Medicare Supplemental Insurance

GENERAL INFORMATION

What is Medicare supplemental insurance?

A Medicare supplement policy, also known as Medigap insurance, is a private insurance policy designed to help pay deductibles or coinsurance incurred by beneficiaries who are in the original Medicare plan (also called fee-for-service Medicare). A Medigap policy may also pay for certain items or services not covered by Medicare at all, such as prescription drugs. Medigap only works with the original Medicare plan. It will not cover out-of-pocket expenses, such as copayments, in a managed care plan.

Coverage sponsored by an employer or labor union may also supplement Medicare, but is not Medigap insurance. Medigap also does not include managed care entities, or new forms of Medicare + Choice coverage.

Why do beneficiaries want or need Medigap?

Under the original Medicare plan, beneficiaries are subject to the following:

• Premiums. All beneficiaries must pay for Part B, unless they are eligible for a State Medicaid program to cover the premium. Some beneficiaries must also pay a premium for Part A.
• Cost-sharing. Under original Medicare, this refers to the Medicare coinsurance and deductibles. These apply when Medicare covers an item or service but does not pay for the entire cost.
• Non-covered services. These are services which Medicare does not cover at all. These include prescription drugs; emergency coverage outside the U.S., eyeglasses, hearing aids, routine physicals, inpatient hospital costs after the maximum number of days of Medicare coverage has been exceeded, and the costs of long term care. (Please note: Some beneficiaries may be Medicaid eligible and would then be able to receive some of these services through the Medicaid program.)

All Medigap policies pay for some or all beneficiary cost-sharing expenses, and certain Medigap policies will pay for specific non-covered services. Medigap policies do not pay for Medicare premiums, and they only cover certain types of non-covered services. For example, no Medigap policy pays for long term care.

When do beneficiaries enroll?

All Medicare beneficiaries are entitled to a one-time, six-month open enrollment period during which they have the right to purchase any Medigap policy sold in their State, regardless of any health problems they have. In most cases this period begins when the beneficiary turns 65 and enrolls in Part B. For beneficiaries who enrolled in Part B based on disability, the open enrollment period begins when they reach age 65. For beneficiaries who postpone enrollment in Part B after age 65 because they are still employed (or are covered under a working spouses's health plan), the open enrollment period begins when they enroll in Part B. All Medigap policies are guaranteed renewable. This means that they continue in force as long as the premiums are paid.

There are also more limited periods during which certain beneficiaries are guaranteed the right to buy certain Medigap policies. These are triggered by specific events, such as termination of a beneficiary's other health coverage. These rights are discussed in detail below. Outside of these specific open enrollment and guarantee issue periods, Federal law does not prohibit a Medigap insurer from refusing to sell policies to individuals based, for example, on their health status.

What are the standard Medigap policies?

There are ten standard Medigap policies (although all ten are not offered in all States.) In other words, there are ten different combinations of benefits that Medigap policies may include. Each combination, or Medigap policy, is designated by one of the letters "A" through "J." For any particular Medigap policy, all insurance companies must use the same format, language and definitions.

However, premiums can vary greatly from one insurance company to the next for the same grouping of benefits. Premiums may vary because of the age of the beneficiary, type of policy, the State in which the policy is purchased, and insurance carriers' claims experience.

What are these ten standard policies?

Medigap policies pay most, if not all, Medicare coinsurance amounts. In addition, they may provide coverage for Medicare's deductibles. Some of the ten standard policies pay for services not covered by the original Medicare plan, such as prescription drugs. See the attached chart for a brief outline of the ten Medigap policies. More detailed information is available in the 1998 Guide to Health Insurance for People with Medicare.

Are each of the ten policies sold in my State?

States can limit which policies will be sold in the State, although they must permit all Medigap insurers to make Plan "A" available. (Plan "A" includes the "basic benefits." These cover Part A coinsurance; 365 days of hospitalization after Medicare benefits end; Part A coinsurance; and the first three pints of blood each year. These basic benefits are also included in all other Medigap policies.) Insurers can decide which of the nine optional policies they will sell as long as the State permits them to be sold. Most insurers offer several policies in addition to Plan A; some States offer all ten policies.

However, Minnesota, Massachusetts and Wisconsin have different sets of policies because their State rules that pre-dated the Federal law that now governs Medigap were found to provide comparable protections. Further information is available from each State insurance department.

What is Medicare SELECT?

