Table Of Content

S. Hrg. 101-1286 MEDIGAP POLICIES: FILLING GAPS OR EMPTYING POCKETS? HEARING BEFORE THE SPECIAL COMMITTEE ON AGING UNITED STATES SENATE ONE HUNDRED FIRST CONGRESS SECOND SESSION WASHINGTON, DC MARCH 7, 1990 Serial No. 101-17 Printed for the use of the Special Committee on Aging U.S. GOVERNMENT PRINTING OFFICE 45-513 WASHINGTON 1991 : ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-035528-1 SPECIAL COMMITTEE ON AGING DAVID PRYOR, Arkansas, Chairman JOHN GLENN, Ohio JOHN HEINZ, Pennsylvania BILL BRADLEY, NewJersey WILLIAM S. COHEN, Maine QUENTIN N. BURDICK, North Dakota LARRY PRESSLER, South Dakota J. BENNETT JOHNSTON, Louisiana CHARLES E. GRASSLEY, Iowa JOHN B. BREAUX, Louisiana PETE WILSON, California RICHARD SHELBY, Alabama PETE V. DOMENia, New Mexico HARRY REID, Nevada ALAN K. SIMPSON, Wyoming BOB GRAHAM, Florida JOHN WARNER, Virginia HERBERT KOHL, Wisconsin NANCY LANDON KASSEBAUM, Kansas Portia Porter Mittelman, StaffDirector Christopher C. Jennings, Deputy StaffDirector Jeffrey R. Lewis, MinorityStaffDirector (n) r I i CONTENTS Openingstatementby SenatorDavidPryor, chairman 1 Statementof: Senator HarryReid 7 SenatorCharles Grassley 10 SenatorJohn Heinz 11 Senator Richard Shelby 14 SenatorJohn Glenn 15 SenatorLarry Pressler 17 SenatorQuentin Burdick 22 SenatorWilliam Cohen 22 SenatorPete V. Domenici 25 SenatorJohn Warner 25 SenatorBobGraham 45 SenatorAlan Simpson 47 SenatorHerb Kohl 98 Prepared Statement of: SenatorBill Bradley 28 SenatorPete Wilson 29 Panel: A formerinsurance agent: Mr. Ed Kodish, incarcerated former insurance agent, St. Petersburg, FL (by videotape), accompanied by Mr. Arnold Levine, attorney (inter- viewer) 31 Panel: Victims ofMedigap abuse: Ms. Charlene Blackburn, SantaCruz, CA 34 Lois Hibbard, Riverside, CA 40 Panel: Professionals knowledgeable aboutmarketingabuse problems: Mr. John Hildreth, Consumers Union Southwest Regional Office, Austin, TX 52 Mr. RonaldO. Gaiser, Jr., private attorney, Birmingham, AL 64 Mr. Ron Taylor, insurance commissioner, National Association of Insur- ance Commissioners, accompanied by Ms. Carole Olson, National Asso- ciation ofInsuranceCommissioners 73 Panel: Representatives from currentState counselingprograms: Ms. Bonnie Burns, consultant, California State Health Insurance Counsel- ingProgram and local HICAP Programs 100 Mr. JeffSpitzer-Resnick, Center for Public Representation, Madison, WI, accompaniedby Ms. Vickie Frost, Dane Countybenefitspecialist 108 Panel: Representative from the insurance industry: Mr. Thomas A. Sick, vice president. Physicians Mutual Insurance Co., Omaha, NE, accompanied by Ms. Linda Jenckes, Health Insurance Association ofAmerica 118 APPENDIX Item 1. Special Committee on Aging Staff report entitled "A Guide To Pur- chasingMedigap and Long-term Care Insurance" 143 Item 2. Examples of advertisements submitted by John Hildreth, Consumers Union 192 Item 3. Booklet entitled "Your Key to Professional Selling" A&H Product Training Manual, cited in Bonnie Burns' testimony 200 Item 4. Booklet submitted by the Consumer's Union entitled "Health Insur- ance Counseling Programs forSeniorCitizens" 218 Item 5. Booklet submitted by the Health Insurance Association of America entitled "Older Americans and Their HealthCoverage" 255 (III) IV Page Item 6. Testimony submittedby the United Seniors Health Cooperative, three casehistories, from theHealth Insurance Counseling Programfiles 281 Item 7. Written testimony from the Medical Insurance Assistance, Inc., sub- mittedbyBetteyMagninie, executive director 283 Item 8. Written testimony from the Michigan Office ofServices to the Aging, submittedbyOliviaP. Maynard, director 286 Item 9. Written testimonyfrom theHealth Insurance Counselingand Advoca- cyProgram HICAPAssociation 291 Item 10. Written testimony from AARP, submitted by Elizabeth C. Goodwin, Arkansas AssistantState Coordinator, HealthAdvocacyServices 294 Item 11. Written testimony from the Legal Center/HICAP, Sacramento, CA, entitled "Unethical Insurance Salestothe Elderly," withexamples 296 Item 12. Written testimony from Hunterdon County, NJ, Area Agency on Aging, submittedbySusan Chambers, program developmentspecialist 301 MEDIGAP POLICIES: FILLING GAPS OR EMPTYING POCKETS? WEDNESDAY, MARCH 7, 1990 U.S. Senate, Special Committee on Aging, Washington, DC. The Committee met, pursuant to notice, at 9:14 a.m., in room 628, Dirksen Senate Office Building, Hon. David Pryor (chairman ofthe committee) presiding. Present: Senators Pryor, Glenn, Burdick, Shelby, Reid, Graham, Kohl, Heinz, Cohen, Pressler, Grassley, Domenici, Simpson, and Warner. Staffpresent: