Medicare Advantage plans ripe for fraud

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 new health-insurance options. They can choose from dozens of 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.

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

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 prescription-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.

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, 72, and her husband, Esty, 75, who live in Wilmington, N.C., had been covered by Medicare and retiree health benefits through Barbara's former employer, DuPont. Their premiums and co-payments were reasonable, and without the coverage, Esty, 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 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, Barbara and Esty received a phone call and found out that one of their best friends had suffered a heart attack.

Distracted, Barbara tried to get rid of the salesman. But he persuaded her and Esty 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," says Barbara.

But the next time she ordered Esty's prescription, the pharmacist told her the DuPont insurance was no longer in effect.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

She didn't pursue action against the agent, focusing instead on getting her previous coverage back. Barbara canceled the Humana plan and, with the help of a specialist in medical-claims assistance, the Davises' Medicare and DuPont coverage was reinstated.

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Kimberly Lankford is a contributing editor to Kiplinger's Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com.