Sunday, October 26, 2008

Rep. Pete Stark calls for Medicare Advantage Commissions Cap

It has been widely reported that Rep. Pete Stark (D-CA), chairman of the House Ways and Means Health Subcommittee, called on the” Centers for Medicare & Medicaid Services (CMS) “to cap Medicare Advantage sales commissions "...

A recent check the House of Representative site provides a complete copy of the letter sent to CMS...

The following letter was sent via e-mail to Rep. Stark Essentially it mimics the letter (Humana Post) sent to Baucus, Grassley, Rockefeller, and Hatch with a few personal opinions about Mr Stark and his competence.

Mr. Stark:

What you are ignoring is that under the 300/100 commission structure (which was more like 400/100) there was no incentive for agents to maintain and service existing clients, and a strong incentive to churn. With a level compensation at $400, it will be equally rewarding to service, consult, and maintain existing clients as it is to add new clients, and no incentive to churn ones existing client base. This will create an environment where agents can, and will, service, consult, and inform seniors about health benefits and Medicare related products. I can see a multitude of benefits to seniors in this environment. Can you?

Under the old method it was 4 times more profitable (in most areas) to get a new client than to keep an old. The renewal commission was so minuscule that it made little, if any sense to allocate time, energy or financial resources to service existing clients. The new – level commission -- structure will pay to keep clients on the books and provide incentive for agents to allocate resources, spend time, advise, and service existing clients (seniors). This structure will eventually reduce migration, and in time establish an industry segment of informed agents and well advised senior citizen. Once commissions are level (in 2 years) the churn problem will diminish and provide a network of agents that each year look to service their existing senior base. Unless of course commissions are obliterated then you will have no one to service seniors at all.

Mr. Stark, the points you should be addressing is to provide a rational level commission which allows profitability, (about the average ($400) of this years level compensation) and obligate insurance companies to pay the new renewal level commission to existing clients -- otherwise we will have one more year of significant churn.

My fear, next years churn will imply you were correct when clearly the proper factors were not clearly illuminated. This will result in another year of turmoil and another abomination where CMS can't get their act together until days before the annual enrollment period. I can see next years mess coming already

If the problem is cost to the system, then cap the insurance company compensation to 5% below current Medicare costs. If insurance companies can’t provide more for less then maybe Medicare Advantage is not a reasonable solution. That I can accept. Furthermore, if insurance companies can't out service and out price the federal government then they should be ashamed of themselves.

Like most politicians Mr. Stark you have no understanding of what happens on Main Street and the real world. Blindly attacking something without understanding it is irresponsible and negligent. You should retire because you are out of touch.

A very concerned citizen.


Medicare Advantage information from independent Senior Advisors