Saturday, November 22, 2008

What is a Medicare Advantage Plan?

Medicare Advantage Plans are health plan options (like an HMO or PPO) approved by Medicare and offered by private companies. These plans are part of Medicare and are sometimes called “Part C” or “MA Plans.” Medicare pays a fixed amount for your care every month to the companies offering Medicare Advantage Plans. These companies must follow rules set by Medicare. Medicare Advantage Plans provide your Medicare health coverage and usually Medicare drug coverage. They aren’t Medicare Supplement Insurance.

Not all Medicare Advantage Plans work the same way, so find out the plan’s rules before joining. In all plan types, you are always covered for emergency and urgent care.

For more information on plans in your area contact the Senior Advisors Group. You can find a Medicare Supplement Comparison Chart and information about Medicare Advantage Plans, Medicare Supplement Insurance, and Medicare Parts A, B, C, and D on their website. Aetna Medicare plans as well as many others available.

2) Medicare and You 2009; Published by U.S. Department of Health and Human Services;
Center for Medicare and Medicaid Services


Wednesday, November 12, 2008

Response to CMS latest Interim Ruling (CMS-4128-IFC2 on 10-10-2008)

Letter with plans and solution follows this brief introduction.
CMS issues interim final rule, the 3rd revision in as many weeks. It seems it would be much more efficient if CMS would just dictate to the MA providers exactly how much commissions they can pay to agents. It would be a shame to stop at merely violating the first amendment rights of every agent as well as those of every American over age 65. Imagine, someone asks an agent to explain Medicare Advantage and the agent responds "I can tell you everything you want to know, I am trained and certified to present many of the available plans, but I'm not allowed to tell you right now. You will need to sign this document stating what we are going to discuss, then I will come back in 48 hours and tell you everything you'd like".

Just writing this makes me laugh at the lunacy and lack of sophistication at CMS.

I am disgusted at the ignorance and incompetence at CMS, and I do not intend to sit back quietly. I am supportive of rational oversight to address the issue of mistreated, misguided, or otherwise exploited seniors. I support better supervision of agents and sanctions for those who prey on and/or take advantage of anyone --young or old. But the regulations imposed on good agents to clean up the abuse of a few has gone way to far. IMAGINE if those in charge of civil protection cut the pay to police officers because a few were involved in inappropriate and/or criminal activities. Who would remain? That's CMS brilliance.

The following letter is being sent to my local Congressperson and Senator, however I wanted to share it with others. It's not perfect and potentially flawed in places, but it is a better starting point in 2 hours then what CMS failed to accomplish all year. I encourage you to post comments at its conclusion.

Draft to be finalized and sent by 10:00am on 10-17-08.

Comments are strongly encouraged.

November XX, 2008

Representative Joe Sestack
600 N. Jackson Street Suite 203
Media, PA 19063
Phone: (610) 892-8623
Fax: (610) 892-8628

RE: Comments on to CMS-4138-IFC2

Dear Representative Sestak:

Before I address the specifics of the new CMS guidelines issued 10-10-08 (CMS -4138-IFC2), I first want to note the irresponsible and reckless timing of the this new interim release. Issuing such guidelines at the last minute by CMS and anyone responsible for the development of these regulations is derelict in their duties and they should be expelled from their respective positions -- Congress, CMS, or otherwise.

As any competent individual understands – business planning is essential to survive and establish a stable, healthy business. For many of my colleagues four months or more of planning and preparation has been expelled for the 2009 AEP and OEP Medicare enrollment periods. A ruling that so severely impacts businesses and individual livelihoods four days prior to a regulated selling season is careless and reckless. I demand better from my government officials or votes will be redirected.

As a result of this new ruling, I will be scaling back my efforts to sell and advise seniors about Medicare related products. I am cancelling advertising campaigns and will be excusing two agents from their commitments. If CMS’s intention was to drive out good agents, then they have succeeded.

This ruling, if allowed to stand, will induce the exit of qualified agents from consulting, advising, and servicing Medicare beneficiaries. The effort required to analyze, certify, and then explain the choices available under the MA program is substantial. This is before one has to navigate and understand the absurd and ill-suited guidelines. Personally, I spent over 100 hours my first year just reviewing and grasping the nuances of all the plans in my area (The 5 county Philadelphia region). This year I spent about one-half that time getting re-certified and reacquainted with all the changes. With 12 years of Financial and insurance related experience, I was initially overwhelmed – imagine what a senior is confronted with.