Christine Drajiion, ChiefClerk; Marcia Lecky, Pro- fessional Staff; Bonnie Hogue, Professional Staff; Portia Porter Mit- telman. Staff Director; Christopher Jennings, Deputy Staff Direc- tor; Jeffrey Lewis, Minority Staff Director; Allison Barnes, Minori- ty Professional Staff; and Dan Tuite, GPO Printer. OPENING STATEMENT BY SENATOR DAVID PRYOR, CHAIRMAN The Chairman. Ladies and gentlemen, the Committee will.come to order. I, first, want to apologize to my colleagues and witnesses. I was asked by Senator Mitchell to open the Senate a moment ago and it threw me about 10 minutes late, so I do apologize. We will get right down to business. We have a very good hearing, I think, scheduled this morning relative to Medigap insurance policies. Let me say, on behalf of the members of the Committee, I am very, very pleased to convene this session ofthe Special Committee on Aging. We are all very deeply concerned on this Committee about the understandable confusion that many older Americans have about their health insurance need, what coverage they have, their vulnerability to high pressure, and sometimes unscrupulous sales practices. Today we are going to highlight those problems that older Amer- icans have, that they continue to face, and we will focus on ways to address these problems. During the debate on the Medicare Catastrophic Coverage Act, it became very clear to us that many older Americans and their fami- lies were very confused about what coverage they had and what coverage they did not have. As a result, even in the best ofconditions, decisions about private Medigap and long-term care insurance are exceedingly difficult to (1) 2 make. On top of these problems, many serious marketing abuses that we will talk about this morning in the insurance business persist in spite of over a decade of State and Federal regulatory efforts. Such abuses include agent ignorance, high pressure marketing techniques, agent efforts to sell unnecessary and even fraudulent policies, as well as insurance company practices and policies that deny or restrict coverage that seniors thought they had. In preparation for the hearing this morning, let me state that the committee uncovered a number of startling abuses within the private insurance market. Some of these are variations of old scams, and others are new forms offlim-flam. While the culprits ofthese abuses represent a very small number ofthe agents now selling policies, they do represent, I think, an unacceptable number. One of the most pervasive scams is the continued widespread misuse of ''cold lead" cards. These cards are mass mailed advertisements used to target potential purchasers of a product. Oftentimes the mailers are slick, misleading come-ons that are used to scare or trick vulnerable consumers into buying something of questionable value that they don't need and cannot afford. What these advertisements do not say is that if you fill out the cards, send them in, your name is sold to an insurance company. Soon there is a knock on the door. Behind me are two interesting examples. The first, to my right, is from the so-called "Christian Brother- hood." It offers information about a Medigap plan that is now available to "All Church Members." ^ Many of my constituents might feel more trusting of this insurance firm but they shouldn't be. Despite its name, this Medigap company is not affiliated with any church, not affiliated with any denomination, and ifyou had a strong magnifying glass, you might be able to read at the very bottom, a nondenominational disclaimer. The second is a lead obviously designed to look like an official Government document. That is the second card on my right. It offers free information about Medicare. What it doesn't say is that if you respond, you are practically guaranteeing yourself a visit from an aggressive and possibly deceitful insurance agent. Another scam is the establishment ofphony senior citizens' organizations whose mailing lists are used to target insurance leads. Behind me is a blown-up example of a "cold lead" from the American Response Marketing.^ This firm offers information not only about its Medigap policy but also invites its readers tojoin the American Senior Citizen Association. Interestingly enough, we have recently discovered that the Presi- dent of the American Senior Citizen Association and the American Response Marketing firm is the same man. The resourcefulness of abusive insurance marketers has no bounds. Recently, this committee uncovered a "service" that, at first glance, seemed innocent enough. A hospital was providing bill- >Seep.61. 