A Medicare SELECT policy is a Medigap policy that is permitted to restrict enrollees to a specific network of hospitals and, in some cases, doctors, except in an emergency. In other words, Original Medicare will pay for covered services regardless of which providers are used, but out-of-pocket costs will only be covered by the Medigap policy when the beneficiary uses network providers. Otherwise, a Medicare SELECT policy must meet all of the requirements that apply to a standard Medigap policy and it must be one of the ten standard plans. This coverage is usually available with lower premiums than a standard Medigap policy.

How are Medigap insurance premiums established?

Premium prices can vary from one insurance company to depending on which method they use to calculate premiums:

• Age Rating. The premium is based on a beneficiary's age and will increase as the beneficiary ages. Typically, these policies will appear to be less expensive at younger ages, but they may cost considerably more in later years.
• Community Rating. Everyone pays the same premium regardless of age. For people over 75, this type of policy may be less costly. Community rating is also referred to as "no age rating."

This following shows an example of the effect of beneficiary age on insurance premiums under the two rating methodologies:

Rating Methodology	Premium Beneficiary Age = 65	Premium Beneficiary Age = 75
Age Rating	$70	$90
Community Rating	$80	$80

Beneficiaries should consider what one policy is likely to cost over the next five or ten years compared to premiums for other policies. It is also wise to be alert for discounts that some insurance companies make available to couples or nonsmokers.

Premiums are also affected by inflation and by the claims history of the population of beneficiaries enrolled with a particular insurance company. Consequently, premiums for the same standardized policy such as "A", "B", "C", etc., sold by different insurance companies may vary considerably. It pays to comparison shop.

Are there other alternatives to Medigap coverage?

Some beneficiaries have employer coverage that supplements Original Medicare, and other beneficiaries have Medicaid coverage which covers at least some of their out-of-pocket Medicare costs. This is important to note because some people may not need Medigap insurance if they have other coverage.

How are Medigap standards established and enforced?

In order for States to regulate Medigap insurance, they must adopt laws and regulations that are at least as strict as requirements included in the federal Medicare statute and in a model law and regulation developed by the National Association of Insurance Commissioners (NAIC). All States have done so. However, States are free to adopt provisions that are more stringent or consumer friendly.

The primary responsibility for enforcing the Medigap standards is through State insurance departments. HCFA reviews and approves State regulatory programs for Medigap insurance and is charged with seeing that States actually enforce the laws and regulations they adopt. HCFA receives periodic reports from the States through the NAIC on complaint data, loss ratio information, and enforcement action, among others.

However, in addition to State enforcement, HCFA and/or the Office of the Inspector General of the Department of Health and Human Services can have authority to impose Federal sanctions on issuers or sellers of insurance that violate any of certain Medigap standards designated by the Congress. These sanctions include civil monetary penalties and, in some cases, criminal penalties.

What are SHIPs?

State Health Insurance Assistant Programs (SHIPs) are agencies in each State that are Federally funded to assist Medicare beneficiaries in learning about the availability and cost of Medigap insurance. They can help compare the different Medicare and Medigap options available in a State. They also assist individuals who have problems in understanding the program or its implementation. SHIPs are usually found in State insurance departments or the area agencies on aging.

Where should a person take complaints?

If a person has complaints about the practices of an insurance company and the problem cannot be resolved to his or her satisfaction, the individual should contact the State's insurance department.

What is the Guide to Health Insurance for People with Medicare?

The Guide to Health Insurance for People with Medicare describes Medigap insurance (including purchase, use, changing policies, and protections) as well as other insurance options that may be available to Medicare beneficiaries. The 1998 edition of the Guide is available now on the web site and through insurance departments, companies, and agents.

When is a person guaranteed issuance of a Medigap policy?

If a beneficiary becomes eligible for Medicare at age 65 or older, that person is guaranteed issuance of ANY Medigap policy if the application is submitted no later than six months after the date of enrollment in Medicare Part B. Persons who were eligible for Medicare before age 65 have the same choice of any Medigap policy, as long as they submit their applications no later than six months after turning 65.

Can a beneficiary change from one Medigap policy or insurance company to another?

