UPDATE 1-U.S. Medicare to tighten rules for private plans

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WASHINGTON, May 8 (Reuters) - Companies that sell Medicare Advantage plans would have to modify sales commissions to stop salesmen from switching beneficiaries to a new plan each year to earn the highest possible fee, a U.S. government agency proposed on Thursday.

The U.S. Centers for Medicare and Medicaid Services (CMS) also said it plans to ban cold-calling and door-to-door solicitation by the companies to sell the Medicare Advantage plans.

A 2003 law created the Medicare Advantage program, in which companies like Humana Inc (HUM.N: Quote, Profile, Research) and UnitedHealth Group (UNH.N: Quote, Profile, Research) contract with Medicare to sell private fee-for-service or managed-care plans to beneficiaries. Under traditional Medicare, the government pays for care through a system letting beneficiaries choose doctors and hospitals.

Enrollment in Medicare Advantage plans totaled about 9.2 million in January, out of a total 44 million elderly and disabled individuals covered by Medicare. The government spends about $400 billion annually on the overall Medicare program.

CMS said it proposed imposing stricter regulations on the Medicare Advantage plans after taking a closer look at how the plans are marketed. In recent months, lawmakers have questioned whether the plans are cost-effective or are simply a way for insurers to make money at the government's expense.

"The Medicare Advantage program is a valuable source of enhanced benefits and coordinated care for beneficiaries, and it should not be undermined by the actions of a limited number of unscrupulous sales agents," Kerry Weems, acting CMS administrator, said in a statement.

A key step will be requiring companies that sell Medicare Advantage programs to revamp commissions paid to sales agents and brokers so that commissions are level across all years and across all product types, the CMS said.

"These requirements are designed to discourage 'churning' of beneficiaries from plan to plan each year in a manner that earns agents and brokers the highest commissions, and would ensure that beneficiaries are receiving the information and counseling necessary to select the best plan based on their needs," it said.