2Seep. 199. 3 ing services to attract Medicare beneficiaries. Such a service is very attractive, maybe needed. It sure sounds good to me. Unfortunately, unbeknownst to the beneficiaries, it was the insurance agents who were providing the billing service. Allegedly, these agents took advantage oftheir positions and sold patients additional policies. In return for this "service," the hospital received a percentage ofthe commission from the policies sold. We could go on and on and this morning. I will just put the rest of my statement in the record. We think that we have basically outlined the problem. [The prepared statement ofSenator Pryor follows:] 4 8CN»*£TTJOHNSTONI Bnited States Senate UMlFWLOIRSICDOANSIN JHOAHHNCWL*ASN«ORONVKiRAGSlSNErB*AU " SPECIALCOMMITTEEONAGING CrtjPWeOSfRTfTOhIeWAvEPHrORClTeEJwREiNsMNIITuNiTGNESOLfMDlAEmN»rUSsTTtVAaFfSFfTADdfIiFRrEeDCcITtROoERrCTOR WASHINGTON,DC20510-6400 OPENING STATEMENT SENATOR DAVID PRYOR Senate Special Connnittee on Aging March 7, 1990 •Medigap Policies: Filling Gaps or Emptying Pockets?' On behalf of the members of the Aging Committee, I am pleased to convene this hearing to discuss the problems surrounding Medicare supplemental insurance or "Medigap." We are all deeply concerned about the understandable confusion many older persons have about their health insurance needs and coverage, as well as their vulnerability to high pressure, and sometimes unscrupulous, sales practices. Today's hearing will highlight many of the problems older Americans continue to face and will focus on ways to address these problems. During the debate surrounding the Medicare Catastrophic Coverage Act, it became abundantly clear that many older Americans, and their faunilies, are very confused about what's covered and not covered under Medicare and Medicaid. As a result, even in the best of conditions, decisions about private Medigap and long-term care insurance are exceedingly difficult to make. On top of these problems, many serious marketing abuses in the insurance business persist in spite of over a decade of State and federal regulatory efforts. Such abuses include: agent ignorance, high pressure marketing techniques, agent efforts to sell unnecessary and even fraudulent policies, as well as insurance company practices and policies that deny or restrict coverage that seniors thought they had. In preparing for this hearing, the Committee uncovered a number of startling abuses within the private insurance market. Some of these abuses are variations on old scams, and others are new forms of flim- flam. ?fhile culprits of these abuses represent a small number of the agents now selling_policies, they represent an unacceptable number. One of the most pervasive scams is the continued widespread misuse of "cold lead" cards. These cards are mass mailed advertisements used to target potential purchasers of a product. Often-times the mailers are slick, misleading come-ons that are used to scare or trick vulnerable consumers into buying something of questionable value that they don't need and can't afford. What these advertisements do not say is that if you fill out the cards and send them in, your name is sold to insurance agents. Behind me are two interesting examples: o The first is from the so-called "Christian Brotherhood." It offers information about a Medigap plan that is now available to "All Church Members." Many of my constituents might feel more trusting of this insurance representative, but they shouldn't be. Despite its name, this Medigap Company is not affiliated with any church or denomination. If you had a magnifying glass, you might be able to read its nondenominational disclaimer on the bottom of the mailing. o The second is a lead that is obviously designed to look like an official government document. It offers free information about Medicare. What it doesn't say is that if you respond, you are practically guaranteeing yourself a visit from an aggressive and possibly deceitful insurance agent. Another scam is the establishment of phony senior citizens' organizations whose mailing lists are used to target insurance leads. Behind me is a blown-up example of a"cold lead"from the American Response Marketing. This firm offers information not only about its Medigap policy but also invites its readers to join the well-known American Senior Citizen Association. Interestingly enough, we have recently learned that the President of the American Senior Citizen Association and the American Response Marketing firm is the same man. " t . 