Yes. However, care should be taken when switching companies or policies and buying replacement coverage because premiums may rise. Policies should be changed only for improved benefits, better service, or a more affordable price. Beneficiaries may have certain rights to have the new insurance company waive waiting periods and pre-existing condition exclusion periods if they had similar coverage under the prior policy for at least six months. If the person had less than 6 months prior coverage, the policy must reduce the pre-existing condition exclusion by the amount of time the beneficiary had the prior coverage. It may be advisable to keep the first insurance in force until the waiting period has expired for the replacement policy. Such overlapping coverage is permitted as long as the applicant indicates that he/she is planning to terminate the old policy. Persons replacing existing policies should ask the new issuer for information on this possibility.

If a person is enrolled under an employee benefit plan that provides benefits which supplement Medicare, but the employee plan terminates or ceases to provide such benefits, what can be done?

When an employer plan terminates or ceases to provide benefits, participants have certain rights but must exercise them within 63 days after coverage terminates.

If a person applies for a Medigap policy within 63 days, the seller or issuer of that policy may not:

1. refuse to sell the person any Medigap policy designated "A", "B", "C" or "F" that the issuer sells in the State;
3. discriminate in the pricing of such policy because of health status, claims experience, receipt of health care, or medical condition, or
5. impose a pre-existing condition exclusion.

A summary chart of all Medigap plans is attached. Further information is available from each State's insurance department or the State Health Insurance Assistance Program.

What are pre-existing condition exclusions, and when would a person be subject to them?

Pre-existing conditions are generally defined as health problems that were diagnosed or treated during a certain time period, usually the six months before the date that the policy goes into effect.

Are there limitations to applying the pre-existing condition exclusion?

Yes. If a person qualifies for guaranteed issue of a policy for one of the reasons described above (such as termination of a prior health plan or Medigap policy), then the issuer cannot impose any pre-existing condition exclusion.

If a person purchases a policy that replaces another Medigap policy and held the prior policy for at least six months, the new policy cannot include a pre-existing condition exclusion for benefits similar to those covered under the old policy.

There is an additional protection that went into effect July 1, 1998, limiting the application of a pre-existing condition exclusion during the initial six month open enrollment period for persons age 65 or older. This exclusion cannot be imposed if on the date the person applied for insurance coverage he/she already had a continuous period of at least 6 months of prior health insurance coverage that meets the definition of "creditable coverage" (described below). If the person had less than six months prior coverage, the policy must reduce the pre-existing exclusion by the amount of the coverage. A number of rules apply to determining whether prior coverage must be counted. The insurance company or State insurance department will have further information. (In addition, some insurance companies have reduced or eliminated the six month period.)

What is creditable coverage?

Creditable coverage is coverage under:

1. a group health plan,
2. health insurance coverage,
3. Part A or B of Medicare,
4. Medicaid,
5. a medical program of the Indian Health Service or a tribal organization,
6. a State health benefits risk pool,
7. the health care program for active military personnel,
8. the Federal employees health benefit plan,
9. a public health plan, or
10. a health benefit plan under the Peace Corps Act.

The person must have had no breaks in health insurance coverage of more than 63 days.

For many years, the Medicare law has allowed for Medicare covered services to be furnished to beneficiaries through HMOs that contract with Medicare. A new law creates the Medicare+Choice program which will expand the types of health plans that can contract with Medicare to enroll beneficiaries.

May someone who currently has a Medigap policy enroll in a M+C plan?

Yes.

Can a person keep a Medigap policy if he/she enrolls in a M+C plan?

Yes. A person can keep a Medigap policy after enrollment in a M+C Plan. Keeping the Medigap policy may give the individual time to determine whether to stay in the M+C plan or return to the original Medicare plan with Medigap insurance. However, expenses paid for by the M+C plan will not be reimbursed by the Medigap insurer. Eventually the person should drop Medigap coverage if he/she is satisfied with the M+C plan.

Can a person already enrolled in a M+C plan also buy Medigap insurance?

No. However, the person may have the right to purchase a Medigap policy if he/she returns to the original Medicare plan. (See next question).

If someone already has coverage under M+C, what circumstances would guarantee that person a Medigap policy? (The short answer is below -- a more detailed discussion follows.)

To be guaranteed the right to get Medigap insurance the person must have enrolled in the M+C plan at age 65, must terminate enrollment in the M+C plan within 12 months of his or her entry into that plan, AND must not have had any previous enrollment in a Medicare managed care plan.

If a person leaves the M+C plan, but had either a previous enrollment in a M+C plan or was in the plan for longer than 12 months, could that person revert to the original Medicare plan and purchase a new Medigap insurance?

