducting inappropriate marketing in a 
low-income senior-housing complex. We terminated that agent the 
next day. We worked with the State to eliminate the bad apple. 
We paid no commissions to that agent that was terminated. Our 
new inbound real-time enrollment-verification process will 
prevent these situations.
    Finally, creation of a national database will assure us and 
others that agents like this will not work with other health 
plans. This is but one of several instances where our 
communication between State insurance officials and the plan 
    The Trust Program's compliance process works. Over the past 
6 months, WellCare has terminated 16 sales agents for 
marketing-conduct violations. Our program exposes and punishes 
unethical behavior. For example, in monitoring Medicare 
Advantage enrollment applications, we discovered an agent in 
Georgia submitted applications for deceased individuals. 
Working with the Georgia Department of Insurance and others, 
aggressive action was taken against the agent. This agent and 
his accomplice have been arrested.
    WellCare is continuing to improve and strengthen its 
compliance program. First, WellCare is developing an inbound 
real-time enrollment and verification process. This will allow 
prospective enrollees an opportunity to verify their 
understanding of plan benefits. It will also allow Medicare 
beneficiaries to tell us what information they received--that 
they needed to make an informed health care decision. This new 
and improved enrollment and verification process will confirm 
that the sales agent treated the beneficiary appropriately.
    The next improvement is a secret-shopper program. WellCare 
will use an independent organization to monitor the compliance 
of Medicare Advantage sales agents. This program is being 
launched in five States and will be rolled out nationwide. All 
results of WellCare's secret-shopper program will be reported 
directly by this independent organization to WellCare's 
corporate compliance department.
    We support even more improvements. We strongly support our 
trade association's draft principles to enhance oversight of 
sales-and-marketing efforts. We believe all private Medicare 
Advantage plans should adhere to these issues. We believe there 
should be a national training program for agents who sell 
Medicare Advantage products.
    We also support greater coordination and communication 
between the Centers for Medicare and Medicaid Services, the 
State departments of insurance, private Medicare Advantage 
plans and licensed agents. There should be no barrier to 
    We support the creation of a national database to share 
information about those agents and brokers who have been 
sanctioned by a State or terminated by a health plan. We do not 
want to be associated with an agent or broker who has been 
terminated by another plan because of their noncompliance with 
State or Federal rules. This should be done immediately. It 
will help our current efforts.
    So thank you again for this opportunity to testify. 
WellCare is committed to the long-term success of the Medicare 
Advantage program. No one should accept behavior that results 
in a Medicare beneficiary being inappropriately treated or 
enrolled in a product that is not suitable to their needs.
    We appreciate the support the Committee has demonstrated 
for Medicare Advantage, and I look forward to answering your 
    [The prepared statement of Mr. Bailey follows:]

