'Medicare scandal hiding in plain sight'

 Who can you trust when it comes to Medicare advice?

Charlie Munger put it best. Warren Buffett's late guru and vice chairman at Berkshire Hathaway (BRK.A) (BRK.B) used to say, "Show me the incentives, and I'll show you the outcome." In other words, if you want to know how people are going to behave - in a company, in a market, in government or wherever - just look at what they're being punished and rewarded for doing.

Which brings us to this year's Medicare open-enrollment season and the Medicare scandal hiding in plain sight.

From now until Dec. 7, America's 65 million Medicare beneficiaries will be subject to the annual blizzard of marketing from health-insurance companies trying to get them to sign up to privatized Medicare Advantage, supplemental and Part D drug plans. Many - up to 30% - will be helped through the bewildering minefield by registered insurance brokers.

And yet there is no guarantee that your broker is being paid to give you the best possible advice and to get you into the best possible plan.

On the contrary, while the brokers are paid commissions by the health-insurance companies, they are not required to tell you how much commission they are getting to sell you a plan.

Even worse, different plans will pay them different commissions - meaning that they have an incentive to nudge you into the plan that pays them best, not necessarily the plan that makes the most sense for you.

Oh, and they don't have to tell you about other available plans that they don't happen to sell.

They also have no incentive to tell you that you are better off staying with traditional government-run Medicare. At best, they can then sell you two smaller add-on plans, Medicare D for drugs and Medigap supplemental insurance. Traditional Medicare pays no commissions.

"It's not transparent," Gretchen Jacobson, Medicare expert at the independent healthcare think tank the Commonwealth Fund, tells me. "Many brokers may be licensed to receive commissions from multiple insurers and multiple plans. However, most are not certified to sell all plans in their area. And the issue is that while they have to disclose to people if they don't sell all the plans in the area, they don't have to disclose how many they sell nor do they have to disclose how much they are paid to enroll them in Plan X versus Plan Y."

Yet people are trusting these brokers for Medicare advice. About 30% of seniors have said that they used a broker to help choose their Medicare coverage, Jacobson says.

It speaks volumes that when the Commonwealth Fund conducted focus groups with Medicare brokers in 2023, two things emerged. First, the brokers confirmed that they earned bigger commissions for persuading people to go for a Medicare Advantage plan instead of traditional Medicare. Second, reports Commonwealth, "Most brokers and agents said they personally would choose traditional Medicare with Medigap, believing that combination offers better coverage and choices than Medicare Advantage, particularly as people age."

You can't make it up. Medicare Advantage for thee - but not for me!

I asked the National Association of Insurance Commissioners, which represents state insurance regulators, about insurance brokers. They told me Medicare brokers were regulated by the federal Centers for Medicare and Medicaid Services.

"Agents and brokers who sell Medicare Advantage (MA) and Part D plans are not required under CMS regulations to disclose the commission they receive from the MA or Part D plan," the CMS confirmed by email. "Under our regulations, agents or brokers are considered downstream entities of MA organizations and Part D sponsors, and thus MA organizations and Part D sponsors are responsible for the actions of agents and brokers who sell on their behalf. CMS may take compliance actions against plans and sponsors for the actions of their agents and brokers as warranted."

The National Association of Benefits and Insurance Professionals is the trade body representing health-insurance brokers, including Medicare brokers. It did not respond to several requests for comment.

None of this makes any sense for consumers, meaning the 65 million or so Americans who will rely on Medicare to keep them alive and well.

But it makes sense for the brokers and the insurance companies. Guess who is getting accommodated.

To its credit, the Biden administration tried to address this earlier this year. They tried to limit the variation in commissions from one plan to another, to at least minimize the market distortions. To the surprise of no one over the age of about 7, the insurance industry launched a furious counterattack in the courts, and found a federal court in Texas willing to halt the new rules. So right now, we're at a standstill. The old rules still apply.

The laborer is worthy of his hire, and insurance brokers have every right to earn an honest living advising senior citizens about their Medicare options. That's especially true now, as Medicare has grown into a convoluted nightmare of hundreds of competing insurance plans. Do you want a privatized Medicare Advantage plan, and if so, which one? If not, do you want a privatized Medicare Part D drug plan on top of traditional Medicare, and if so, which one of those do you want? And if you have traditional Medicare, which private Medigap supplemental policy do you want to fill in the coverage gaps?

Oh, and if you are transferring from traditional Medicare to privatized Medicare Advantage, do you think you might ever want to switch back? If you do, do you realize that you will lose the regulatory protections you got at age 65 regarding Medigap supplemental policies? If you try to switch back to traditional Medicare at a later date, you may find you can't get a supplemental Medigap policy except at an extortionate price. Or you might not be able to get one at all.

Do you feel lucky?

To give you an idea of how ludicrous it's become, when I talk to experts who analyze the Medicare market, even they admit they don't understand it all. How can the rest of us? And as we are talking about our health insurance for our golden years, this may be a matter of life or death. Literally.

As so often with our federal government, we are forced to play seven-dimensional chess in the dark without being told half of the rules.

Meanwhile, private companies have enormous economic incentives to engage in the most ruthless behavior they can. They raked in about $400 billion through Medicare programs last year. Health-insurance companies often get rapped across the knuckles for "unethical" marketing or worse.

You can call it "open-enrollment" season. Or you can just call it "open season" - on seniors.

In this situation, it's no wonder that many Medicare beneficiaries turn to insurance brokers to help them navigate.

What are you to do?

Commonwealth's Jacobson recommends turning to your state's State Health Insurance Assistance Program, known as SHIP. These are genuinely independent advisory bodies, funded by the federal government, who are there to help us navigate the minefield. (They can all be found online.)

https://www.morningstar.com/news/marketwatch/20241016265/the-medicare-scandal-hiding-in-plain-sight