A person may be able to purchase a new Medigap policy at that time. But, if the individual had been in a managed care plan on a previous occasion or remained in a M+C plan for more than 12 months, he or she would not have the protections described in this section. Medigap coverage may not be available or there may be higher premiums based on advanced age. The same is true if a person is in the original Medicare plan and changes from one Medigap insurance company to another.

Can an individual be sold a Medigap insurance policy when the seller knows that the person is enrolled in a M+C plan or has the same coverage under another policy?

No. It is unlawful for a Medigap policy to be sold or issued if a person has elected enrollment in a M+C plan or has coverage under another Medigap policy where the seller has knowledge that the policy duplicates health benefits to which the individual is already entitled under the M+C plan or another Medigap policy. If someone tries to sell a Medigap policy under these circumstances, this should be reported to the State insurance department.

What happens if a M+C plan terminates coverage because it leaves the Medicare program or loses its M+C certification?

Plan enrollees have certain rights to new coverage, but these are time limited. The M+C plan is required to provide certain information to assist in making decisions about enrolling in another M+C plan or switching to the original Medicare plan with a Medigap policy to supplement the coverage. In general, most individuals who are enrolled with a managed care plan that terminates its contract with Medicare have the right to guaranteed issue of any Medigap policies designated "A", "B", "C", or "F" that are offered to new enrollees by issuers in the State. (Minnesota, Massachusetts and Wisconsin have special waivers that allow them to provide guaranteed issue of policies that are comparable to plans "A", "B", "C", and "F." In addition, not all beneficiaries under age 65 will be able to take advantage of these protections.)

These above rights apply to individuals by virtue of the involuntary termination of their coverage. However, certain Medicare beneficiaries in the terminating plans may have another, separate basis for entitlement to guaranteed issue of a Medigap policy. If a person had been enrolled in the M+C plan for fewer than 12 months, was never enrolled in any other Medicare HMO, and had a previous Medigap policy, that individual may return to the former Medigap policy if the previous Medigap insurance company still sells the policy in the State.

If that coverage is not available under the previous Medigap policy, the individual may purchase Medigap policies "A", "B", "C", or "F" from any insurer which sells these policies in the State.

In these cases, the insurance company selling the policy may not:

1. deny or condition the sale of the policy,
3. discriminate in the pricing of the policy because of health status, prior history of claims experience, receipt of health care or medical condition, or
5. impose an exclusion for any pre-existing condition.

However, the individual has only 63 days after coverage ends to select a Medigap insurer. Information and assistance is available from the State Health Insurance Assistance Programs to assist in resolving situations like these. Their telephone numbers can be found in the back of the Guide to Health Insurance for People with Medicare or at www.medicare.gov on the Internet.

Are there any other times when these protections would apply?

Yes. If a person moves outside of the M+C plan's service area or terminates enrollment for a reason described in the statute, these protections are in force for 63 days. Further information and assistance is available from the State Health Insurance Assistance Program which can tell people about the State rules that define the reasons a person may end enrollment in the M+C plan for reasons such as poor quality medical treatment.

Is there any other time when you may be guaranteed issuance of a Medigap policy?

Yes. Starting in 1999, you are guaranteed issuance of ANY Medigap policy if:

• you are at least 65 years old, and
• first become eligible for Medicare, and
• you enrolled in a M+C plan, and
• you then disenrolled from that plan within 12 months of the effective date of your enrollment.

What happens if a managed care plan terminates coverage because it does not continue in the Medicare program?

If a health plan will no longer continue its contract with the Medicare program to provide health care to Medicare beneficiaries, the following alternatives are available:

1. Plan participants may remain enrolled in the non-renewing health plan until the end of the contract period. To choose this option, participants need take no further action; they will automatically be disenrolled from the plan and returned to the original Medicare plan as of the effective date of the health plan's termination. Until disenrollment from the non-renewing health plan is effective, participants must continue to use health plan providers.
3. Participants may join another managed care plan that contracts with the Medicare program. If an individual chooses this alternative before the end date of the coverage, he or she will automatically be disenrolled from the non-renewing health plan upon enrollment in the new HMO.
5. A person may disenroll from the non-renewing health plan and return to the original Medicare plan before coverage terminates. To choose this option, the person may disenroll by notifying the non-renewing health plan or by notifying Social Security or (as applicable for railroad retirees) the Railroad Retirement office. Disenrollment is effective the first day of the month following the month in which it is requested. For example, if a person requests disenrollment on November 20th, he or she would be returned to the original Medicare plan effective December 1. Certain rights to purchase a Medigap policy could be lost if a person chooses to disenroll before December 31.