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    The Chairman. Mr. Bailey, as recently as April 19, CMS 
cited your company in a corrective-action plan for inadequate 
oversight of your Medicare Advantage sales-and-marketing 
operations--your company's response and your public rebuke from 
CMS Acting Administrator, Leslie Norwalk, on the front page of 
the New York Times, May 7, as you know.
    She indicated that your response to CMS's review was 
inadequate; caused concern. Does Ms. Norwalk know what she is 
talking about?
    Mr. Bailey. Well, actually, we were pleased to have CMS 
visit our corporate operations. On March 12, they spent almost 
a week with us--the CMS staff from the Atlanta regional office 
and from the central office staff. They conducted an extensive 
documentation review. They talked to the WellCare staff. They 
talked to WellCare senior officials. They pulled a number of 
multiple--and varied samples.
    As a result of their work, they gave us preliminary 
findings in areas relating to marketing, in terms of managing 
our brokers and making sure that our beneficiaries totally 
understand the product for which we are responsible for 
    The formal report did come to us on April 19. Those 
particular findings relating to marketing were in the report we 
received later. We are now in the process of developing a 
corrective-action plan that is due to CMS by June 3. I am 
confident that they will accept the recommendations that we 
have in there.
    Much of the work we had already done in implementing our 
proactive compliance program, our zero-tolerance program, was 
already underway before this CMS review.
    The Chairman. Well, when you say the report covered the 
areas of proper training of the people who represent you out 
there and it also covered the need to be sure that people who 
enroll in your program know what they are enrolling in, I mean, 
isn't that the ABCs of your business?
    Mr. Bailey. It is.
    The Chairman. Well, wait, wait, wait. If those are the ABCs 
of your business, aren't you responsible to be sure and 
scrupulous--totally scrupulous--to be sure that these things 
are not happening? Isn't that your job?
    Mr. Bailey. That is our responsibility.
    The Chairman. Well, then----
    Mr. Bailey [continuing]. Quite seriously.
    The Chairman [continuing]. Why do you--I mean, how is it 
you come here today and talk about, ``Well, we are doing this, 
we are doing that,'' and, ``Absolutely, we would like to have a 
national registry,'' when, in fact--yes, it would be helpful 
and I think it is a good idea and I think we are going to see 
if we can't do that--but it is your job to be sure that the 
people you are hiring have been background-checked----
    Mr. Bailey. That is right.
    The Chairman [continuing]. In a complete manner so that if 
they do have things in their past that should deny them 
employment in your company, it is your job to do that. Isn't 
    Mr. Bailey. Yes. There are a number of action we take. In 
fact, we do a very extensive screening process before we 
contract with a broker. We check the excluded lists of the OIG 
and the GSA. We do a rigorous examination for appropriate State 
licensure. We have to make sure they are licensed by a State. 
We do Federal criminal background checks, as well as in the 
county of residence.
    We also train, train and retrain our agents. We also do 
field management. There has been----
    The Chairman. But if you do all of these things and do them 
carefully, properly and well, then infractions would be very, 
very rare. Wouldn't they be?
    Mr. Bailey. Yes, they would. I think the infractions are 
very rare. There are a few infractions. There are some bad 
apples that we have been dealing with.
    We have established systems along the lines of what I was 
describing, as well as new ones, in my oral testimony that will 
provide for a very strong compliance program. We are proud of 
this compliance program.
    But in those instances where something happens and someone 
becomes a ``bad apple'', we also have processes in place to 
immediately identify that agent and terminate that agent, such 
as the one I had mentioned in the North Carolina case, and in 
the Georgia case. Both of those situations had been brought to 
our attention by the DOIs and we acted swiftly to terminate the 
brokers and work with those particular States.
    The Chairman. Mr. Clarkson, last August CMS wrote to your 
company that your firm's sales of Medicare Advantage plans had 
drawn hundreds of complaints. The CMS letter was a pretty firm 
indictment of your sales-marketing and outreach activities.
    In the same way that I asked Mr. Bailey, I ask you: How do 
these things--recognizing nobody is perfect, you know; and I 
understand that. I have been in business all of my life and I 
understand imperfections. But I have always, in my own 
businesses, taken personal responsibility for anything that had 
gone wrong, and felt it was my job to be sure that those people 
who represented us were as thoroughly checked out and trained, 
you know, as was humanly possible and that any infraction was a 
severe indictment of my companies, as well as my management.
    It was just not acceptable for people to act unscrupulously 
or fraudulently or intentionally misrepresenting a product. I 
mean, that was beyond the pale.
    Now, if that is the position in your company, why aren't we 
almost perfect, recognizing that we can't be perfect? But why 
aren't we almost perfect?
    Mr. Clarkson. Senator, I can appreciate your question and 
your comments.
    We have made progress as an organization, but we are not 
perfect. There were several factors that contributed to the 
corrective-action plan: Our relative newness to using brokers 
in a marketplace--we moved to a condensed selling cycle, so 
there were shorter periods of open enrollment; the relative 
newness of the private fee-for-service plan--it was introduced 
in 2003, but really didn't begin to get or gain momentum until 
the fourth quarter of 2005. The market response was immense.
    As we described, we went from relatively no enrollment to 
178,000 members in 2006. That is explosive growth for any type 
of product. We had challenges with our integration with 
PacifiCare and we had infrastructure issues. We made modest 
projections of enrollment that we, quite frankly, Senator, blew 
right past, and did not have some of the infrastructure in 
place to manage the business.
    The Chairman. Ms. Margulis, in your testimony, you outlined 
a very impressive regimen of training and education program for 
your sales representatives and broker agents at Humana. That 
being the case, how did you get into such difficulty with CMS, 
winding up in a corrective-action plan and also have serious 
problems with the State of Oklahoma, as was outlined by the 
commissioner who testified before you?
    Ms. Margulis. Mr. Chairman, first, any violation is an 
issue. As I mentioned in my testimony, Humana has been in the 
Medicare business for 20 years. Likewise, we are not perfect 
and we seek continuous quality improvement.
    The CMS audit of us occurred in 2005. We did make extensive 
changes to our program. As the last witness mentioned, we, 
too--while we have a very large employed sales force, we also 
contract with independent agents primarily through agencies.
    As a result of increased complaints, we took corrective 
actions. We are responsible for both our employed agents and 
also our contracted agents. They are all appointed. We set up a 
compliance contract with agencies after that CMS audit and 
after we received significant numbers of complaints. We 
established a compliance agreement with our delegated agencies 
that specified what was required of us and them. We even 
terminated one agency in the process.
    Furthermore, we worked with a former NAIC staffer for the 
Senior Issues Committee to develop a suitability assessment, 
since many of the complaints stemmed from the fact that people 
did not know they were buying a Medicare Advantage product and 
not a Medicare-supplement product.
    We have had a verification process in place since 1991. 
That verification process has been modified over time. Based on 
complaints that we receive, we modify our processes.
    We also, based on both what happened with the Oklahoma 
Department of Insurance as well as CMS, have implemented within 
our internal audit department at Humana a complete internal 
audit of all of the areas.
    We seek to improve each day. Ways in which we are are in my 
    Again, the sales allegations and those that are founded are 
a very small percentage; considerably less than one percent of 
all sales. Even so, that is more than we want. We give you our 
commitment, as we have the States, to work to find a way that 
it is even less than what it is today.
    The Chairman. All right. Before I turn it over to Senator 
Wyden, I just want to make the point that this Committee, just 
like you, wants to do its job well. You know our job is 
consumer protection.
    Without trying to be unfair, our job is consumer 
protection, and I think you understand that and you accept 
that. You would expect and accept for us to be very scrupulous 
in doing our job. The only way we can do our job is if you do 
your job.
    So, you know, we need to work in a cooperative way, 
obviously; not necessarily adversarial, but, certainly, 
cooperative. To the extent that we disagree, we have to find 
ways in which to move forward that will provide maximum 
consumer protection. You know, that is our job and that is your 
job, too.
    You can, I hope, look forward to the kind of an involvement 
from this Committee that will result in the only thing that we 
want, which is almost zero mistreatments of people who sign up 
to do business with your companies. That is your goal. Our job 
is to oversee you, which, I am sure, you understand and accept.
    You know, personally, I am looking forward to working with 
you to be sure that in the months and years ahead, we do not 
have problems with people who sign up with your companies to do 
business--you know, the very least that they expect--right?--is 
that it is honest, straightforward; that there is nothing there 
that is misrepresented.
    I mean, that is the very least that people who do 
businesses with your companies have a right to expect. Isn't 
that true? I mean, any disagreement with that?
    Mr. Bailey.
    Mr. Bailey. No disagreement with that.
    The Chairman. Mr. Clarkson.
    Mr. Clarkson. No disagreement, Senator.
    The Chairman. Ms. Margulis.
    Ms. Margulis. No, sir--zero tolerance.
    The Chairman. Ms. Ignagni.
    Ms. Ignagni. Absolutely no disagreement, sir. I think you 
are absolutely right. We are going to take the responsibility 
of addressing these issues affirmatively, very specifically, 
and in an accountable fashion.
    The Chairman. That is great. I appreciate that.
    Ms. Ignagni. Thank you.
    The Chairman. Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman. I just want to 
comment you, first of all, for all your leadership. This has 
been an excellent hearing. You have really shone a hot light on 
this problem, where seniors are getting ripped off. It is 
clearly not an isolated case. There is a pattern.
    I am very appreciative that you are going to stay at it and 
get to the bottom of it. You will have my full support in that 
effort, Mr. Chairman. I commend you for it.
    Ms. Margulis, you made a statement in the course of your 
testimony that disturbs me very much. I want to make sure I 
understand it and give you a chance to amplify so the record is 
clear. You said that the Federal law doesn't have to change 
here. You said that there are already adequate tools to deal 
with it.
    Do you continue to assert that position?
    Ms. Margulis. We believe that the Federal Government, 
working together with the States, can, indeed, ensure consumer 
    Senator Wyden. Well, that, then--in fact, let's make sure I 
can get the views of everybody else on the record on that as 
    Mr. Clarkson, do you agree with that--that Federal law does 
not need to change here?
    Mr. Clarkson. I think we have to look at what is going to 
be most beneficial to the beneficiary.
    Senator Wyden. Just a yes or no. Do you think Federal law 
needs to change? Do you believe, as Ms. Margulis said, that 
there are already adequate tools in Federal law to deal with 
it? Just a yes or no.
    Mr. Clarkson. No, Senator.
    Senator Wyden. You think Federal law may have to change?
    Mr. Clarkson. No, I do not think Federal law needs to 
    Senator Wyden. Very good.
    Then, Mr. Bailey, yes or no--do you think Federal law needs 
to change?
    Mr. Bailey. I think the tools have been provided to us, but 
we need much more communication between all of the parties 
    Senator Wyden. OK.
    What you three have now stated on the record is contrary to 
what the insurance commissioners have told us earlier. What the 
insurance commissioners--Mr. Dilweg and Ms. Holland--have 
said--and it is at page five and six of Mr. Dilweg's 
testimony--is that under the Medicare Advantage statute, they 
have got authority as it relates to brokers and as it relates 
to those individuals, but very limited authority over the 
actual insurance companies.
    They would like to have actual authority over insurance 
companies, actual legal authority. That is why I asked them 
about the applicability of the Medigap law.
    So what you have stated here, on the record, is contrary to 
what the insurance commissioners have stated earlier--they say 
they need. Now, that is not very different than what happened 
the 10 years that I was battling to get those Medigap changes.
    I want to assure you--I want to assure each of your 
companies--I am not going to wait 10 years to have this 
corrected. It is not going to happen again. I don't think 
Chairman Kohl is going to allow it and I don't think 
Republicans of the U.S. Senate are going to allow it.
    We are going to drain this swamp because this is not an 
isolated set of instances. There has been a pattern here. By 
the way, it is given a bad name to the many good people who are 
offering private health insurance. I have got many of them in 
my State. We have the largest incidence in our State in the 
country--in Portland--of managed care. We have had a long 
history of private roles.
    So you are having older people ripped off and also giving a 
bad name to the many people in private insurance who do a good 
job. I and others are not going to accept it.
    Now, what are we going to do to get you on the same 
wavelength as the insurance commissioners who described a very 
different position than you all have stated?
    Let's start with you, Ms. Margulis.
    Ms. Margulis. Senator, first, with regard to appointment in 
the States, Humana has a policy to appoint our agencies. So the 
State, indeed, does know who represents Humana.
    As I mentioned to you, we take full responsibility for 
delegated agents or contracted agents, as we do with our 
employed agents. So my suggestion would be that CMS and the 
States work together so that appointment is required of 
companies. That will give the insurance commissioners 
information to work directly with the insurers.
    I might add that it is, from where I sit, our 
responsibility to work with both State and Federal regulators.
    Senator Wyden. You are still reflecting a position that is 
contrary to what these insurance commissioners are saying they 
need in terms of tools. I would urge you--and we will keep the 
record open, you know, for you on this--read what Commissioner 
Dilweg says at page five and six. He is talking about how he 
has the tools for Medicare Advantage as it relates to State 
regulation of the agents and brokers.
     He is saying he doesn't have the tools with respect to the 
companies. He needs those tools. Ms. Holland said that as well.
    I just think it is unfortunate--we are interested, as the 
Chairman has said, in working with all of you. I am not one who 
thinks that private insurance ought to be put out of business. 
I mean, I have written a universal-coverage health bill--the 
Healthy Americans Act--that has that role for private health 
insurance. But this has got to change.
    So I will hold the record open for you on this. If either 
of you two other individuals, Mr. Clarkson or Mr. Bailey, would 
like to add anything--but I don't think this is the right way 
to end a hearing, when the private companies, after a pattern 
of abuse--it is revealed that private companies are then taking 
a position which is contrary to what the insurance 
commissioners say they need. That is something that we are 
going to revisit.
    Ms. Ignagni, do you want to add anything?
    Ms. Ignagni. Yes, sir. Would you consider a suggestion?
    Senator Wyden. Sure, of course.
    Ms. Ignagni. What we have laid out as a community are some 
very specific, measurable standards that go beyond what we are 
being required to do today.
    We are going to be now initiating dialog with CMS, working 
collaboratively with CMS. We found out about these issues in 
listening to the insurance commissioners and advocacy groups 
around the country.
    We are very comfortable with CMS proceeding to accept these 
recommendations and being in dialog about continuing to add to 
the standards we are required to meet. That is point No. 1.
    Point No. 2, which I think is something that the insurance 
commissioners talked about and could be done today, is for the 
NAIC and every insurance commissioner to agree on a single 
standard that would be established at the State insurance-
commissioner level to require us very specifically to set up 
terms and conditions under which we report bad practices, 
whether they be agent or broker or our own employees. We think 
that absolutely needs to be done--not simply dismissals for 
cause, but at sub-par practice.
    I think these two issues could be taken together. What you 
have out there is inconsistent approaches to brokers. Now that 
we understand that, we have made some specific recommendations. 
We are fully comfortable with CMS proceeding along these lines. 
We would like to be in dialog with you and add to those 
    We think the State appointment process also, as Ms. 
Margulis has said, does offer us an opportunity. So, I think, 
taken together, you are looking at a fabric of accountability 
mechanisms that don't exist today. So we hope we have started 
something positive here.
    We want to be very transparent about it. We are going to be 
working with all parties, including advocacy organizations, 
because we think they have a lot of important learnings to add 
to this important issue.
    Senator Wyden. I appreciate that. There is no question at 
all that steps are being taken by your organization, by all of 
the three companies.
    What I find troubling, however, is when the insurance 
commissioners--the lead commissioners like Commissioner 
Holland, Commissioner Dilweg--come in, state for the record in 
their testimony that they need additional tools because the 
Federal Government has limited their authority, and then, we 
have the companies saying, ``No, we can do all this with the 
current tools.'' That still leaves me very troubled.
    We are going to continue to follow this up. We will leave 
this for the record. There is no doubt that steps can be taken 
by the agency called CMS, the private companies. Steps ought to 
be taken immediately. You have made it clear that that is going 
to be the case.
    But there still is a significant gap between what the 
insurance commissioners have told us today they need and what 
the three companies have said that they are willing to support. 
So we will continue to revisit this and continue to have a 
discussion about it.
    One last question, then, if I might, for the three 
companies--starting with you, Ms. Margulis. Just go down the 
row. How did this problem get out of hand? It seems to me you 
all have described various programs, verification programs. Ms. 
Margulis talked about the training programs and the like. But 
it was clear this was going to be a big market.
    I have got a Wall Street Journal article here, recently, 
talking about Humana making 66 percent of its net income from 
Medicare Advantage this year. I mean, it was clear it was going 
to be a big market. I think it would be valuable to have, on 
the record, from each of you, your perspective as to how this 
problem got out of hand.
    Ms. Margulis.
    Ms. Margulis. We, as I mentioned, Senator, do have and 
always have had a zero-tolerance policy. When allegations come 
to our attention, we seek to investigate and to take corrective 
    The allegations that we have, no matter how many they are, 
are troubling, but in terms of the number of members whom we 
have, are small.
    Senator Wyden. But that is----
    Ms. Margulis. However----
    Senator Wyden. That is not, ma'am, what the Oklahoma 
Insurance Department said.
    The Oklahoma Insurance Department said that there were many 
problems. My question is, given that the regulators are saying 
that there are many problems, I would like to hear your 
thoughts about how it got out of hand. Because if a company has 
a zero-tolerance policy and then an insurance regulator 
documents that there are many problems, that would suggest to 
me that the zero-tolerance policy wasn't working particularly 
    I am just interested in getting your sense of how things 
got out of hand.
    Let me say that, in the past, in terms of our experience, 
we have had employed sales representatives and a strong 
program; although, there have been sales complaints in that 
process, as well, which we have addressed.
    As one of the witnesses mentioned, there are short 
enrollment periods during which we marketed throughout the 
country, which caused us to contract with a number of 
independent agents. We needed to strengthen the program for the 
contracted sales force. That is what we put into place going 
forward. We have, as we have gone forward, worked to reduce the 
number of contracted agents who sell our products.
    As I mentioned, last year, for the 2007 season, we had 
about 82 percent of our sales coming from employed agents. So 
there was strengthening of the training programs.
    There were complaints that people were not receiving full 
and fair disclosure with regard to the kind of products that 
they were buying, which caused us to re-look at our 
verification processes that had been in place for years, but, 
obviously, did not address the new products that were in the 
market that needed additional clarification.
    So we made some mistakes, Senator. We put into place 
mechanisms to address those. We are not perfect today. Let me 
mention two more mechanisms.
    We need to be making callbacks to people who have purchased 
our product to make sure that the sales experience was what it 
should have been and fully disclose to people what they were 
buying. Secondarily, we, as I mentioned, are working very hard 
to see--and we will work with States and CMS to see if we can't 
have some sort of national registry for reporting infractions; 
not just those that are caused by people who violate our 
marketing code of ethics, but where there are demonstrable 
trends and complaints.
    Senator Wyden. Mr. Clarkson, how did problems get out of 
    Mr. Clarkson. Thank you, Senator.
    I, first of all, would say that we understand our 
accountability to this and accept that responsibility for these 
issues. During the open-enrollment period, we made changes in 
terms of the selling cycle and the length of time that is open 
for enrollment.
    We introduced a private fee-for-service plan, which was 
designed to serve traditionally underserved markets, 
specifically the rural market, where older Americans have not 
had an opportunity for traditional insurance products to be 
offered in those areas because of network issues, because of 
coverage issues and because of staff issues in terms of being 
able to place people in those remote areas.
    In addition to that, Senator, we underestimated the 
popularity of this plan and we had, and experienced, explosive 
growth without having an infrastructure in place to support 
that as effectively as what our members and our providers are 
entitled to.
    Senator Wyden. What does that mean, that, ``There wasn't an 
infrastructure in place''? There wasn't training? I mean, you 
know, are marketing abuses infrastructure? I mean, what does 
that mean?
    Mr. Clarkson. I am referring to training mechanisms, broker 
oversight mechanisms; the ability for the IT infrastructure to 
handle enrollment, claim processing; our customer service 
areas; of which we have, over the course of 2006 and into 2007, 
have made much progress and advances in all of those areas that 
we would love to be able to share with you. But we have work to 
    Senator Wyden. Mr. Bailey, how did problems get out of 
    Mr. Bailey. WellCare`s experience with the new private fee-
for-service product, which has proved to be extremely popular 
with the Medicare beneficiaries is less than 20 weeks old. It 
is somewhat of a hybrid between fee-for-service and managed 
care plan.
    I think the challenges we faced were in educating 
ourselves, all of our partners, and the beneficiaries--we have 
developed new compliance initiatives. I think the secret 
shopper program is going to help us in gauging beneficiary 
satisfaction with marketing and making sure that they are not 
given inappropriate information.
    We are very excited about the inbound enrollment-
verification process calls. We are going to be talking to 
Medicare beneficiaries at the point of enrollment, with another 
WellCare representative on the phone, other than the broker, to 
make sure the beneficiary, clearly understands the implications 
of joining a private fee-for-service plan. Heretofore, we were 
not doing that. We are going to be doing that now.
    Coupled with the back-end post-enrollment calls we have 
been doing, we hope to minimize instances of inappropriate 
marketing even more. So when we do come here in the future, 
there will be even less problems to discuss.
    I do want to say I believe these inappropriate marketing by 
agents are the exception and not the rule. It doesn't mean they 
are acceptable. It doesn't mean we don't have a zero-tolerance 
policy. But we are doing everything we can. We are open to 
ideas from the Committee. We support the AHIP principles and 
will work with our colleagues here to make sure that we are 
doing all that we can do.
    Senator Wyden. Mr. Chairman, I think your hearing has 
covered it. I am glad that you are going to keep the hot light 
of the congressional-hearing process and your gavel on this.
    I will tell you, based on everything that I have heard, I 
think there is a lot of heavy lifting left to do because it is 
clear that the insurance commissioners feel they need 
additional tools to deal with the problem. We have had three 
companies go on the record as indicating that the existing 
tools are sufficient.
    So I look forward to following this up with you. Given how 
many complaints there have been from our constituents, I think 
moving quickly now, while people see that your Committee is 
going to stay at it, is particularly helpful.
    I look back at the history of Medigap. Again and again, 
interest would flag and people would move on to another 
subject. With you and your capable staff, we are going to stay 
at this now and get it done and get it done quickly.
    I look forward to working with you, Senator Smith. Of 
course, my colleague and friend from Oregon will be working as 
well on a bipartisan way. I thank you.
    The Chairman. Thank you very much, Senator Wyden. Your 
experience with Medigap has really been beneficial here today. 
I think it points the way in terms of the directions in which 
we need to travel.
    We do appreciate your presence here today, folks. I have no 
doubt you want to be as perfect as human beings can be, 
understanding that 100 percent is hard to get to. But I believe 
you want to get as close to 100 percent as we can get.
    I think that there is a lot of opportunity for us to work 
together to get there in a way that would cast positive light 
on all of us and, particularly, you, because these are your 
companies. We know you want to be regarded as A-plus players in 
the industry. We have no doubt about that.
    So we will work together. We will get a lot done. Again, we 
appreciate you being here today and we are looking forward to 
working with you. Thank you so much.
    This hearing is closed.
    [Whereupon, at 1:58 p.m., the Committee was adjourned.]

