Health insurers accused the U.S. Medicare agency on Tuesday of political interference in a battle over whether the industry can lobby its customers directly over healthcare legislation.

The Centers for Medicare & Medicaid Services (CMS), which oversees the Medicare program for the elderly and disabled as well as privately run Medicare alternatives, said on Monday it was investigating a letter Humana Inc (HUM.N) sent enrollees about efforts to overhaul the nation's healthcare system.

Humana's letter, sent in an envelope citing important plan information, told customers the Democrats' bills could hurt millions of seniors and disabled individuals could lose many of the important benefits and services that make Medicare Advantage health plans so valuable, according to CMS.

The agency also warned other insurers against sending potentially misleading health reform mailings to customers.

America's Health Insurance Plans, the industry lobby group, called the CMS action a gag order.

The group argued that any cuts, including those in various Democratic proposals, would raise costs and reduce benefits for those who want private plans.

Seniors have a right to know how the current reform proposals will affect the coverage they currently like and rely on, said AHIP spokesman Robert Zirkelbach.

Republicans seized on the spat. It looks likes CMS is engaged in government intimidation, pure and simple, said Representative Dave Camp, the ranking Republican on the U.S. House of Representatives Ways and Means Committee.

Senate Republican Leader Mitch McConnell of Kentucky, where Humana is based, also blasted the CMS effort to squelch free speech.

A spokesman for Senate Majority Leader Harry Reid said it was indefensible for insurance companies to send out propaganda to scare the elderly.

It's clear that we are closer than ever to meaningful reform because defenders of the status quo are ginning up scare tactics to stand in the way of fixing our broken system, Jim Manley said.

CMS dismissed the criticism, saying it wanted to ensure companies do not violate marketing rules or improperly use protected Medicare mailing lists.

Our goal is to safeguard beneficiaries' personal information, agency spokesman Peter Ashkenaz told Reuters.


Democratic Senator Max Baucus had urged CMS to get involved and later welcomed the investigation of what he called scare tactics by Humana. 

The Senate Finance Committee that Baucus chairs began work on his health reform bill on Tuesday.

The Wall Street Journal criticized Baucus in an opinion piece, saying he had sicced federal regulators onto Humana for daring to criticize one part of his health bill.

But consumer advocacy groups welcomed the CMS move, saying private Medicare customers should not be directly targeted over political issues.

It's about time... that CMS is cracking down on plans using their enrollees as a captive audience for their political agenda, said Medicare Rights Center spokesman Paul Precht.

Precht said CMS did not forbid Humana from stating its position. What they're saying is they cannot send letters to their plan members under the guise of plan communication that is really political propaganda.

CMS warned Humana it would take necessary enforcement action but it is unclear when the investigation will conclude. The company said it is cooperating.


Privately run Medicare plans, also known as Medicare Advantage, make up more than 20 percent of Medicare coverage, with more than 10 million elderly or disabled Americans choosing them over government-run fee-for-service plans.

CMS' Ashkenaz said the agency is not yet aware of other companies that have sent direct political mailings to enrollees. Aetna Inc (AET.N), Cigna Corp (CI.N) and WellPoint Inc (WLP.N) also offer Medicare plans.

Medicare Advantage plans are already under scrutiny because they cost more than traditional Medicare. An advisory group has urged Congress to curb payments to help lower the overall costs of Medicare, which could run out of money as early as 2017.

Representative Camp said AARP, the nation's largest lobby group for older Americans which offers its own Medicare plan with UnitedHealth Group Inc (UNH.N), touts Democratic healthcare reform efforts on its website.

CMS may be selectively and inappropriately using its regulatory powers, he wrote in a letter to CMS.

AARP Executive Vice President Nancy LeaMond said her group is a membership organization that regularly advocates on a variety of issues and contacts members accordingly. AARP does not sell insurance directly but lends its name to other plans, she added.