Medicare License Chapter 2 - Medicare Supplement Policies (Medigap)

Standardized Medicare Supplement Plans

The Omnibus Budget Reconciliation Act of 1990 (OBRA) is a law that requires all Medicare supplement benefits to be standardized. The standardized benefits fall into two categories: Basic, or core, benefits that all plans must include Additional, or optional, benefits that are included in some plans and not others

Compensation

The first-year commission on the sale of a Medicare supplement policy must be no more than 200% of the renewal commission on that sale. Renewals must be paid for 5 years. When a Medicare supplement is replaced, the first-year commission may not exceed the amount of the renewal commission.

Optional Benefits

The following additional, or optional, benefits are included in some Medicare supplement plans and not others. Skilled Nursing Facility Care - Payment of the beneficiary's coinsurance amount from the 21st day through the 100th day in a benefit period for post-hospital skilled nursing facility care eligible under Medicare part A. This is not custodial care. Foreign Travel Emergency Care - Payment of 80% of the billed charges for foreign emergency care that Medicare would have covered if it was provided in the United States. Care must begin during the insured's first 60 days outside the U.S. The calendar year deductible is $250. The lifetime maximum benefit is $50,000. Part A Deductible - Payment of the Part A per-benefit-period deductible for inpatient hospital stays Part B Deductible - Payment of the Part B annual deductible that beneficiaries must meet before Medicare begins paying Part B benefits Part B Excess Doctor Charges - Payment of 100% of any excess fees, which are limited to 15% above the Medicare-approved amount (if most of the beneficiary's doctors take Medicare assignment, this benefit may not be needed)

Guaranteed Issue

There is an Open Enrollment period for Medigap policies that begins on the first day of the month that a person becomes eligible for Medicare Part B and lasts for 6 months. Medicare beneficiaries who apply for Medigap coverage during the Open Enrollment period must be issued a policy. For individuals who enroll in Part B during the Part B initial enrollment period, the Medigap Open Enrollment period starts on the first day of the month that they turn age 65. If individuals delay signing up for Part B because they have employer group health coverage, their Open Enrollment period begins on the first day of the month that they lose their employer group health coverage. Medicare beneficiaries who join a Medicare Advantage plan for the first time, but switch back to Original Medicare within 12 months of joining have a special right to buy a Medigap policy within 63 days of the date their Medicare Advantage coverage ends.

Standardized Medicare Supplement Benefits

These standardized benefits are further packaged into a limited number of standardized plans, each of which contains a different combination of the standardized benefits. Each of the plans has a letter designation ranging from A through N (note: legislation has changed the number of standardized plans from what was available originally; letters are missing for standardized plans which may no longer be sold). The following chart shows which benefits are included in each of the standardized plans. An "X" by itself indicates that the plan covers that benefit at 100%. If the plan covers the benefit at less than 100%, the percentage of coverage is indicated under the "X." The asterisks refer to notes appearing beneath the chart that explain variations in certain plans.

Free Look

A Medicare supplement policy must prominently contain an unconditional 30-day free look provision printed on or attached to its first page

Signature Requirement on Riders or Endorsements

After policy issue, any riders or endorsements that reduce or eliminate coverage must be signed by the insured unless they: Were requested in writing by the insured or Are being implemented to avoid duplication of benefits with Medicare After policy issue, any riders or endorsements that increase benefits but also require a premium increase must be signed by the insured. The insured's signature of acceptance is not required if the benefit increase is required by law.

Premiums

Premiums may be based either on an insured's attained age or an insured's age at issue. Premiums based on the insured's: Attained age start lower, but increase each year Issue age start higher, but remain level throughout the life of the policy Therefore, it is important that applicants understand whether they are looking at an illustration for a policy with premiums based on their attained age or their issue age. If a policy's premiums are based on an insured's attained age: All types of solicitation materials must clearly indicate that fact, meaning that those premiums will increase each year An illustration disclosure notice must state the dollar amount of the premium increase for the insured over a period of not less than 10 policy years, and display the insured's life expectancy at the beginning of the period The illustration disclosure notice must state that premiums for other Medicare supplement policies that are based on an insured's issue age do not increase as the insured ages The notice must include a statement that premiums on other Medicare supplement policies that are based on insured's age at issue age should be compared to policies with premiums based on attained age

Filing Requirements for Advertising

Every insurer providing Medicare supplement insurance or benefits in the state must provide a copy of any Medicare supplement advertisement intended for use in the state to the Commissioner for review or approval.

Exclusions

Except for the 6-month preexisting condition clause described previously, Medicare supplement policies are prohibited from having limitations or exclusions on coverage that are more restrictive than those of Medicare.

Outline of Coverage

Insurers must provide all applicants for Medicare supplement insurance with an outline of coverage at the time of application. Unless the policy is being sold by direct response, other insurers must also obtain a written acknowledgment of receipt from the applicant. The language and format of the outline of coverage is prescribed by law. The outline of coverage must be in at least 12-point type.

Buyer's Guide

Insurers who sell hospital or medical expense coverage to persons eligible for Medicare must provide applicants for Medigap coverage or other health coverage with the publication developed jointly by the NAIC and CMS entitled A Guide to Health Insurance for People with Medicare in a type size no smaller than 12 point. Except for direct response insurers, the Guide must be delivered at the time of application and a written acknowledgement of its receipt must be obtained by the issuer. Direct response issuers must deliver the Guide to the applicant upon request but not later than at the time the policy is delivered.