                            A P P E N D I X


           Prepared Statement of Senator Robert P. Casey, Jr.

    I want to thank you Chairman Kohl for holding this hearing 
on such a critical issue to our older citizens. I am grateful 
to have the opportunity to hear from the impressive panels of 
witnesses you have brought together on the issue of the 
marketing and sale of Medicare Advantage Plus.
    The Medicare Modernization Act of 2003 made some 
significant changes regarding benefit options available to 
Medicare beneficiaries. Part D, the Medicare prescription drug 
benefit, was initiated with the MMA. Another significant change 
was an increase in payments by the government to private 
insurance plans, also known as Medicare Advantage (MA) plans, 
that offer Medicare benefits. The original intent of this 
provision was to encourage participation, competition and 
enrollment. Payments to Medicare Advantage plans average 
anywhere from 12% to 18% higher than payments to traditional 
Medicare fee-for-service providers.
    I am deeply concerned about troubling reports I have heard 
from my state about the marketing tactics of Medicare Advantage 
Plans. These reports have come from the Department of Aging and 
concern citizens who are enrolled in the Pennsylvania 
Pharmaceutical Assistance Contract for the Elderly, also known 
as the PACE Program. With the advent of Medicare Part D, 
seniors had the option of enrolling in PACE Plus Medicare, thus 
supplementing prescription drug coverage under PACE with the 
federal Medicare Part D program. The PACE program currently 
serves about 15% of the 65-plus population in Pennsylvania.
    The PA Department of Aging, which administers the PACE 
Program, has informed my office that literally hundreds of 
Medicare beneficiaries have reported being misled and in some 
cases even deceived into enrolling in Medicare Advantage plans 
by the independent agents who sell these private plans, a 
practice known as ``slamming.'' Specifically the beneficiaries 
have complained of being subjected to high pressure sales 
pitches about benefits and coverage offered. I understand that 
seniors who are concerned about the high cost of healthcare and 
prescription drugs are often told they will pay less on a 
private plan, only to find out that just the opposite is true. 
It is particularly troubling because MA plans receive financial 
incentives from the government for removing beneficiaries from 
Medicare and enrolling them in a private plan.
    According to reports and some of the testimony we will hear 
this morning, this is also happening I states all over the 
country. Older citizens may end up enrolling in plans that are 
not appropriate for their needs. They may not find out until 
they go to a regular doctor's visit that their doctor is no 
longer covered under the Medicare Advantage program in which 
they are now enrolled. Another troubling aspect is the question 
of jurisdiction over these disputes. The Center for Medicare 
and Medicaid Service (CMS) oversees MA plans and claims sole 
authority to regulate the corporate providers that sell these 
plans. Yet states clearly have a compelling interest in 
protecting their citizens against fraud. This is an egregious 
situation that must be resolved quickly and comprehensively. I 
will be working with the Aging Committee and Pennsylvania state 
officials to get to the bottom of this problem and ensure that 
our senior citizens are well protected from such deceptive and 
misleading practices.

