United States Senator Elizabeth Warren (D-Mass.), a member of the Senate Finance Committee, is calling on the Centers for Medicare & Medicaid Services (CMS) and the National Association of Insurance Commissioners (NAIC) to stop secretive and perverse incentives in the Medigap market.
A new report released by Senator Warren has uncovered what she describes as the pervasive, secret rewards of lavish vacations, cash bonuses, and other incentives that big insurers offer health insurance agents and brokers who participate in the Medicare Supplement Insurance (Medigap) market. Although the practice is legal, she said it has created incentives to steer unsuspecting seniors into products that could cost them hundreds or thousands of dollars more each year.
The report found that in 2021, more than six million seniors purchased Medigap plans from companies that offered agents special, secretive rewards for enrolling seniors into targeted plans. Among the incentives: a “sunny San Diego trip,” “the sales reward trip of a lifetime” to St. Thomas, and trips to the Bahamas, Maui, Los Cabos, and Aruba.
Warren is calling on CMS and NAIC to take immediate action to end these secretive perks and stop these perverse incentives in the Medigap market.
“Giant insurance companies have free rein to scam millions of seniors in Medigap, offering agents lavish vacations to steer unknowing beneficiaries into more expensive plans,” Warren said in an announcement. “Regulators must act to make sure seniors aren’t getting fleeced.” She is especially concerned because CMS regulates sales incentives for Medigap plans less strictly than sales incentives for Medicare Part C and Part D markets.
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The report is based on 2022 data released by NAIC. Warren’s staff used the data to identify health insurers that sold Medigap insurance plans and used publicly available information to identify which of these insurance companies offered perks and other incentives to insurance agents as rewards for selling certain Medigap plans. Information about some of these companies was accessible only via “members-only” portals and websites for current agents, which may mean there is a greater prevalence of incentives and rewards in the Medigap insurance industry than the report uncovered.
Especially troubling, the report said, is that once seniors sign up for a Medigap plan, potentially as a result of inadequate or inaccurate advice, they may have trouble switching to another plan. “As a result, seniors may find themselves stuck with the first Medigap plan they signed up for—even if they ultimately identify a plan that better meets their needs,” the report said.
Among the findings:
- Secret offers of luxury vacations and other perks to agents are pervasive in the Medigap market: As of the 2022 Medicare open enrollment period, there are at least 32 companies that provide, directly or through third parties, vacations and cash bonuses as incentives for selling certain Medigap products. These companies collectively signed up over six million seniors for Medigap insurance and collected more than $16 billion in premiums from beneficiaries in 2021. In exchange for steering business to their preferred plans, insurers are offering agents trips to San Diego, St. Thomas, the Bahamas, Maui, Los Cabos, and Aruba.
- Bonuses and perks can create incentives for agents and brokers to enroll seniors in the wrong products: Prices in Medigap plans vary widely across insurers. The widespread use of secret perks raises questions about whether agents and brokers are recommending certain Medigap policies because they are the right fit for seniors, or because they yield credit toward the fanciest vacations or most generous bonuses.
- Bonus perks for agents and brokers are legal and minimally regulated: Federal and state regulation of Medigap sales has significant gaps, making it legal for health insurers to hand out perks to agents and brokers who sell seniors favored Medigap products—even if those insurance products do not meet the enrollees’ needs. Medigap plans are not subject to the same regulations that govern Medicare Advantage plans, and few states have adequate consumer protections in place.
In her letter to CMS and NAIC, Warren asks that they ban use of incentives and giveaways that offer agents reasons to sell the most expensive Medigap policies to seniors regardless of whether they met seniors’ needs and that CMS begin enforcing these standards as a condition of certification for Medigap policies. She asked for a response on the implementation of these changes by March 31.