Renewability

Medicare supplement policies and certificates must include a renewal or continuation provision. The provision must appear on the first page of the policy under an appropriate caption. It must state notify the insured if the issuer has reserved the right to change premiums and must disclose any automatic renewal premium increases based on the insured's age. Medicare supplement policies must be guaranteed renewable. The policy cannot be canceled or nonrenewed for any reason other than: Nonpayment of premium; or Material misrepresentation in the application An issuer cannot cancel or nonrenew a Medigap policy solely on the basis of the beneficiary's health status. A policy may not be written to terminate spousal coverage solely because of deteriorating health, or upon the insured's death, or any other event, except for nonpayment of premiums.

Pre-existing Conditions

Medicare supplement policies may not exclude coverage for any preexisting conditions that were diagnosed or treated more than 6 months prior to the effective date of coverage. After a Medicare supplement policy has been in effect for 6 months, pre existing conditions must be covered by the policy. If a Medicare supplement policy or certificate contains any limitations with respect to preexisting conditions, those limitations must appear as a separate paragraph of the policy and be labeled as "Preexisting Condition Limitations."

Loss Ratios

Medicare supplement policies must return, in the aggregate, at least a certain percentage of premiums to beneficiaries in form of benefits. That is, the law does not require each beneficiary to get back a certain percentage of his/her premium in the form of benefits, but for a given class of Medicare supplement policies sold by an insurer, the total payout of benefits on those policies must equal at least a certain percentage of the premium collected on those policies. This percentage is known as the loss ratio. The loss ratio is different for group and individual policies. The loss ratio standards that Medicare supplement policies must meet are: 65% for individual policies, and 75% for group policies

Standards for Benefit Payment

Medicare supplement policies or certificates may not provide for the payment of benefits based on standards described as "usual and customary," "reasonable and customary" or words of similar import. Losses resulting from accident must be paid on the same basis as losses resulting from sickness. A policy that pays benefits according to the cost sharing percentages of Medicare must automatically change to coincide with any changes in the Medicare laws.

Eligibility

Medicare supplement policies—also called Medigap insurance—are private plans that are designed to supplement Medicare by supplying coverage for gaps in Medicare benefits such as deductibles and coinsurance amounts. These plans are regulated to fit closely with Medicare coverage without duplicating Medicare benefits. To be eligible to purchase a Medigap policy, an individual must have both Part A and Part B of Medicare. In North Carolina, Medigap coverage must be made available to persons eligible for Medicare because of a disability as well as those eligible by reason of age. However, individuals age 65 or over may have more coverage options available to them than disabled individuals (this is covered in more detail in the next section). It is illegal to sell a Medigap policy to an individual who has a Medicare Advantage plan. A Medigap plan is unnecessary for beneficiaries with Medicare Advantage plan because both plans generally cover many of the same benefits.

Notice of Changes

No later than 30 days prior to the annual effective date of any Medicare benefit changes, an issuer must notify its policyholders and certificate holders of modifications it has made to Medicare supplement insurance policies or certificates. The notice must: Include a description of revisions to the Medicare program and a description of each modification made to the coverage provided under the Medicare supplement policy or certificate Inform each policyholder or certificate holder as to when any premium adjustment is to be made due to changes in Medicare Be in outline form and in clear and simple term and Not contain or be accompanied by any solicitation

Core Benefits

All Medicare supplement plans provide the following basic benefits, also known as core benefits. Payment of the Medicare Part A coinsurance and hospital costs for up to an additional 365 days after Medicare benefits have been used; that is, it pays the beneficiary's daily copayments for hospitalization expenses that apply to the 61st through the 90th day of any Medicare benefit period, plus all 60 lifetime reserve days, plus the cost of another 365 days of hospital care. Payment of the hospice coinsurance for out-patient drugs and inpatient respite care. Plans generally must cover core benefits at 100%, but Plans K and L cover this core benefit at a lower percentage (see chart that follows). The beneficiary must meet Medicare's requirements, including a doctor's certification of terminal illness. Payment of the reasonable cost of the first 3 pints of blood, or their equivalent, under Medicare Parts A and B. Most plans cover this core benefit at 100%, but as with hospice coinsurance, Plans K and L cover this at a lower percentage. Payment of the beneficiary's portion of the 20% Part B coinsurance of Medicare-eligible expenses for medical services—including doctor bills, hospital or home health care, and specified higher payments for certain services under the prospective payment system—after the Part B deductible has been met. Covered at 100% except for Plans K and L which cover it at a lower percentage.

Notice on Other Health Insurance Policies

Any accident and sickness insurance policy or certificate, other than a Medicare supplement policy or disability income policy, issued to persons eligible for Medicare must contain a notice that the policy is not a Medicare supplement policy or certificate. The notice must either be printed or attached to the first page of the outline of coverage or to the first page of the policy or certificate. The notice must be in no less than 12 point type.

Other Requirements

When replacing a Medicare supplement policy, the agent must: Be sure that the replacement does not result in decreased benefits at an increase in premium Use an application containing questions that elicit information to determine if the applicant has or has had a Medicare supplement in effect or if the application is for replacement of an existing Medicare supplement Provide a notice of replacement to the applicant prior to issuance or delivery of the new Medicare supplement policy. One copy of the notice, signed by the applicant and the agent, must be provided to the applicant. One signed copy must also be retained by the insurer When recommending the purchase or replacement of a Medicare supplement policy, an agent must make reasonable efforts to determine the appropriateness of the purchase or replacement. Any sale of a Medicare supplement policy is prohibited if the transaction would result in coverage of more than 100% of the individual's actual medical expenses covered under all the insured's policies. Each year, every insurer providing Medicare supplement insurance must report the policy and certificate numbers and issue dates for individuals who have more than one Medicare supplement. If a Medicare supplement policy replaces another Medicare supplement policy that has been in force for 6 months or more, the replacing insurer may not impose an exclusion or limitation based on a preexisting condition. If the original policy has been in force for less than 6 months, the replacing insurer must waive any time periods applicable to preexisting conditions to the extent that they have already been satisfied under the original policy.