         Responses to Senator Kohl's questions from Abby Block

    Question. How many complaints has CMS received regarding 
the marketing and selling of Medicare Advantage plans? How have 
these complaints been resolved?
    Answer. Between December 2006 and April 2007, CMS received 
approximately 2,731 complaints related to Medicare Advantage 
marketing issues. Most of these complaints are received via 1-
800-MEDICARE, phone, fax, and through CMS Regional Offices. Of 
the 2,731, 1,925 have been closed and 806 are still open.
    Question. Do you analyze complaint data to identify trends, 
poor business practices, and other large thematic concerns in 
specific geographic areas?
    Answer. Yes. Complaints received through 1-800-MEDICARE are 
logged into a Complaint Tracking Module (CTM), which was 
designed to allow CMS to better identify sponsor-specific, plan 
type-specific, and area or region-specific trends. The CTM 
captures and tracks Medicare Part C and D complaints to 
facilitate immediate and longitudinal oversight for the 
Medicare Advantage and Medicare Drug Benefit Programs.
    Question. What is CMS doing proactively to anticipate and 
prevent problems with sales and marketing of Medicare Advantage 
    Answer. With the significant expansion of MA enrollment we 
remind organizations that they are responsible for the actions 
of sales agents/brokers whether they are employed or 
contracted. Organizations must ensure agents/brokers are 
properly trained in both Medicare requirements and the details 
of the products being offered. Employees of an organization or 
independent agents or brokers acting on behalf of an 
organization may not solicit Medicare beneficiaries door-to-
door for health-related or non-health-related services or 
benefits. Medicare Advantage organizations must provide strong 
oversight and training for all marketing activities. This is 
especially critical for the marketing of private fee-for-
service (PFFS) plans, which are unfamiliar to many 
beneficiaries and providers.
    CMS has established policies for MA plans to follow in 
order to protect beneficiaries from inappropriate sales 
tactics. For example, CMS requires that plans use only State-
licensed marketing representatives; monitor marketing 
representative activities to ensure compliance with applicable 
laws and policies; ensure that the identity and other 
information of a marketing representative is reported to a 
State when required; and ensure that terminations for cause are 
reported to the appropriate State agency, if a State has such a 
    Because organizations are required to use only a State-
licensed, registered, or certified individual to market a plan, 
if a State has such a requirement, CMS expects an organization 
to comply with a reasonable request from a State insurance 
department, or other State department that licenses individuals 
for the purpose of marketing insurance plans, which is 
investigating a person that is marketing on behalf of a 
organization, if the investigation is based on a complaint 
filed with the State insurance or other department. CMS also 
encourages an organization to report a person that markets on 
the plan's behalf to the appropriate State entity if an 
organization believes that the person is violating a State's 
licensing, registration, certification, insurance or other law.

         Responses to Senator Smith's Questions from Abby Block

    Question. What are the findings from the Secret Shopper 
program, and what actions will CMS be making in response to any 
concerns raised by the secret shoppers?
    Answer. Because CMS has received an increasing number of 
complaints from Medicare beneficiaries resulting from PFFS 
marketing activities, we investigated the practices of sales 
agents in the field to evaluate which marketing requirements 
and guidelines may have been violated. These complaints range 
from minor to egregious. To help CMS assess the proliferation 
of non-compliant PFFS marketing tactics, auditors from our 
contractor observed 42 sales events in varying geographic 
locals nationwide under a ``Secret Shopper'' initiative. The 
auditors observed many areas of violation and identified 
specific compliance concerns. Medicare program violations were 
documented in the following general categories: (i) incentives, 
(ii) preferential targeting of healthier beneficiaries 
(``cherry picking''); (iii) misrepresentation of potential 
charges/fees, and (iv) misrepresentation of plan rules/
services. The top four violations were:

    1. Failure to clearly communicate the deeming process.
    2. Failure to clearly communicate provider or network 
restrictions with the PFFS plan.
    3. Failure to communicate that if a beneficiary obtains a 
service not covered under PFFS that the beneficiary is 
responsible for the cost.
    4. Failure to clearly explain the charges for which the 
prospective member will be liable.

    CMS takes any violation of our marketing policies very 
seriously. We will be closely monitoring plan marketing 
activities, and will take appropriate corrective action where 
necessary to protect Medicare beneficiaries from being misled 
or harmed.
    Question. What recourse does a beneficiary have who has 
been misled into enrolling in a MA plan, and can you please 
explain the process for disenrollment?
    Answer. CMS has the legal authority to establish a Special 
Election Period (SEP) for exceptional circumstances. In the 
case where a beneficiary has been misled into enrolling in an 
MA plan, we believe an SEP is appropriate. This SEP would allow 
the beneficiary to disenroll from one plan and enroll in 
another or return to Original Medicare. The beneficiary may 
request disenrollment from their plan either in writing or 
electronically (if the plan offers that option), or by calling 
    Follow Up Questions:
    Question a. How does CMS publicize the disenrollment 
process to beneficiaries, plans, SHIPS, and advocacy groups?
    Answer. Retroactive disenrollment actions are performed on 
a complaint/request basis. The SHIPs, 1-800 Medicare customer 
service representatives and caseworkers, and beneficiary 
advocate partners are aware of the availability of such actions 
when appropriate.
    Question b. Is there a way for CMS to simplify and better 
publicize the disenrollment process?
    Beneficiaries can call 1-800-Medicare to disenroll, which 
we believe is a very simple and well-understood option. The 
availability of customer service representatives at 1-800-
Medicare to meet a variety of beneficiary needs and handle 
complaints is well publicized.
    Question c. For the period January 2005 through May 2007, 
how many retroactive disenrollments from MA plans have been 
applied for? Of the foregoing, please specify the type of MA 
plan (HMO, PFFS, etc.) to which the request relates.
    Question d. For the period January 2005 through May 2007, 
how many retroactive Disenrollments from MA have been granted, 
and on what basis? Of the foregoing, please specify the type of 
MA plan (HMO, PFFS, etc.) to which the request relates.
    Answer for c and d. In Calendar Year 2006, there were 
303,732 disenrollments from PFFS MA/MA-PD plans and 1,374,212 
disenrollments from non-PFFS MA/MA-PD plans. Of the total 
disenrollments in 2006, 74,922 were retroactive.
    From January 2007 to April 2007, there were 136,359 
disenrollments from PPFS MA/MA-PD plans and 387,953 
disenrollments from non-PPFS MA/MA-PD plans. Of the January to 
April 2007 disenrollments, 8,693 were retroactive.
    These disenrollment figures include routine enrollment 
changes made during open enrollment periods. Disenrollments due 
to death are not included. Some beneficiaries may have had 
multiple disenrollments during these timeframes.
    Comparable data on disenrollments between January 2005 and 
December 2005 is currently unavailable due to the transition in 
database systems from 2005 to 2006.
    Question. Many stakeholders have suggested implementing a 
national registry of agents and brokers as one mechanism to 
create greater accountability and enhance oversight of sales 
agents. What is CMS' perspective regarding the utility of this 
    Answer. CMS will be gathering agent/broker information and 
will make that information available to States. While this is 
does not constitute a national registry, it would serve the 
purpose of informing State regulators of which agents and 
brokers are selling specific Medicare managed care products for 
specific organizations. CMS also is exploring the feasibility 
of making this information available to the general public.
    Question. In light of the state law preemption provisions 
of the Medicare Modernization Act (MMA), can state laws on 
appointment of agents be lawfully implemented by states, or 
instead, would the MMA need to be amended to restore state 
appointment laws?
    Answer. Organizations have State appointment of agent laws 
with which they can voluntarily comply, and often do. At the 
same time, as noted above, CMS will be gathering agent/broker 
information and make that information available to States that 
have signed the MOU with CMS.
    Follow Up Questions:
    Question a. Commissioner Delwig has suggested that Congress 
look to Medigap. As a jurisdictional model for oversight of the 
MA program. Is that a sound approach, and why or why not?
    Answer. We question that approach. Medicare Advantage plans 
differ from Medigap plans in some significant ways. For 
example, Medigap plans are paid for entirely by the purchaser 
(i.e., either a beneficiary or an employer/former employer) and 
they supplement Medicare. Medicare Advantage plans, in 
contrast, provide all original Medicare benefits and in some 
cases additional benefits. The Medicare Advantage program is 
run and heavily subsidized by the Federal government and for 
that reason we believe that oversight of this program must 
remain at the Federal level.
    Question b. It is my understanding that in relation to the 
Memorandum of Understanding with the states, CMS will be 
implementing a secure website for states to access regarding 
complaints received by CMS. Can you provide more information 
about this website, e.g., what types of information will it 
contain, what entities will have access, when it will be 
operational, etc.?
    Answer. The purpose of the website is to create a place 
where MOU States can easily access documentation pertaining to 
compliance and enforcement actions that CMS has undertaken in 
the Medicare Advantage and prescription drug programs. The 
types of information that will be available on this website, 
which is targeted to be operational by the end of the summer, 

       Summaries of CMS program audits
       Civil monetary penalty letters
       Intermediate sanction letters (e.g., freezing 
marketing and enrollment activity)
       Letters announcing the Agency's intent to 
terminate a Medicare managed care or prescription drug 
organization contract
       Letter announcing the Agency's intent to non-
renew a Medicare managed care or prescription drug 
organizations contract
       Individual complaints received by CMS where 
individual marketing agents or persons are named.

    Question. For the period January 2005 to May 2007, how many 
complaints has CMS received related to sales and marketing of 
Medicare Advantage (MA) plans? In your response, please 
indicate: Please see the attached spreadsheets for answers to 
the following questions.

       1. for each month during the period January 2005 
to May 2007, a monthly numerical summary of the type of plan to 
which the complaint relates (HMO, PFFS, etc.);
       2. for each month during the period January 2005 
to May 2007, a summary of the type of complaint received (e.g., 
alleged inappropriate enrollments, questions about broker 
tactics, etc), and the number of each type of complaint;
       3. for each month during the period January 2005 
to May 2007, of the complaints received each month, how many 
complaints presently are closed, and how many remain open;
       4. a yearly summary indicating the originating 
source of the complaint, e.g., beneficiary, SHIP, state 
department of insurance, etc.;
       5. a yearly summary of complaints received, 
complaints closed, and complaints remaining open;
       6. a yearly summary setting forth the average 
resolution time for closing complaints; and,
       7. for each month during the period January 2005 
to May 2007, the number of complaints received by CMS relating 
to MA plans offered by each of the following entities--Humana, 
WellCare, and United Health Care.

    Question. For the period January 2005 to May 2007, for 
Humana, WellCare and United Health Care MA plans, how many 
complaints has CMS received with respect to slow payments to 
    Answer. Between December 2006 and May 2007, CMS has 
received 24 complaints related to slow payments to providers. 
Nine concern Humana, one concerns WellCare, and 14 concern 
United Health Care. Prior to December 2006 and the 
establishment of the Complaint Tracking Module (CTM), CMS did 
not have one central method for collecting and classifying 
complaints and therefore cannot provide data for January 2005 
to November 2006.
    Question. For the period January 2005 to May 2007, how many 
disciplinary actions has CMS taken against plans in relation to 
sales and marketing of Medicare Advantage (MA) plans? In your 
response, please indicate for each month during the period 
January 2005 to May 2007, the number and type of disciplinary 
action(s) undertaken (e.g., warning letter, corrective action 
plan, civil monetary penalties, contract termination, etc.) and 
the name of the plan against which the action was taken.
    Answer. This question is answered in combination with the 
follow-up question, below.
    Question. For the period November 2005 to May 2007, how 
many disciplinary actions has CMS taken against plans in 
relation to sales and marketing of Medicare Part D plans? In 
your response, please indicate: for each month during the 
period November 2005 to May 2007, the number and type of 
disciplinary action(s) undertaken (e.g., warning letter, 
corrective action plan, civil monetary penalties, contract 
termination, etc.) and the name of the plan against which the 
action was taken.