May a person who returns to the original Medicare plan purchase a Medigap policy?

Yes. If a person returns to the original Medicare plan, that individual may wish to purchase a Medigap policy. A Medigap policy requires an additional monthly premium and will pay for some out-of-pocket costs which are not covered under the original Medicare plan. In addition, for Medigap policies that insurance companies must offer, the non-renewing plan has a legal obligation to arrange for beneficiaries to be protected against any pre-existing condition exclusions under a Medigap policy for up to six months after the plan terminates coverage. The plan may do this in a number of ways. This year, the plan was required to notify participants of what arrangements it had made for such coverage no later than November 2, 1998.

Some plans will identify a Medigap insurer that will waive the waiting period for coverage of pre-existing conditions. Individuals may then enroll for the new policy between specific dates identified by the non-renewing managed care plan.

Must an individual accept a Medigap policy chosen by the non-renewing plan, or is it possible to shop for a better bargain?

A beneficiary is not bound by the non-renewing plan's choices of coverage. A beneficiary is free to shop for a Medigap policy that meets his or her needs.

Are there any protections for a person who chooses a Medigap policy other than the one chosen by the non-renewing plan?

When the plan terminates, most participants will have rights to purchase certain Medigap policies but must act within 63 days after coverage terminates. If a person applies for a Medigap policy within 63 days, the seller or issuer of that policy generally may not:

1. refuse to sell the person any Medigap policy designated "A", "B", "C" or "F" that the issuer sells in the State;
3. discriminate in the pricing of such policy because of health status, claims experience, receipt of health care, or medical condition, or
5. impose a pre-existing condition exclusion.

However, not all beneficiaries under age 65 will be able to take advantage of these protections. Further information is available from each State's insurance department or State Health Insurance Assistance Program.

How does a person go about finding a Medigap insurer?

The person should begin inquiries as soon as he or she receives the non-renewing plan's notice of termination. This way, the individual will have time to find the best coverage and have it go into effect on the date following the effective date of the non-renewing plan's termination from the Medicare program.

The best course of action in such situations is to contact the State Health Insurance Assistance Program (SHIP) or State insurance department. SHIPs have been trained to assist people in resolving situations like these. The telephone number for the SHIP in each state is available in the Medicare & You handbook and bulletin, the Guide to Health Insurance for People with Medicare, and at www.medicare.gov. To find out about a particular State's health insurance assistance program, check the State Government listing in the telephone book, and contact the State's Office on Aging or insurance department.

Do these special protections apply to all Medicare beneficiaries?

Medigap insurers must make any policies designated "A", "B", "C", and "F" that they currently sell available to any beneficiaries over age 65 whose Medicare managed care plans are terminated. Issuers who currently offer any of these four policies to beneficiaries under 65 who are entitled to Medicare because of disability or ESRD must also make those policies available to beneficiaries whose managed care plans terminate.

This provision does not require issuers to offer any policies ("A", "B", "C", or "F") that they do not currently sell, nor does it require issuers that do not currently sell policies to beneficiaries under age 65 to begin selling to those individuals. However, it does require the insurers to sell policies to individuals whose HMOs terminated without any underwriting or preexisting condition exclusions.

Medicare supplemental insurance can be sold in only 10 standard plans. This chart shows the benefits included in each policy. Every company must make available Plan "A". Some plans may not be available in your State.

Basic Benefits: Included in All Plans
Blood: First 3 pints of blood each year.
Hospitalization: Part A coinsurance plus coverage for 365 additional days after the Medicare benefits end.
Medical Expenses: Part B coinsurance (generally 20% of Medicare-approved expenses).

*Plans "F" and "J" also have an option called a high deductible plan "F" and a high deductible plan "J". These high deductible plans pay the same or offer the same benefits as plans "F" and "J" after the beneficiary has paid a calendar year deductible of $1,500. Out of pocket expenses, in this instance, are expenses that would ordinarily be paid by a Medigap policy. These expenses include the Medicare deductibles for Parts A and B, but do not include, in plan "J", the plan's separate prescription drug deductible of $250, or in plans "F" and "J", the plans' separate foreign travel emergency deductible of $250.

Last Updated November 10, 1998