To the specific remuneration impact: I can no longer justify any significant attention or investment in Medicare Advantage related products. CMS and others clearly do not understand the structure of the insurance sales world. Most agents work without financial or other support from providers. For me, marketing costs in 2008 was nearly $100 per new MA enrollment. At the bare minimum, if I do everything realistic under the new – restrictive – marketing guidelines, I can enroll maybe 40 – 50 people a year. (I could do many times that previously with telemarketing and other universally accepted practices, but they have been eliminated.) The total I can now expect to earn in 2009 is $5,000 profit. Where do I sign up for public assistance and state foreclosure assistance? Where’s my bailout?

If I want to add agents (which I had previously contracted) and pay them a decent wage ($250 last year), my cost go up to $350. Add in support staff, and we are easily at $400-$450 before I - as a business owner - can make a profit. Insurance companies understand this, and that’s why they pay 400-$500 in commissions. The people so inclined can create a business and employ others, and those wishing to do it alone can make a little extra income for their independence and initiative.

Additionally, there are hierarchy levels above the agent (i.e. G.A. and F.M.O.) which earn more but they are organizations that are in place as intermediaries between agent and insurance company. (Many use this system some do not.) These classifications are somewhat difficult to attain, but many top agents like myself can get bonuses which help get them close to the compensation at these levels.

The point, however, is that many of these organizations do little more than recruit agents, consolidate order flow, and disseminate information out to agents. Their commissions do not seem to have been effected by the ruling and furthermore the excess now being retained by the insurance companies will now just funnel to excess profits and bonuses for executives. Some attention to these relationships should be understood and reviewed for MA. The more logical solution (assuming free markets are dead) might be a higher cap on the total compensation at the FMO level and let business owners allocate capital and pay commissions as they see fit. The new guidelines simply restrict higher compensation to dedicated and motivated agents. Those who want to help senior citizens, and are inclined to do more are the ones who have been most adversely affected.

Without going over all the details of running a small insurance business the bottom line is there will be no way to market, hire, train, educate oneself and others every year without significant scale. Only the carriers who have the scale and cash flow of huge government MA premiums will be able survive and sell and market MA plans. In fact, because CMS has intentionally omitted any compensation guidelines for directly employed agents - with zero objectivity - these individuals are now getting compensated at between 4-10 times (including salaries and benefits) that of the independent agent. This is an outrage and a clear bias toward those with financial and political influence.

The result; no independent advice for seniors as insurance carriers negligently and maliciously promote their own products as the best available. The most egregious and exploitative of these behemoths has massive television advertising campaigns, and all spend Millions of dollars in direct mail and other marketing programs. One giant in particular has the worst benefits – by far – of any plan available in my region. Do they tell seniors about the competitors lower out of pocket expenses? Do they point out that others offer additional benefits that they do not offer? I don’t think so. Only independent advisers can provide this level of product impartiality.

I understand the point of this whole initiative, but its implementation is severely flawed. Seniors are encouraged (By CMS) to review their plans each year. With poor design and pricing (adverse claims history) many plans adjust premiums and benefits each year and change is clearly prudent, not malicious. Over time, the free market will establish a more stable and competitive environment but that may take some time especially as providers get a handle on claims experience and the industry grows and matures.

The problem is not beneficiaries moving out of plans it is finding ways to keep them in plans. Reasonable compensation assures continued support from agents to clients and compels enrolling agents do everything not to lose their clients to other agents. The level commissions released last week by insurers at $400-$500 did just that. The problem with churn was not too high a commission; it was exactly the opposite; to low of a commission for agents to concern themselves with existing clients. (See attached letter to Baucus, Grassley, Hatch, and Rockefeller with details)

The premise of more time spent explaining to a client in year one is also flawed. The extra time once an agent actually gets in front of a Medicare beneficiary is paltry compared to the overhead, time, and resources exhausted to get there. It is the ongoing support, service, and attention to client issues that the new compensation does not address.