   Responses to Senator Blanche L. Lincoln Questions from Abby Block

    Question 1. My state office in Little Rock has received 
many calls from constituents who have been the victims of 
misleading sales and marketing pitches for Medicare Advantage 
plans. Here are just two examples:
    In one case, insurance agents went into low-income housing 
buildings for seniors (housing projects) and set up shop in 
common rooms. They offered free food or $15 Wal-Mart gift cards 
to residents, and signed up the seniors for MA plans. The 
company listed all the doctors who were supposedly on their 
plan, but many of these doctors were not in the plan, and one 
of the listed doctors was actually dead.
    Another example is misleading marketing strategies related 
to the MA plans logos. One company in Arkansas used a logo that 
implied that it is selling Medicare with extra perks 
(MedicareExtra is in big letters and the company name in small 
letters). Many people switched to this plan because they 
believed it was a better version of Medicare.
    Also, the agents call themselves ``Medicare Specialists'' 
when they are selling their plans. This made the seniors 
believe that they are just improving their Medicare coverage 
rather than switching to a new system.
    Companies and agents like this are clearly misleading 
seniors. Are there any plans to tighten the marketing 
guidelines to prevent these types of practices in future? Has 
CMS heard of other cases like this and what type of action is 
the agency taking to remedy marketing violations such as this?
    Answer. The Centers for Medicare & Medicaid Services' 
(CMS') priority is to ensure that Medicare beneficiaries have 
accurate and meaningful information necessary to help them make 
informed decisions about their Medicare health care and 
prescription drug coverage options. CMS shares your concerns 
and therefore, has been working diligently to implement 
stronger oversight requirements to ensure better accountability 
of marketing activities conducted by MA organizations.
    In general, CMS is taking actions aimed at strengthening 
our oversight of the overall Medicare marketplace, and taking 
specific actions against any organization that we suspect are 
violating Medicare program requirements. MA organizations that 
directly employ or contract with a person to market an MA plan 
must ensure that a plan representative or agent complies with 
the applicable MA and Medicare Part D laws, Federal health care 
laws and CMS policies, which include CMS' Marketing Guidelines. 
In order to ensure that the marketing activities and outreach 
of these plans is accurate and complies with all program 
requirements, CMS has taken a proactive approach in developing 
additional MA oversight features.
    Question 2. I am concerned that seniors seemed to be 
getting blamed when they receive misleading information and 
sign up for the wrong plan.
    For example, if a person disenrolls before the plan takes 
effect (in the same month of enrollment), he or she can 
disenroll and enroll in another plan. If the senior enrolls for 
the first time in a managed care plan, he or she can disenroll. 
It appears most of these cases are handled on a case-by-case 
basis. But the senior has to allege misinformation or fraud and 
be specific. Some of these people are just stuck until next 
    When my staff has contacted the Regional Dallas CMS office 
about this, they have been told: ``Don't these people check to 
see if their doctors are on the provider lists?''
    I don't think they are taking into account that salespeople 
are knocking on doors and pressuring the seniors into enrolling 
in their plans. In Arkansas, there are a high percentage of 
uneducated seniors, not to mention those with cognitive 
problems, who may have difficulty understanding the different 
Medicare plans.
    Do you think that it is fair that senior who have been 
misled by sales agents have to prove that they received faulty 
information? How is this being addressed and do you have any 
recommendations for how we can better serve seniors when this 
    Answer. CMS takes these concerns very seriously, and we are 
taking steps to ensure that beneficiaries are protected, and 
that there is better understanding of Private Fee-For-Service 
plans on the part of beneficiaries as well as providers. We are 
particularly concerned about reports of marketing schemes 
designed to confuse, mislead or defraud beneficiaries, and are 
taking vigorous action to address violations. Possible CMS 
enforcement responses to marketing violations range from 
issuing a corrective action plan, to suspension of enrollment, 
civil monetary penalties, or even termination of the plan from 
the program.
    CMS has the legal authority to establish a Special Election 
Period (SEP) for exceptional circumstances. In the case where a 
beneficiary has been misled into enrolling in an MA plan, we 
believe an SEP is appropriate. This SEP would allow the 
beneficiary to disenroll from one plan and enroll in another 
(or return to Original Medicare). The beneficiary may request 
disenrollment from their plan either in writing or 
electronically (if the plan offers that option), or by calling 
    Question 3. I have several questions related to MA 
disenrollment. When individuals sign up for an MA plan, they 
may find out only afterward when they have received bills that 
they have been rejected both by the carrier for Original 
Medicare and their new Medicare Advantage plan.
    Individuals in this situation have the right to 
retroactively disenroll from the MA plan re-enroll in Original 
Medicare and have their provider resubmit claims to the 
Medicare carrier for payment. Few individuals are aware that 
they have these rights, however, and, even with the help of an 
advocate, it can be a difficult process.
    How are Medicare beneficiaries made aware that they have 
this right? Are the customer service operators at 1-800-
Medicare aware of the right to a retroactive MA disenrollment?
    Answer. Retroactive disenrollment actions are performed on 
a complaint/request basis. The SHIPs, 1-800 Medicare Customer 
Service Representatives (CSR) and caseworkers, and beneficiary 
advocate partners are aware of the availability of such actions 
when appropriate.
    Question. Are they able to initiate and complete the 
process for a beneficiary in this situation?
    Answer. No, 1-800-MEDICARE CSRs are only able to process 
prospective disenrollments. Retroactive disenrollments are 
processed and sent to either the plan or a CMS Regional Office.
    Question. How long does it take to complete a retroactive 
    Answer. A retroactive disenrollment from an MA plan entered 
into the CMS system online on a Monday, for example, would be 
processed and completed Monday night. The completed transaction 
would be available in the system by Tuesday morning. Once the 
disenrollment is complete, CMS notifies the plan of the change 
with a once weekly report.
    Question. Is the MA plan given any discretion on whether it 
will allow disenrollment in these situations?
    Answer. No. MA plans do not have discretion over 
disenrollment in these situations.
    Question. How many requests for retroactive enrollments has 
CMS received?
    Answer. In Calendar Year 2006, there were 303,732 
disenrollments from PFFS MA/MA-PD plans and 1,374,212 
disenrollments from non-PFFS MA/MA-PD plans. Of the total 
disenrollments in 2006, 74,922 were retroactive.
    From January 2007 to April 2007, there were 136,359 
disenrollments from PPFS MA/MA-PD plans and 387,953 
disenrollments from non-PPFS MA/MA-PD plans. Of the January to 
April 2007 disenrollments, 8,693 were retroactive.
    These disenrollment figures include routine enrollment 
changes made during open enrollment periods and disenrollments 
due to death. Beneficiaries may have had multiple 
disenrollments during these timeframes.







