In the trade they are known as "geese" elderly widows who are easy prey for salesmen pushing unnecessary or inadequate insurance policies to supplement Medicare coverage.
Mrs. X of Illinois was one of them. In eight years she and her late husband were sold 71 life and health insurance policies, 60 of them after his death in 1976. Last year the premiums amounted to $15,000. Finding herself $23,000 in debt to insurance companies with an annual income of only $9,400 Mrs. X sought to mortgage the 160-acre farm on which she lived.
Yesterday her son and daughter told a Congressional select committee how the 76-year-old widow, determined not to let herself become a burden to her children, became a victim of an increasingly popular type of insurance swindle.
During six months of investigation, some of it undercover, the House Select Committee on Aging determined that senior citizens are paying $1 billion a year unnecessarily for so-called Medigap coverage. This insurance purports to cover the 62 percent of medical costs that Medicare does not pay.
In reality, the staff report concluded, the policies often do not provide the protection promised or simply duplicate existing coverage. For example, private insurance carriers sell policies to cover nursing home expenses, but often neglect to inform policyholders in time that their coverage does not extend to homes offering custodial care - about three quarters of all nursing homes.
Similarly, senior committee staffers posing as customers found that only 8 out of 50 insurance representatives contacted found their three-policy coverage adequate. The investigation was carried out in 9 states and the District of Columbia.
Dulpicative coverage is money wasted because most policies have a provision that only one company will pay claim, no matter how many write insurance on the hazard. The Illinois widow had 39 accident and health policies on herself; 21 life insurance policies. Five policies with annual premiums of over $1,200 were sold to her in one day. A single agent sold her 21 policies in eight years. In just three years she paid $31,578 in premiums while receiving only $5,781 in benefits.
The son and daughter, 41 of those policies spread on the table before them, testified their mother told them: "They (the insurance agents) are trying to protect me from huge medical and hospital bills that I might have later on. I know they wouldn't sell me anything I didn't need. They're nice fellows - just like part of the family. They're young men with growing families and I don't want to do anything to hurt them. I hope they don't lose their jobs" (as a result of the investigation).
The son said phone calls to the insurance companies have resulted in $11,800 in premiums being returned since August without legal action being taken.
A hooded witness calling himself Agent Doe and a former salesman, Ron Dell of California, told the committee how they were trained to take advantage of senior citizens' vulnerability. One tactic is to "make a person sick"; i.e., make him or her imagine being in a hospital with no one to turn to. Another is to gain access to a home by representing oneself as a member of a retired persons organization sent to explain the gaps in Medicare.
Commissions range from 5 to 65 percent on such sales. If an agent can convince a policyholder to cancel an existing policy and take put a new one, the commission can run even higher.
Half of the 4 billion a year in Medigap insurance is written by non-profit Blue Cross which returns 90 percent of the premiums as benefits. The committee found a wide discrepancy between the amounts some private carriers return to their policy holders overrall and to old people. Metropolitan Life returns 75 percent overrall; 82 percent to seniors. On the other hand, New York Life returns 75 percent overall; only 29 percent to seniors.
A few state insurance commissions have begun to crack down on abuses, but not enough according to 78-year-old committee chairman Claude Pepper (D-Fla). Within the confines of the McCarran Ferguson Act, which prohibits the federal government from regulating the insurance industry, the Federal Trade Commission is developing nonregulatory actions such as an evaluation of recent state laws on Medigap insurance.
The National Council of Senior Citizens, urging a national standard, proposed the following reforms: limiting commissions to 25 percent of the first year's premium, requiring a minimum 60 percent benefits to premiums ratio, plain English contracts, freedom to cancel contracts within 30 days, and signed statements by agents that coverage is not duplicative.