If the government feels like it is footing the bill for all these commissions they need look no further than the CEO’s of the insurance companies. $16 million last year to the CEO at Humana -- and they (Humana) want to restrict agent compensation -- Shameless.

What CMS and regulators need to focus on is the structure, cost and supervisory, and the authorization and knowledge base of agents. Create an FMO’s and GA’s accreditation – One that could be lost with excessive complaints and abnormal enrollment patterns. This would force GA’s and FMO’s to take responsibility for everyone under them. The GA level could be a break point for an FMO and GA for agents. Force individual agent accreditation – i.e. next year an additional 8 hours of CE are required in PA to sell Long Term Care. CMS should provide or require similar education on Medicare, along with a knowledge base requirement for every county or market.

This could easily be implemented via the FMO and GA’s organization and in some fashion funded by every carrier authorized in a given county. This could be done for minimal additional cost to carriers. The truth is the capital necessary is likely already there. CMS has required PFFS to have networks of doctors (which is another misdirected and naive ruling) how much harder would it be to require localized Medicare and product training for all carriers. (Many carriers already provide training on their own products.) I have seen the formula work where numerous providers are consolidated over two days and agents are provided intense training. It’s rare, but it does happen. Too much training has been pushed online absolving the insurance companies of providing any real education and training. I believe this (online programs) are a good start but they are too simple and require very little commitment to get appointed with one or two companies. Not to mention the "gaming the system" that is done by exactly those we are trying to eradicate from the system

Additionally, a mandate for open access of all plans to all qualified agents (All plans must be available to agents) and require a minimum standard and level commission. (Note: some plans are not offered via agents and thus can not be offered and can be targets for replacement.)

In summary CMS should institute:

1) GA and FMO Supervisory accreditation's.
2) Enhanced Agent accreditation. 4-8 hour of in class Original Medicare training. Forget online or similar, these efforts are constantly being gamed by agents and carriers.
3) 4-8 hours of training pertaining to county offerings. Agents would be required to know the basics of every plan in a given county.
4) Agents would have to demonstrate a level of competence in assessing a clients needs and recommending a plan. This will bring additional benefits to those with Special needs and compel providers to develop plans specific to those needs.

FMO’s could consolidate and coordinate the training from carriers and facilitate regional meetings through GA’s down to the independent agents. Carriers and FMO would have to open and appoint a few more GA's but the reality is people would be well trained and supervised.

In the end a well trained agent is certified after 2 days of training and an adjunct army is created to advise, consult and service seniors. Of course, we then get compensated for our efforts to support, service, and advise Medicare beneficiaries. For qualified independent agents, $400-$500 for the first 6 years and then something nominal - ongoing ($75-$100/year). For a GA $600-$700 and another $50-$100 for the FMO seems reasonable. These costs are already baked in -- it’s the management and lack of supervision that has created any problems that exists. This structure is essentially the foundation of most good agencies anyway it just needs to be standardized and then managed. I reiterate; in a world where service, qualification, and benefits for medicare beneficiaries are improved churn will come down and what remains will be prudent, not malicious.

Believe me, FMO’s and GA’s spend considerable time and effort recruiting agents and signing them up to sell, and then do little to train and educate. Agents are signed then forgotten because supervision is not required. Agents do training and certifications on their own and rouge unsupervised agents with little knowledge prey on seniors in low income and other stressed environments. These agents enroll beneficiaries in whatever they can. This is similar to the direct employed agent who enrolls beneficiaries in plans that don’t quite fit, but it was what they had to offer. Qualified independent agents who are properly screened and supervised would be able to ascertain and service these scenarios much better.

To protect agents, clients should be required to sign a replacement form (already used in the industry) that boldly states that the client understands they are replacing their policy, and that the new policy offers benefits that exceed that of their current plan. Further, it would state that they informed the agent of any special needs that should be considered. The scope of appointment form is a joke -- it’s naive, elementary, and only a bureaucrat could have created such a form. American Progressive has a good form that requires clients’ initial in about 10 places – that would be a place to start. They also require a conformation telephone appointment to make sure the beneficiary understands everything. This requires a lot more effort on sales people and providers but I bet their enrollments and turnover are reflective of the additional requirements. I would bet my career this simple call prevents a boatload of churn and resolves a lot of the issues on it's own. If carriers were all mandated to take this extra step we could solve most of the problems without all these, clumsy, misdirected restrictions and anti capitalist regulation.