    Responses to Senator Smith's Questions from Commissioner Dilweg

    Question 1--Preemption of State Laws
    Question. Why is a Memorandum of Understanding is necessary 
to facilitate what it seems should be occurring anyway, that 
is, the sharing of information between states and CMS?
    Answer. CMS maintains the MOU is necessary for the exchange 
of confidential agent and company information between CMS and 
state insurance regulators. Absent an MOU, CMS is unwilling to 
provide information on agent activity.
    Follow Up Questions:
    Question a. Can you tell the Committee what you hope to 
gain from the agreement, and is more needed?
    Answer. I am hopeful the MOU will lead to greater 
communications between states and CMS regarding MA complaints. 
While increasing shared information is a positive step, I do 
not believe it is the final answer to ensuring greater consumer 
protection from agent and company abuses.
    Question b. Many states would like to see a rollback of 
federal preemption provisions contained in the MMA, but plans 
maintain that it would be too onerous to comply with varying 
laws in 50 different states. Is there a middle ground that can 
be reached, for example, would it be a useful first step to 
restore state appointment laws?
    Answer. A rollback of federal preemption provisions would 
give me authority over insurance companies selling MA plans. As 
I mentioned in my testimony, I have all the regulatory tools I 
need. Federal pre-emption, however, prohibits me from using 
them to protect consumers purchasing MA plans. Without the 
ability to regulate the plans themselves, I am not able to 
provide input as to whether a marketing strategy, plan or 
advertisement is appropriate. Authority over the insurance 
companies would increase my ability to prevent abuses. It would 
allow me to hold companies responsible for inappropriate agent 
    I put forth the Medigap regulatory model as a means to 
restore state commissioners' authority over companies while 
also addressing industry concerns related to compliance with 
varying state laws. Under the Medigap model, there would not be 
50 different laws regulating Medicare Advantage. Rather, states 
would enact one set of laws, developed by NAIC and CMS, to 
regulate MA. States electing not to enact the laws would remain 
pre-empted as they are now under the current federal regulatory 
structure for MA.
    It would be useful to restore state appointment laws given 
agent appointment by an insurance company creates a trackable 
link for states in determining which agents write MA coverage 
for which plans. However, there is some question as to whether 
CMS has the statutory authority to pre-empt state appointment 
laws. I would argue CMS does not have that authority.
    Question c. What is the most critical complication arising 
from the current bifurcated regulatory system in which states 
are enforcing licensing laws over agents, and CMS is exercising 
purview over the plans.
    Answer. Having regulatory authority over agents allows me 
to only address half the problem. Agents are not operating in a 
vacuum. They are responsible to a company that should be held 
accountable for the action of their agents, especially in those 
cases where company marketing and sales tactics are driving 
agent action. In cases where agents are initiating the 
problems, company accountability allows state regulators to 
turn to and require the insurers to fix the problems created by 
their sales force. Reaching the company with these complaints 
prevents further agent abuses.
    Under the current regulatory scheme state regulators are 
limited in what we can do to prevent abuses and are instead 
acting on a high number of complaints that result from abuses. 
Most state regulators do not have the resources to track down 
and respond to every inappropriate agent action. In order for 
me to do that I would have to increase my enforcement staff.
    MA complaints would be handled more efficiently and 
effectively if I could use my toolbox to investigate agents and 
companies collectively. This would allow for a much more 
proactive regulatory approach than states currently face.
    Question d. You advocate that Congress look to Medigap as a 
jurisdictional model for oversight of the Medicare Advantage 
program. In response, CMS has indicated that it is critical 
that the federal government maintain supervision and oversight 
of Medicare Advantage plans because in contrast to Medigap, 
which is purchased by beneficiaries with their own money, 
Medicare Advantage is federal program, MA plans are heavily 
federally funded, and the plans are CMS contractors. In light 
of the foregoing, is Medigap really the best jurisdictional 
model for overseeing the MA program? Can you point to other 
federal programs in which states are imbued with oversight of 
federal contractors?
    Answer. Under the Medigap regulatory model, CMS would 
retain ultimate regulatory authority over MA plans. CMS would 
merely be allowing those states that have enacted the federal 
regulatory program for MA (developed by NAIC and CMS) to 
enforce the laws.
    Beneficiaries are paying for MA with their own money. In 
addition to the part B premium, some pay a premium to the MA 
plans for additional coverage, including for prescription 
    It is important to note that companies sponsoring MA plans 
are insurance companies required by federal law to be licensed 
in the states in which they provide MA coverage. It does not 
make sense to bifurcate the regulatory responsibilities for 
this coverage.
    As I mentioned earlier, CMS would have a significant role 
in developing the new regulatory provisions and would assure 
that the regulations CMS promulgates are properly enforced.
    Question 2--Complaints referred to CMS
    Question. For the period January 2006 through May 2007, how 
many MA marketing/sales complaints has your office referred to 
CMS, and of these complaints, how many remain unresolved?
    Answer. To date, we have not referred any formal complaints 
to CMS regarding marketing/sales issues. We contact the 
insurers and/or agents and attempt to resolve marketing/sales 
complaints. As part of the MOU we recently signed, we will 
share information about enforcement actions. The states and CMS 
are still finalizing the procedures for sharing this 
information. We do refer MA beneficiaries who call our office 
with MA plan problems to CMS for handling.
    Follow Up Question:
    Question a. How many agents/brokers have you identified 
that have been selling MA plans in you state, but have not been 
licensed in your state?
    Answer. We informed the insurers marketing MA products that 
we expected them to use only licensed agents. We have not 
identified any situations where unlicensed agents sold MA plans 
in Wisconsin.
    Question 3--National Registry for Agents/Brokers
    Question. Please elaborate on the concept of a national 
registry of agents, and explain your thoughts on what entity is 
best suited maintain the registry, what types of data the 
registry would contain, what types of complaints and/or 
disciplinary actions would result in an agent being placed on 
the registry, what parties would have access to the registry, 
and what the cost might be of implementing and maintaining such 
a measure?
    Answer. I was a bit surprised to read in the AHIP response 
that it was looking forward to working with CMS and NAIC on a 
national producer registry for insurance agents who sell MA. 
There is already a national registry of insurance agents, the 
National Insurance Producer Registry. Insurers can access 
information in the public portion of this database, the 
Producer Data Base (PDB). The PDB is an electronic database 
consisting of information relating to insurance agents and 
brokers (producers). The PDB links participating state 
regulatory licensing systems into one common repository of 
producer information. The PDB also includes data from the 
Regulatory Information Retrieval System (RIRS) to provide a 
more comprehensive producer profile. Through PDB, industry is 
able to access all public information related to a producer 
provided by the participating state insurance departments. The 
product is designed to assist insurers in exercising due 
diligence in the monitoring of agents and brokers to reduce the 
incidence of fraud. Currently, PDB contains information on over 
3.8 million producers. Information available includes:

       Demographics--name, date of birth, addresses
       License Summary--state of license, license 
number, issue date, expiration date, license type/class, 
residency, lines of authority, status, status reason, status/
reason effective date.
       Company appointment information such as company, 
effective date, termination date and termination reason.
       Regulatory Actions--State of action, entity 
role, origin of action, reasons for action, enter date penalty/
fine/forfeiture, effective date, file reference, time/length of 

    All of the above information is supplied by the states to 
PDB. The information is updated on a regular basis, usually 
daily or as submitted by states.
    Access to the PDB is sold on a subscription basis. There is 
a $75 annual fee per password and a $1.34 charge per ``look 
up'' of an entity in PDB. A ``look up'' includes all the 
available license information being supplied by participating 
states for an individual producer, business entity, or company.
    Question 4--CMS' Marketing Guidelines
    Question. Do CMS' marketing guidelines provide sufficient 
protections for beneficiaries? In your response, please 
indicate your opinion regarding whether the marketing 
guidelines allow any unacceptable practices.
    Answer. I believe CMS marketing guidelines unintentionally 
promote possible sales and marketing abuses in some areas. For 
example, the guidelines promote cross-selling of other products 
during the sale of Medicare products under the theory of 
financial planning for the Medicare-eligible. Agents sell 
seniors unrelated and sometimes unsuitable insurance products--
including Medicare Advantage plans, annuities, life insurance 
policies, funeral policies, and other types of products. These 
other products are much more lucrative to the agents than 
Medicare Part D plans. Medicare Advantage plans are being 
reimbursed at an amount that is significantly higher than the 
cost of original Medicare; on average between 111% and 119% 
higher. As a side note, financial incentives tied to the MA 
plans are very likely driving the abuses we are seeing today.
    CMS marketing guidelines allow MA plans to change the cost-
share provisions and premiums annually. This is a very 
significant problem. All stability in coverage for the 
beneficiary is lost. MA plans do not provide the stability and 
consistency people are accustomed to having in their health 
plans from year to year. In contrast, the Medigap model would 
provide that needed stability. Medigap plans are guaranteed 
renewable, meaning plans cannot unilaterally change coverage 
from year-to-year except to adjust to original Medicare's 
changes of its deductibles and co-payments.
    The CMS guidelines seem to be written first for promoting 
the products and second for protecting the beneficiary.
    I feel that developing marketing and sales guidelines 
through a collaborative process, using the NAIC Medigap 
regulatory model, with CMS, state insurance regulators, the 
insurance industry, and consumer groups that the guidelines 
will accomplish protecting the consumer and the market place 
from abusive practices thereby promoting these products as 
valuable alternatives to the buying public.

   Responses to Senator Lincoln's Questions from Commissioner Dilweg

    Question. Commissioner, you mentioned in your testimony the 
unscrupulous practice of agents signing up people with dementia 
into an inappropriate plan. How widespread do you think this 
is? What kind of protective measures are there for these 
    Answer. My agency has received complaints regarding MA 
policies sold to people who have legal guardians appointed to 
make decisions on their behalf. The plans were sold without the 
guardians' consent. I do not have documentation of dementia 
specific cases but certainly have seen cases where 
developmentally disabled individuals purchased plans without 
being fully aware of what they were committing to. While I 
cannot quantify how widespread this is, the fact that it has 
happened at all sends a red flag and indicates to me that it is 
happening in the market place.
    Individuals who feel an agent selling MA plans has acted 
inappropriately can file a complaint with my office. As I 
mentioned in my testimony, I can use my regulatory enforcement 
tools against bad agents but I can't get at the insurers 
employing the agents. The ability to do so would hold companies 
employing agents accountable for their misconduct and would 
certainly help in preventing agent abuses.
    Question. You mentioned in your written testimony that 
Medicare Advantage plans can scale back benefits from year to 
year and seniors may not understand the changes and expect to 
get what they signed up for and at particular prices. How 
frequently are plans changing benefits and prices? Are seniors 
notified about these changes and how?
    Answer. Insurers offering MA products are allowed by CMS to 
change benefits and prices every year. OCI is not notified or 
involved in the process and therefore I do not have information 
regarding the number of plans that have made changes. I can 
tell you that most plans changed either benefits, prices or 
both in 2007. My point in mentioning these changes in my 
testimony was to demonstrate the burden these constant changes 
place on seniors--it means they have to re-evaluate their plan 
decision every year and try to make comparisons between plans 
that are all very different.
    CMS sets the standards for the notification of changes and 
the format for the notices which have to be filed with CMS. I 
believe they have to provide notice of plan changes by November 
1 for changes effective the following January 1.

     Response to Senator Kohl's Question from Commissioner Holland

    Question. Your office took marketing enforcement action 
against a Medicare Advantage plan sponsor, Humana, despite what 
we were told is a pre-emption of your authority to do that. In 
fact, Humana, in its written testimony, cites that pre-emption. 
Why did you take those actions?
    Answer. Due to the high volume of consumer complaints 
Oklahoma received, we initiated a targeted market conduct 
examination. The examination was targeted at the agents' 
conduct, over which we retain oversight. Humana's claims 
practices that would have been violations of Oklahoma law, if 
not for federal preemption, were uncovered during the 
examination and was not the basis for the authority to conduct 
the examination.