5 The resourcefulness of abusive insurance marketers has no bounds Recently, the Committee uncovered a "service" that, at first glance, seemed innocent enough. A hospital was providing billing services to attract Medicare beneficiaries. Such a service is very attractive; it sure sounds good to me. Unfortunately, unbeknownst to the beneficiaries, insurance agents were providing the billing services. Allegedly, these agents took advantage of their position and sold patients additional policies. In return for this "service," the hospital received a percentage of the commission from policies sold. While the tactics used to get in the door are shocking, the sales abuses that occur once the agent is inside someone's home are worse. During preparation for this hearing, the Committee was provided with a very enlightening and frightening insurance agent training manual. Many of the listed tactics direct the agent to intentionally mislead or scare the elderly consumer. Suggested approaches to dealing with potential purchasers include o S"tHaelnldoa.rd MLyifenamaendiAsccident I.nsuIr'amnwciethComtphaenyS.urvWeey'rDeivitsaikoinngofa survey of hospital insurance coverage in this area, and I'd like to ask you a few q[uestions..." o "Generally, look your prospect in the eye when: you ask a qaucecsitdieonnt,insucthheasnex^tIsns'itx miotntphoss?s'i"ble that you could have an o "...(Always ask a customer for the names of their friends, relatives and neighbors. This "implied endorsement' is powerful selling medicine.); [take advantage of] newspaper accounts of serious local accidents, which can work a considerable influence on prospects dramatizing the value of insurance..." The manual also provides recommended responses to potential buyer's questions and comments. For example: o Question: "Is that an application you are filling out?" Proposed Response; "No, this is a medical questionnaire. It becomes an application when you write your name here at the bottom. o Statement: "I have insurance that covers me pretty well." HPorwoepvoesre,d nRoesppoonlsiecy: ca"nThkaet'esp utrpuew,ithyouthedorhiasivnegamefdiincealprocgorsatms. tfhoirsvpeorlyiclyo.n.g,."and that's exactly why my com^pan'y came out with o Statement: "I have never been sick a day in my life." Proposed Response: "I hope you never are! But you know that many people enter the hospital each day. Most of them probably felt just like you. And no matter how healthy we are we're still subject to an unexpected injury, aren't we?" And finally, of course: o "The Pear Close": "...Point out vhat can happen to him and his family financially should he be without his coverage and faced with costly medical bills." Today we will hear from two women who are among the many who have been taken advantage of by insuremce agents and their aggressive and misleading sales pitches. Their stories are ones not easily told, and T commend them for their willingness to testify before the Committee. To help protect people like today's witnesses from marketing abuses and to provide them with more accurate information, several states have started programs that rely extensively on volunteers, with the 8upf>ort of paid staff, to provide one-on-one counseling to older people. A counseling and assistance program provides the opportunity for a senior to seek objective advice about the adequacy of their current coverage and the gaps that they have. Counseling programs can be an effective remedy to some of these marketing and sales abuses we hear about. They also provide greatly needed consumer education. We hfaovrewarrdeprteosetnhteaitrivteesstifmroonmy.two of these programs here today, and I look In light of the success that a few states have had with coxinseling programs. Senator Heinz and more than half of the Aging Committee joined me in introducing S. 2189, the Health Insurance Counseling and Assistance Act of 1990 last %reek. This legislation will give states the ability to establish programs to provide one-on-one health insurance counseling to older Americans. . 6 Finally, in an attempt to provide much needed information about Medigap and long-term care insurance policies, the Aging Committee is releasing a buyer's guide to health insurance. This publication provides important tips to consider before purchasing insurance policies If we are going to be successful in assuring that Medigap policies "fill gaps," and not "empty pockets," we must not only address the rapidly increasing premiums that we've heard so much about, but also the unconscionable marketing and sales abuses that will be documented today. I welcome you all to today's hearing and I look forward to the testimony of our outstanding witnesses.