I would further require that the Medicare beneficiary be provided the toll free number from a surrendering carrier. A new participant could call IF they have second thoughts on there decisions. Surrendering companies will gladly and expeditiously take those calls. In this requirement, some method to block dis-enrollment could easily be established.

Further requirements might include carriers printing the name and telephone numbers of agents or agencies somewhere on an beneficiaries card each year. This would keep beneficiaries connected and in touch with the agent/agency with whom they enrolled. Should an agent lose their MA certification, that information could easily be dropped, changed or omitted. Agents could (potentially) assume beneficiaries that have been orphaned.

The overall point is to manage and regulate via education, enhanced qualifications for agents and increase responsibility from insurance companies and FMO's. In its entirety a substantial certification will require commitment -- two days of training to be certified is minimal for committed agents. Monitored education and testing, and ongoing supervision will be an obstacle for rogue agents motivated only to manipulate exiting MA participants. Furthermore, with FMO's and GA's at risk for non-conforming agents they will quickly dismiss criminal elements. Beneficiaries with involved agents will not switch plans without consulting their agent beforehand.

I’m sure I could elaborate further but I believe my overall position is well established…

Commissions that are insufficient will simply create a vacuum were Medicare beneficiaries get minimal if any advice and or service. Alternatively an environment of educated and committed independent agents (that can earn a living that compensates for the time effort and capital) will foster and industry segment of dedicated senior advisers.



Saturday, November 1, 2008

Humana trys to Mislead Regulators and Distort Commission Reality.

(This post is a response sent to the recipients of Humana's Letter. Click here to view the Humana letter

Response sent November 2nd, 2008 to:

The Honorable Max Baucus
Chairman, Committee on Finance
United States Senate
511 Hart Senate Office Bldg. Washington, D.C. 20510
(202) 224-0515 (Fax)

The Honorable Charles Grassley
Ranking Member, Committee on Finance
United States Senate

The Honorable John D “Jay” Rockefeller
United States Senate
531 Hart Senate Office BuildingWashington D.C. 20515
(202) 224-6472
(202) 224-7665 Fax

The Honorable Orrin Hatch
United States Senate
104 Hart Office BuildingWashington, DC 20510
Tel: (202) 224-5251 Fax: (202) 224-6331

Dear Chairman Baucus,

I am writing to express my grave concern over the letter written to you from Humana’s Peter O’Toole, Vice President, Medicare Sales, regarding Medicare Advantage (MA) sales commissions.

I find the positions represented in his letter to be misleading, bias, self serving, and one that could potentially place all Medicare beneficiaries at risk of poor service and the behest of arrogant insurance companies.

Humana, in the letter penned by Patrick O’Toole (October 24th, 2008) puts forth an ideology that their direct employed sales force is better at serving Medicare beneficiaries than independent agents. The reality is that captive or direct sales forces are part of the problem. Since by definition, captive or direct employee agents represent only one company theses agents can’t offer a beneficiary choice outside the employers offering spectrum. Imagine a sales representative advising an enrollee to pick something other than what their employer provided. Not producing (read - not selling what they offer) would inevitably lead to employment termination, a precarious position to place an employee. Imagine the representative faced with better designed products and richer features offered by the competition, and then not able to present this to a Medicare beneficiary. Clearly this is not the solution for better service and better benefits for seniors.

Regarding the commission cap suggested by Mr. O’Toole in his letter, I find this particularly appalling. They (Humana in this case but can apply to all direct sales) want to pay their own employed sales force a fair commission, provide millions of dollars in marketing, base salaries, benefits, expense accounts, overhead such as office space, telephone, office supplies and equipment, cell phone, car allowances (fuel etc.), and oh yea did I mention millions of dollars in marketing. And then they tell congress with a straight face that independent agents should be paid $338.00 per new enrollee, and less to advice, and service that client over time. THIS IS AN OUTRAGE! It cost that much just to enroll a beneficiary.