    Responses to Senator Smith's Questions from Commissioner Holland

    Question 1--Preemption of State Laws
    Question. Why is a Memorandum of Understanding necessary to 
facilitate what it seems should be occurring anyway, that is, 
the sharing of information between states and CMS?
    Answer. Federal and state privacy laws, in particular, 
hinder the ability of state Departments of Insurance and CMS to 
share critical information about consumer complaints regarding 
carriers or agents and brokers. The MOU establishes that the 
information shared will remain confidential and not be misused 
by the regulator. The MOU allows for the free and open sharing 
of information between the state and CMS.
    Follow Up Questions:
    Question a. Can you tell the Committee what you hope to 
gain from the agreement, and is more needed?
    Answer. As the insurance commissioner for the State of 
Oklahoma, I hope to receive complaints involving agents and 
brokers from CMS and send complaints involving carriers to CMS.
    More importantly, I hope to receive information from CMS on 
how and when complaints are resolved and what complaints are 
being received in other states against companies selling 
insurance in my state. My understanding is that CMS is 
currently working on a database that could be accessed by 
states that have signed the MOU and provide them with this 
much-needed information. However, we are still awaiting this 
    Question b. Many states would like to see a rollback of 
federal preemption provisions contained in the MMA, but plans 
maintain that it would be too onerous to comply with varying 
laws in 50 different states. Is there a middle ground that can 
be reached, for example, would it be a useful first step to 
restore state appointment laws?
    Answer. First, I would like to point out that MA plans 
operated very successfully before MMA rolled back state 
regulation of the plans--and without all of the consumer 
problems that have since arisen.
    Second, I do think a middle ground exists. As suggested by 
Commissioner Dilweg of Wisconsin at the hearing, a single set 
of marketing rules could be developed and adopted by the 
states, which would then regulate the marketing practices of 
the plans. This model has worked with Medicare supplemental 
plans (Medigap) and would work in this instance, as well.
    Question c. What is the most critical complication arising 
from the current bifurcated regulatory system in which states 
are enforcing licensing laws over agents, and CMS is exercising 
purview over the plans.
    Answer. The inability of states to establish the marketing 
guidelines to be used by agents and brokers and hold plans 
responsible for the appointment, training and oversight of 
agents and brokers severely limits the ability of state 
regulators to do their job.
    Question d. You advocate that Congress look to Medigap as a 
jurisdictional model for oversight of the Medicare Advantage 
program. In response, CMS has indicated that it is critical 
that the federal government maintain supervision and oversight 
of Medicare Advantage plans because in contrast to Medigap, 
which is purchased by beneficiaries with their own money, 
Medicare Advantage is federal program, MA plans are heavily 
federally funded, and the plans are CMS contractors. In light 
of the foregoing, is Medigap really the best jurisdictional 
model for overseeing the MA program? Can you point to other 
federal programs in which states are imbued with oversight of 
federal contractors?
    Answer. While MA plans receive some federal funding, they 
are far from federal contractors. When a consumer purchases an 
MA plan, they enter into a contract with that plan to provide 
payment for certain health services. As with other health 
insurance carriers, the state's responsibility is to ensure 
this contract was not entered into fraudulently or via 
unethical or misleading sales practices.
    It must also be noted that the consumer does contribute 
quite a bit to the cost of this coverage. First, the Part A 
portion of the premium was contributed by the consumer while he 
or she was employed. Second, the consumer must pay a portion of 
the Part B premium. Third, the consumer is, in most cases, 
required to pay an additional premium for the additional 
coverage provided by the MA plan (similar to Medigap coverage).
    Question 2--Complaints referred to CMS
    Question. For the period January 2006 through May 2007, how 
many MA marketing/sales complaints has your office referred to 
CMS, and of these complaints, how many remain unresolved?
    Answer. Due to the system established by CMS for 
complaints, the complaints are not referred by our office to 
CMS; rather the beneficiary must call 1-800-MEDICARE to make 
the complaint. However, in an attempt to serve our consumers, 
we do call CMS. When we call 1-800-MEDICARE on behalf of a 
beneficiary, we have trouble getting through, and when we do we 
speak to someone, it's difficult to get any response. We have 
referred 138 complaints to CMS. Again, due to the structure 
established by CMS, they do not report to us if or when the 
complaints have been resolved.
    Follow Up Questions:
    Question a. How many agents/brokers have you identified 
that have been selling MA plans in you state, but have not been 
licensed in your state?
    Answer. The appointment process compels the insurer to 
verify the licensure of an agent because they cannot appoint an 
agent without a valid license. The only way to determine to 
what extent which insurers are utilizing unlicensed agents is 
to conduct targeted market conduct examination.
    With that being said, the targeted market conduct exam we 
conducted on Humana was inclusive of both Medicare Part C and D 
sales. We found 68 agents to be unlicensed as a result of that 
    Question 3--National Registry for Agents/Brokers
    Question. Please elaborate on the concept of a national 
registry of agents, and explain your thoughts on what entity is 
best suited to maintain the registry, what types of data the 
registry would contain, what types of complaints and/or 
disciplinary actions would result in an agent being placed on 
the registry, what parties would have access to the registry, 
and what the cost might be of implementing and maintaining such 
a measure?
    Answer. Such a national registry of agents and brokers has 
been in place since 1996. The National Insurance Producer 
Registry (NIPR) is a non-profit affiliate of the National 
Association of Insurance Commissioners and provides a national 
database of producers and allows state regulators to 
communicate and coordinate oversight.
    Question 4--CMS' Marketing Guidelines
    Question. Do CMS' marketing guidelines provide sufficient 
protections for beneficiaries? In your response, please 
indicate your opinion regarding whether the marketing 
guidelines allow any unacceptable practices.
    Answer. The current marketing guidelines developed by CMS 
are not adequate to protect consumers. By allowing practices 
such as cross-selling, the guidelines encourage much of the 
unethical behaviors we are seeing in the market today. Further, 
it is obvious by the number of problems that currently exist in 
the market that CMS has inadequate resources which are 
necessary for enforcement deployed in the states. Thus, we 
maintain our assertion that CMS should work with the state 
regulators who already have the necessary resources and 
experience to protect their consumers.

       Responses to Senator Smith's Questions from Sherry Mowell

    Question 1--National Registry for Agents/Brokers
    Question. Please elaborate on the concept of a national 
registry of agents, and explain your thoughts on what entity is 
best suited maintain the registry, what types of data the 
registry would contain, what types of complaints and/or 
disciplinary actions would result in an agent being placed on 
the registry, what parties would have access to the registry, 
and what the cost might be of implementing and maintaining such 
a measure?
    Answer. In my opinion, a national registry would need to be 
maintained at the federal level. Each consumer complaint would 
need to be investigated and, if found legitimate, the federal 
regulator would take appropriate action to restrict or prohibit 
an individual from selling any Medicare product. (I would 
suggest a sliding scale of punishment, with the most severe 
punishment being to completely and permanently bar an agent 
from selling any Medicare product.) The registry should be set 
up so that the public could check to see if an individual is 
under investigation (without full disclosure to the public of 
the details of the investigation); states should have full 
access for state licensing issues. Depending on the severity of 
the punishment, the states could use that information to take 
appropriate action against the individual agent license. 
(Congress should also consider modifying the federal law to 
enable states to take actions against licensed companies for 
company wrongdoing.)
    Any company engaging in Medicare business should have an 
obligation to notify the registry of suspected agent 
wrongdoing. Also, I would recommend that, prior to being 
approved to sell Medicare, an agent be required to acknowledge 
that the agent is aware of the ramifications of potential 
wrongful acts.
    I anticipate that the cost to implement such a registry and 
to employ adequate staff to conduct investigations would be 
substantial--you would need investigators in all 50 states to 
investigate each complaint. Investigators would need to be able 
to go into the field and meet with the complainant (the 
Medicare recipient). This would also require administrative 
attorneys to enforce the regulations and follow through with 
administrative orders.
    If Medicare gave the states the jurisdiction that we have 
suggested during the Senate hearing, this system is already set 
up on a state-by-state basis. Each state already investigates 
insurance fraud at different levels. Through the NAIC, the 
states report actions taken against individuals and companies. 
Thus, when an agent's license is revoked in one state, it is 
unlikely that he or she will be given a license in another 
    Question 2--CMS' Marketing Guidelines
    Question. Do CMS' marketing guidelines provide sufficient 
protections for beneficiaries? In your response, please 
indicate your opinion regarding whether the marketing 
guidelines allow any unacceptable practices.
    Answer. No. The guidelines set out violations but do not 
provide for punishment. In our experience, if a company 
dismisses an agent for his or her practice, the agent just 
moves to the next company. The states do not even know a 
problem exists unless the consumer contacts us directly. 
However, in the State of Georgia, if a company dismisses an 
agent, the company must notify the state of the dismissal and 
of the reason for the dismissal. If wrongdoing occurs the 
company is obligated to notify the state.

       Responses to Senator Smith's Questions from Albert Sochor

    Question 1--National Registry for Agents/Brokers
    Question. Please elaborate on the concept of a national 
registry of agents, and explain your thoughts on what entity is 
best suited maintain the registry, what types of data the 
registry would contain, what types of complaints and/or 
disciplinary actions would result in an agent being placed on 
the registry, what parties would have access to the registry, 
and what the cost might be of implementing and maintaining such 
a measure?
    Answer: There is already a national registry process in 
place. It's called National Insurance Producer Registry (NIPR). 
Insurance companies, insurance agents and state insurance 
departments all use and have access to this registry. It has 
the capability of handling all that you have asked. Cost is set 
up on an as used basis. This would give CMS and the states a 
gathering sight for complaints, compliance and data. All 
insurance companies are required by the state insurance 
departments to use NIPR to appoint agents. (See attachment for 
more information) Web Site: http://www.licenseregistry.com/
    Question 2--CMS' Marketing Guidelines
    Question. Do CMS' marketing guidelines provide sufficient 
protections for beneficiaries? In your response, please 
indicate your opinion regarding whether the marketing 
guidelines allow any unacceptable practices.
    Answer: No, if it had been doing so we wouldn't be 
experiencing the difficulties we have. The marketing guidelines 
do not allow any unacceptable practices; the problems are 
enforcement and accountability. You cant dictate compliance. 
Humana was the only company that had agents actually appoint 
with them and not contract through a third party, they also had 
the most comprehensive training (two days in school) and 
testing. Yet they had the most complaints. I have yet to read 
where Humana, their agencies or their agents have been fined 
for their infractions. What would help beneficiaries is when 
they call 1-800-Medicare they should get help and guidance as 
to what to do when the beneficiary has made a mistake or has 
been taken advantage of. As I stated in my testimony, I and 
many other agents and beneficiaries have spoken with CMS and MA 
Company's service reps and have been given the wrong 
information. Beneficiaries and being told they are ``Locked 
In'' until the end of the year and are not being advised about 
the ``Trial Period.'' All the CMS reps would have to do is 
asked the beneficiary a few questions when they call; such as, 
``Is this your first time on an MA plan? Did you drop a 
Medicare Supplement policy to join this MA plan?'' ``Have you 
called the company? What was their response?'' CMS needs to be 
the advocate for these beneficiaries. They claim it's their 
program and the companies are their contractors. CMS needs to 
be handling the problems and doing it right, not SHICP or other 
entities. Senator Wyden was right when he said ``We need to 
drain this swamp.'' As I stated in my testimony, all MA, MAPD 
and PDP plans need to be standardized to stop the confusion. 
Commissions need to be lowered and levelized to stop the 
churning and the incentive to cheat. You must get rid of the 
``Lock In'' to give beneficiaries the freedom of choice. This 
will give them confidence that if they make a mistake or if 
something in the plan changes and it is not what they want, 
they can get out. I also believe that you need to have an 
equitable reimbursement rate to relieve the burden that it puts 
on the current Medicare system. The Federal and the State 
systems already had programs in place to protect the poor 
before MA plans came along; it was called Medicaid and the QMB 
and SLMB programs. These worked for years to help the poor with 
their medical costs.

