Insurance scammers prey on seniors

By Kiplinger's Personal Finance Magazine

When Medicare introduced Part D coverage to pay for prescription drugs in 2006, it gave seniors a golden opportunity to save money -- and crooks a golden opportunity to steal it.

The law offers Medicare beneficiaries a bewildering array of health insurance options. They can now choose from dozens of Part D prescription-drug plans to supplement Medicare, or they can opt out of traditional Medicare and enroll in a Medicare Advantage plan to get both medical and drug coverage from a private insurer.

The new choices have resulted in "an immense amount of confusion," says Micah Roderick of the Illinois attorney general's office. They've also led to an epidemic of fraudulent sales practices, ranging from sales abuses to criminal activity:

• To reap big commissions, some insurance agents sell seniors Medicare Advantage plans without explaining the limitations and even sign people up without their knowledge.

• Posing as Medicare representatives, unscrupulous agents use Part D to get a foot in the door -- or even into a whole senior high-rise building. Then they tout a slew of high-price insurance policies, including annuities, life insurance, gap coverage for Medicare Advantage and other products that people may not need.

• Once they have personal information about their victims, some of these renegade agents then steal their identities.

In other cases, regulators have uncovered fraud rings selling fake drug-discount cards and bogus coverage for home health care. It's a huge racket, says Paul Greenwood, the head of the elder-abuse prosecution unit for the San Diego district attorney's office. "These crooks realize there's money to be taken from elderly victims looking for a way to save on health care costs."

Medicare Advantage rip-off

Medicare Advantage plans can be an attractive solution for many seniors. But such plans are also ripe for fraud because the government gives private insurers generous subsidies to sign up people.

To grab a piece of the action, insurers pay agents hefty commissions. Typically, agents earn $60 to $80 for each person they enroll in a Medicare Part D drug plan. But they get a whopping $400 to $500 for enrolling someone in a Medicare Advantage plan, according to a report by the Medicare Rights Center and California Health Advocates.

"It's a quick, one-time sale, and it's a lot of money," says Oklahoma Insurance Commissioner Kim Holland, who has been cracking down on Medicare Advantage sales abuses. The result may be a hard sell, with agents pushing Medicare Advantage rather than Part D. At worst, those commissions may be an incentive to commit fraud.

Barbara Jean Davis and her husband, Esty, who live in Wilmington, N.C., had been covered by Medicare and retiree health benefits through her former employer, DuPont. Their premiums and co-payments were reasonable, and without the coverage, Esty Davis, who suffers from a number of ailments, would have had to pay hundreds of dollars a month for his medications.

About a year ago, Barbara Davis was contacted by an insurance agent offering a Humana Medicare Advantage policy, subsidized by the government, with a zero-dollar premium. Suspicious but curious, Barbara invited the agent to her home. In the middle of his pitch, the Davises received a phone call and found out that one of their best friends had suffered a heart attack.

Distracted, Barbara Davis tried to get rid of the salesman. But he persuaded the Davises to sign papers that would give them a "head start" should they decide to buy the Humana policy later. "He made it sound like we hadn't signed up for anything yet," Barbara Davis says.

But the next time she ordered her husband's prescription, the pharmacist told her the DuPont insurance was no longer in effect. The agent "had canceled my insurance and signed me up with Humana without my say-so," Barbara Davis says.

She didn't pursue action against the agent, focusing instead on getting her previous coverage back. She canceled the Humana plan and sought help from Pat Pane, a specialist in medical-claims assistance. It still took four months for the Davises' Medicare and DuPont coverage to be reinstated.

Egregious as it sounds, the Davises' experience isn't uncommon. In Georgia, for example, "several individuals are facing criminal prosecution, a number of others are under investigation, and a special task force is dealing with this issue," state Insurance Commissioner John Oxendine says.

Easy pickings

One issue, Oxendine says, is that the law makes it surprisingly easy to enroll someone fraudulently in a Medicare Advantage plan. With most insurance products, he says, you know you're purchasing something because you have to pay a premium. But you can enroll in a Medicare Advantage plan without writing a check because the federal government can pay the premium for you.

Explains Oxendine, "If I had certain information about you, I could sign you up for Medicare Advantage and be paid a commission, and you wouldn't know it until you filed a claim."

In some cases, insurance agents who had an individual's Social Security or Medicare number signed him or her up without ever laying eyes on their so-called client. "We've even found cases of dead people being enrolled in Medicare Advantage plans," Oxendine says.

In another ploy, individuals are asked to sign a paper ostensibly to let an agent get credit with his or her boss for making a sales pitch; in reality, they're signing up for the product. Some agents have enrolled individuals by using signatures from the sign-in sheet at a free lunch seminar or by posing as agents from Medicare, says David Lipschutz of California Health Advocates.

If you discover that you (or your parent) have been fraudulently enrolled in a Medicare Advantage plan, contact your State Health Insurance Assistance Program. Counselors can help you determine your next step.

Also contact your state insurance department and attorney general's office, which can punish agents for sales abuses. "We've arrested agents and publicized it," Oxendine says. "If you hear about somebody being handcuffed and put into a patrol car, it does have a deterrent effect."

In most cases, the agent is punished, not the insurance company. Although insurers use high commissions to entice agents to push their Medicare Advantage plans, the companies blame rogue agents for sales abuses.

"We have not seen any evidence that the companies are a party to any of this fraudulent or criminal activity," Oxendine says. "However, the companies haven't been checking up on their agents as they should."

Continued: State regulators say feds should do more

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