Brokers get big perks to sell costly Medigap

Regulators urged to increase their oversight of agents

Federal and state regulators are being urged to increase their oversight of insurance agents and brokers selling Medigap policies, the private supplemental coverage owned by millions of people with traditional Medicare that pays out-of-pocket costs.

These brokers received paid vacations and cash bonuses to enroll customers in plans offered by specific companies, according to a report released Wednesday by Sen. Elizabeth Warren, D-Mass.

“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 a statement. “Regulators must act to make sure seniors aren't getting fleeced.”

The report found that at least 32 Medigap insurers were associated with reward programs, either directly or through third parties. These incentives are legal but can create financial reasons for agents to recommend more expensive policies or plans from a single insurer.

“Seniors can pay a high price for these agent bonuses: Signing up for the wrong plan could cost hundreds or thousands of dollars more each year, either in higher premiums, higher out-of-pocket medical costs, or both,” the report said.

Roughly half of those enrolled in traditional Medicare, about 14 million people, have Medigap policies. Sold by a wide range of insurance companies, the supplemental plans differ in price and the benefits they offer. They are intended to fill the gaps in Medicare coverage created through the program's deductibles and coinsurance. Some plans begin paying any out-of-pocket costs immediately, while others charge lower premiums and require patients to shoulder at least some of the bills for a hospital stay or a visit to the doctor.

Senate Democrats had previously raised concerns about the overly aggressive marketing tactics used to enroll people in private Medicare Advantage plans, which now make up nearly half of all coverage for people 65 and older. Older Americans have been flooded by marketing communications, some of which appear to come from federal agencies, urging them

to sign up for private coverage. Medicare has also tightened rules around how the plans are marketed.

The Warren report details numerous examples of luxurious vacations and other perks that high-performing brokers receive.

“Earn the sales reward trip of a lifetime,” reads one pitch, offering a paid vacation to St. Thomas in the U.S. Virgin Islands. “Sell Cigna Supplemental Benefits to earn a five-day, fournight trip.”

Brokers who sold large numbers of Aetna policies in 2020 were offered the opportunity to “unlock the magic of the Golden City,” San Francisco, but only if they also retained a high percentage of customers. (The trip never took place because of the pandemic.) Brokers selling Mutual of Omaha plans were offered cash bonuses.

Cigna declined to comment. Aetna said it offered “a wide range of plans to meet the specific needs of Medicare beneficiaries and it is our expectation that agents sell plans that best meet those needs.” Mutual of Omaha said the insurer “provides a variety of compliant, industry-standard incentives in order to encourage independent brokers to consider our solutions.”

In a letter to officials at the Centers for Medicare and Medicaid Services and the National Association of Insurance Commissioners, which represents state regulators, Warren described these practices as “an abuse of the trust that seniors place in Medicare.” She urged regulators to take steps to ban their use.

Medicare officials said they were “committed to ensuring that people exploring Medicare coverage options have peace of mind and receive honest, transparent and accurate information about health coverage options.” The National Association of Insurance Commissioners said it was reviewing Warren's letter.

Unlike the sale of Obamacare policies, brokers and agents offering Medicare plans are under no obligation to offer every policy or tell customers about how they select plans for customers, said Gretchen Jacobson, vice president of the Medicare program at the Commonwealth Fund, a nonprofit group that funds health care research. This week, the fund released a report looking at the choices that people make in buying the plans, based on discussions with brokers and agents.

Someone hoping to lower their premiums may want to pick a plan with a high deductible, but a broker typically earns higher commissions by steering customers to more costly plans that have more generous coverage.