       Responses to Senator Smith's Questions from Karen Ignagni

    Question 1--National Registry for Agents/Brokers
    Question. Please elaborate on the concept of a national 
registry of agents, and explain your thoughts on what entity is 
best suited maintain the registry, what types of data the 
registry would contain, what types of complaints and/or 
disciplinary actions would result in an agent being placed on 
the registry, what parties would have access to the registry, 
and what the cost might be of implementing and maintaining such 
a measure?
    Answer. We are calling for strengthening of the processes 
and criteria for reporting broker and agent misconduct to state 
agencies, not creating a national registry. Uniform processes 
and criteria would enhance the ability of states regulators, 
plan sponsors, and the Centers for Medicare & Medicaid Services 
(CMS) to strengthen safeguards against broker misconduct.
    At the same time, we are aware that the National 
Association of Insurance Commissioners (NAIC) has an existing 
database, the National Insurance Producer Registry (NIPR). AHIP 
is committed to working collaboratively on an expedited basis 
with the NAIC, CMS, and other interested parties to confirm 
whether NIPR or another mechanism could provide a workable 
vehicle for timely access to expanded information about 
misconduct. We believe that NIPR has the potential to serve as 
a platform that would enable this initiative to move forward 
more quickly, and we are in discussions with the NAIC about the 
functionality and data submission processes for this database, 
as well as NAIC's evaluation of the potential for an expanded 
role for NIPR. We understand that NIPR already contains 
information for brokers and agents whose licenses have been 
terminated, along with termination date and reason.
    We also are prepared to work with NAIC, CMS and others on 
such operational issues as reporting criteria, data submission 
mechanisms, and data use and access. We believe that in these 
areas, as well, existing processes could provide a sound basis 
for moving forward. For example, State licensure laws include a 
variety of categories of broker and agent misconduct, processes 
for reporting such misconduct, and a range of disciplinary 
action when misconduct is verified through prescribed 
processes. We believe that a joint effort to review the 
critical elements of these laws, establish standard criteria 
that could be used across the country to enhance the breadth 
and timeliness of information reported, and make the resulting 
data available through a centralized database, such as NIPR 
could improve the ability of States and plans to take more 
effective preventive and corrective action regarding 
    We have not yet developed a cost estimate for this project 
because it will be the product of the joint effort described 
    Question 2--CMS' Marketing Guidelines
    Question. Do CMS' marketing guidelines provide sufficient 
protections for beneficiaries? In your response, please 
indicate your opinion regarding whether the marketing 
guidelines allow any unacceptable practices.
    Answer. CMS' marketing guidelines require plan sponsors to 
follow a wide range of requirements that are designed to 
protect beneficiaries including requirements for the content 
and scope of marketing materials, the conduct of marketing 
activities and the qualifications and role of contracted 
brokers and agents. We believe these guidelines establish an 
effective foundation for holding plan sponsors accountable and 
for achieving CMS and plan oversight of broker/agent conduct 
but--in light of the concerns about marketing conduct that have 
been identified--we support efforts to clarify and strengthen 
this guidance. Specifically, we support the issuance of more 
detailed guidance, based on the principles outlined in the AHIP 
Board of Directors statement we submitted with our testimony to 
address the serious concerns discussed at the May 16 hearing.
    Question 3--SHIP Hotline Numbers
    Question. Please provide a list of your members' SHIP 
hotline numbers. To address privacy concerns, please provide 
two documents as follows:

       One document should be labeled ``Document A.'' 
Document A should list your member plans and corresponding SHIP 
hotline numbers. Document A will not be published in the 
hearing transcript. Please mark Document A as ``Not for 
       One document should be labeled ``Document B.'' 
Document B should provide a list of your member plans, and a 
yes/no acknowledgment next to each members' name as to whether 
the phone number has been provided on Document A. Document B 
will be entered into the hearing transcript. 










      Responses to Senator Lincoln's Questions from Heidi Margulis

    Question. I have heard from my state office that about 25% 
of the complaints we receive about Medicare Part D are from 
people who have signed up for a managed care type plan without 
understanding that their providers aren't participating. The 
salespeople are telling the seniors that the plan they 
represent is as good or is better than the plan the senior is 
enrolled in.
    How is Humana handling this situation and how does your 
company reign in salespeople who are misleading seniors about 
the plans?
    Answer. Within Humana's sales agent training program, we 
train agents to fully and fairly disclose to beneficiaries that 
Private Fee for Service enrollees may see any provider that is 
willing to accept Humana's payment terms and conditions. Our 
CMS-approved sales presentation includes this information and 
our enrollment verification scripting (please see Attachment 
#1) addresses this issue as well. During the verification 
process, we specifically inform the member of this rule and 
that the member should confirm their provider's willingness to 
accept the plan. Additionally, agents can forward provider 
information to our Provider Relations' education staff to 
request they communicate with providers about the PFFS plan, in 
the event the provider is unaware of how a PFFS plan works and 
how they will be paid. We have a team of Provider Relations 
representatives who conduct educational sessions in communities 
for providers and who provide ongoing outreach to them. 
Providers can also directly contact this staff.
    Humana has a sales investigation unit outside our Medicare 
Sales department that investigates all allegations that come to 
our attention. Specific remedial actions are in place, 
including termination and reporting to state Departments of 
Insurance for those findings of statutory cause. Further, for 
many years, we have had a policy in place that incents best 
practice selling and disincents bad sales practices. Agents do 
not receive commission for members who disenroll within the 
first 90 days of enrollment--this is known as our ``chargeback 
    Question. What evidence do you have that the corrective 
action plans have been effective?
    Answer. Agent complaints are tracked and agent files 
maintained with investigation reports and findings. Agent 
personnel files also contain monitoring, corrective actions and 
other remedies. If repeat allegations on the same topic or 
related allegations occur, further disciplinary action, up to 
and including termination may be warranted.
    Question. I am concerned that some cognitively impaired 
persons are being taken advantage and signed up for plans that 
they did not understand. Agent Mowell noted in her testimony 
that one agent went to a facility and signed up individuals who 
were mentally disabled for Part D and then switched them to a 
MA plan without the knowledge of the patient or their guardian.
    How does Humana ensure that agents are not taking advantage 
of beneficiaries with mental disabilities? You noted in your 
written testimony that Humana has a verification system, which 
is used to ensure that the beneficiary or authorized 
representative understands the MA plan and the basic rules. Can 
you please walk me through this system and how it works?
    Answer. Our sales training program includes a section on 
senior vulnerabilities. We also monitor sales through our 
verification process, local management and through sales-
related complaints. Our sales program does not target specific 
groups of vulnerable beneficiaries and cold-calling without an 
appointment or agreement on the part of relevant parties 
violates our sales practice policies.


       Since 1991, Humana has used an enrollment 
verification process to confirm a beneficiary's intent to 
enroll in a Medicare Advantage (MA) plan and his/her 
understanding of plan rules. This process has been updated over 
time to reflect new requirements, new technology and better 
approaches to beneficiary health literacy needs.
       Following a beneficiary's completion of an 
enrollment application, the agent phones a toll-free number 
that connects with an interactive voice response (IVR) system. 
The beneficiary has the option of completing the verification 
through the IVR system or by speaking directly with a customer 
care representative (verification staff are not in the sales 
organization). Both the IVR system and the customer care 
representative (verification staff are not in the sales 
organization). Both the IVR system and the customer care 
representative utilize a CMS-approved script that includes 
questions related to plan rules as well as confirms the 
beneficiary's understanding that the plan in which they are 
enrolling is not a Medicare Supplement plan, that the plan is 
not a stand-alone prescription drug plan and that the 
beneficiary's providers must accept Humana payment terms and 
conditions (Humana pays the same as what Medicare pays). 
Telephonic verifications are recorded.
       During the verification process, if the IVR 
detects hesitation or a negative response, the system 
automatically transfers the beneficiary to a live customer care 
representative. If the customer care representative detects 
hesitation or the beneficiary negatively responds or the 
beneficiary does not understand a provision, the verification 
system is stopped and the agent is instructed to explain the 
relevant provisions to the beneficiary. If, at a later time, 
the beneficiary wants to enroll, the verification process 
begins anew.
       Humana tries to verify all sales. If for some 
reason, the verification is not completed telephonically, or 
the application is completed online without a sales 
representative, an outbound call is made to the beneficiary by 
a customer care representative after the application is 
processed. If the beneficiary cannot be reached, a letter is 
mailed to the beneficiary.
       All telephonic enrollments are recorded and the 
recording serves as the verification. These enrollees also 
receive a verification letter.
       Stand-alone PDB enrollees receive an outbound 
verification letter.
       The Verification Unit is staffed Monday-Sunday: 
8AM-11PM ET. The IVR line is available 24/7.
       Beginning within the next months, Humana will be 
implementing an outboud verification system with a customer 
service representatives contacting members post-sale in 
accordance with new CMS guidance. As well, Humana is in the 
process of designing a secret shopper program to evaluate sales 
       In addition to our verification process, Humana 
has had in place for many years a commission chargeback policy. 
This policy stipulates that agents do not receive commissions 
on sales that terminate prior to the first 90 days of 
enrollment. This policy was designed to promote best-practice