I’m insulted that Humana believes they can distort reality in an attempt to pull the wool over the eyes of regulators. Is there anyone that believes what they are suggesting represents a level playing field? Maybe Humana is frightened by competition? Maybe they will no longer be able to retain beneficiaries in an inferior product line? Having represented nearly every available carrier in my market last season – at a considerable cost in time and expense – I choose not to bother with Humana because I found, zero instances where there wasn’t something better.

What officials should understand; capping commissions will not reduce churn. Just drive out independent agents that are not adequately funded to market and compete with the Millions of dollars spent by carriers like Humana. That lower commissions is exactly what creates churn -- High commissions first year and lower commission in subsequent years -- That under the old commission structure (approximately $400/$100 in ‘08) there was no incentive for agents to maintain and service existing clients, and a strong incentive to churn. Factoring in overhead, marketing cost, expenses (fixed and variable); the ROI for an independent agent to acquire a new client at $400/$100 is marginal at best, certainly not enough to provide a high level of service to existing beneficiaries. Good agents are forced to focus on acquiring new at the expense of servicing existing.

With a level compensation somewhere between $400 -$500 it becomes as profitable and equally as rewarding to service, consult, and maintain existing clients as it is to add new clients – with no incentive to churn an existing client base. This will nurture an environment where agents 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, one where beneficiaries are treated fairly and provided competent, ongoing support.

Under the old method it was 4 times more profitable (in most areas) to get a new client than to keep an old. Under Mr. OToole’s proposal only the insurance companies get to make millions in profits. And we all know what that means – Government money flowing into big bonuses and ZERO service for Medicare beneficiaries. On top of that, in the past the renewal commission was so minuscule that it wasn’t cost effective to allocate time, energy or financial resources to service existing clients. Agents were forced to bring in new clients and beneficiaries were left to figure out the complex and multitude of choices on their own. Anyone who has spent time trying to decipher the numerous selections in a given area knows; learning the available plans, premiums, benefits, co-pays, etc. is not simple. The result is that Medicare beneficiaries are left confused and uncertain of the best choice for their situation. In the face of uncertainty and a vacuum of good advice beneficiaries made decisions to change plans based on something that sounded good and met there needs. Certainly the industry needs stability to thrive, and churn makes forecasting difficult, but not all churn is malicious. In fact, most is certainly not.

The new – level commission -- structure will pay agents and brokers to keep clients on the books. Provide reasonable compensation for agents to allocate resources, spend time, advise, and service existing clients. This structure will eventually reduce migration, and in time establish an industry segment of informed agents servicing seniors.

In Rep Stark’s letter to CMS (October 2008) while Rep Stark was naive, one point that was correct; in 2009 churn will be high, but not because commissions are going up, conversely, because they are not going up – for clients currently on the books. Once commissions are level (in 2 years) the churn problem will diminish and resolve the problem it was intended to address. Unless of course commissions are obliterated then there will be no one to service seniors at all.

What needs addressing is to direct insurance companies to pay the new renewal level commission on existing clients. This will provide the incentive for agents to KEEP existing beneficiaries IN plans. This will reduce churn immediately. However, in order to do this a reasonable commission must be paid which compensates agents/brokers and allows profitability. Clearly the remuneration from the government and profitability is there for the insurance companies (they are paying it on all 2009 new beneficiaries) so direct them to pay it on existing beneficiaries. Otherwise we will have one more year of significant churn. And after that who knows.

My fear, next years churn will be high and Rep. Stark will believe he was correct when clearly the proper factors were not clearly identified. This will result in another year of turmoil and another abomination where CMS can't get their act together until days before the enrollment period. I can see next years mess coming already.

Two quick final recommendation; CMS need to be professional and get their guidelines together before September 1st. Business professionals in any business need more that 2 weeks to assess profitability and finalize business plans. Two months is not much to ask, and two weeks is shameful.

Second in an effort to improve service to Medicare beneficiaries a requirement of a certain number of CE credits for overall Medicare competence (similar to the AHIP course in place by some carriers) plus a certain level of specific market competence. This subsequent piece may be difficult given each county has different plans but it should be considered. My reasoning - I have personally been provided inaccurate information by carrier representatives that didn’t fully or competently understand the offerings of competitors. I find this to be disgraceful, that a carrier provides inaccurate information about direct competitors.

I’ve gone on at some length and appreciate your taking the time to consider these positions.

A very concerned citizen, and career professional insurance agent,