CHAPTER 21 SOCIAL SECURITY SUPPLEMENTS By reading the information concerning Medicare in Chapter 20, it became apparent that the Medicare program does not cover all medical expenses. Both Part A and Part B of Medicare have deductibles, co-payments, and other limitations. Medicare Supplement insurance, frequently referred to as Medigap insurance, helps to pay for many of the expenses not covered by Medicare. It is important to consider that people are living longer and that the costs of medical care constantly are escalating. This additional insurance is especially important for people on fixed incomes who could be devastated financially by large medical bills. The National Association of Insurance Commissioners (NAIC) and the Department of Health and Human Services jointly have published a Guide to Health Insurance for People with Medicare that provides general information concerning Medicare and the possible need for supplemental coverage. The guide is a review of the Medicare program and reflects the gaps in the program. The guide does not recommend any particular insurance provider. As part of the Omnibus Budget Reconciliation Act (OBRA) of 1990, Congress required the NAIC to address the subject of Medicare supplement insurance policies. The NAIC s task was to develop a standardized model for Medicare supplement policies that contained certain core benefits plus as many as nine other supplemental policies providing core benefits and other coverages that could be adopted by the states as prototype policies for insurers. The reason for this law was to reduce the number of Medicare supplement policies being sold, to make the policies more understandable, and to make comparison of policies easier. In 2004 two new plans (K and L) were added by the NAIC. As of June 1, 2010, two more supplements (M and N) were added but four of the earlier supplements were eliminated. Those plans eliminated are E, H, I, and J as well as high-deductible J. Any Medicare recipient who had a policy that was eliminated may keep that policy as long as premiums are paid, and the benefits will stay the same regardless of the changes in the law. If a recipient wants a new policy, the insurer will decide if medical underwriting will be required. The standardized policies are lettered A through N. Insurers cannot change the letter designations assigned to these policies. However, insurers are allowed to add names or words to the titles of the plans. A is a basic policy that contains only core benefits. s B through N contain the core benefits plus other approved benefits. It is a requirement that all supplemental policies contain core benefits. Insurers do not have to offer all of the plans, but every company selling Medicare supplemental insurance is required to offer A and either C or F. (CIC 10194.3) 1
CORE BENEFITS The core benefits required to be in every supplemental policy are: (CIC 10192.8) Coverage for the Part A coinsurance amount for days 61 through 90 of a hospital stay in each benefit period. Coverage for the Part A coinsurance amount for each of the 60 lifetime reserve hospital days. Coverage for 100% of Part A hospital expenses once Medicare lifetime reserve days are exhausted. This is subject to a lifetime maximum benefit of an additional 365 days. Coverage for Part A hospice coinsurance. However, K will cover these benefits at 50% and L will cover at 75% of the cost until the out-of-pocket limit is met and then cover at 100%. Coverage under Part A and Part B for the reasonable cost of the first three pints of blood each year. Coverage for the 20% co-payment under Part B for Medicare-approved services. OTHER APPROVED COVERAGES Besides the core benefits, other coverages offered by s B through N Include: (CIC 10194.2-10194.3) Medicare Part A deductible per benefit period. Skilled nursing facility coinsurance amount for days 21 to 100. Part B deductible. Part B excess charges at 100% on F and G. G previously covered excess charges at 80%. The excess is the difference between the actual Medicare Part B charge as billed, subject to Medicare limitations, and the Medicare approved Part B charge. Foreign travel emergency that covers 80% of charges billed for medically necessary services including emergency hospital, physician services, and other medical care received outside the U.S. that would have been covered by Medicare if received in the U.S. Foreign travel emergency has a calendar deductible of $250 and a lifetime maximum benefit of $50,000. Before the 2010 changes to supplemental policies, at-home recovery and preventive care were offered in some of the policies.. At-home recovery was removed due to under utilization and preventive care was deemed unnecessary as Medicare now covers items such as colorectal cancer screening, mammograms, and an annual physical exam. 2
s H, I, and J originally had limited prescription drug coverage. It should be noted that no new Medicare supplement policies covering drugs could be sold after January 1, 2006. If a person already had a Medicare supplement policy that covered drugs, the policy could be kept, but that person could not also have Medicare Part D. Since most supplemental policies do not have drug coverage that is as good as Medicare, the person would have to pay a penalty if he/she wanted to switch to Medicare Part D at a later date. Another choice would be to keep the supplemental policy and drop the drug coverage or switch to a different supplemental policy that did not cover drugs. The premium for the Medicare supplement policy would be reduced due to dropping the drug coverage. Standardized Medicare Supplement s as of June 1, 2010 Basic Benefits Part A Hospital Part A Hospice Coinsurance Part B Coinsurance or Copay Parts A & B blood Additional Benefits Skilled Nursing Coinsurance Days 21-100 Part A Deductible Part B Deductible Part B Excess Foreign Travel Emergency Out-of- Pocket Annual Limit A B C D F* G K L M N 50% 75% 50% ** 75% ** 50% 75% A B C D F G K L M *** N 50% 75% 50% 75% 50% $4660 **** $2330 **** 3
* F has a high deductible option. It pays the same benefits as F after an annual deductible has been reached. In 2012 this deductible is $2,070. Out-of-pocket expenses that count toward this deductible are expenses that would normally be paid by the policy including Medicare deductibles for Part A and Part B, but it does not include the plans separate foreign travel emergency deductible. ** s K and L pay 100% of the Part B coinsurance for Medicare covered preventive services. *** There is an exception in N. A person may be charged up to $20 for an office visit and up to $50 for an emergency room visit before the plan pays. The emergency room co-pay is waived if the person is admitted to the hospital. ****s K and L pay 100% of the Medicare co-payments, coinsurance, and deductibles after the annual out-of-pocket limit is reached. This limit is subject to change annually. s K and L were developed to reduce the over utilization of first dollar coverage features of the original ten plans. They provide a financial incentive to beneficiaries to help control costs. These two plans are similar, but they differ in the percentage of coverage for claims and in maximum annual out-of-pocket limit amounts. Once the annual out-of-pocket limit is reached, the plans pay 100% of the Medicare co-payments, coinsurance, and deductibles for the remainder of the calendar year. The out-of-pocket annual limit does not include charges from a provider that exceed Medicare approved amounts known as Excess Charges. New plans M and N were designed to give beneficiaries additional options for higher cost sharing (i.e. deductibles and co-payments) for a lower premium. M pays 50% of the Part A deductible and does not cover Part B deductible or Part B Excess. N has a co-pay on Part B Coinsurance as mentioned above in the chart and does not cover Part B deductible or Part B Excess although it does cover the Part A deductible. MINIMUM STANDARDS Medicare supplement policies are regulated by and must be approved by the Department of Insurance. California has set minimum standards for Medicare supplement policies. These standards include: (CIC 10192.8) Pre-existing conditions cannot be excluded for longer than six months. A pre-existing condition is one for which medical advice or treatment was received from a physician within six months prior to the effective date of coverage. Every Medicare supplement policy must be issued on a guaranteed renewable or non-cancelable basis. Loss resulting from sickness cannot be covered on a different basis than loss resulting from an accident. The policy must provide for automatic annual adjustments to coincide with increases in Medicare s deductibles and co-payments. Medicare supplement policies cannot be canceled or non-renewed for any reasons other than non-payment of premium or material 4
misrepresentation. Policies are contestable for a two-year period from the effective date. Medicare supplement policies may not terminate spousal coverage solely due to the occurrence of an event specified for termination of coverage of the insured except for non-payment of premium. No Medicare supplement can limit coverage to a single disease or affliction. Termination of a Medicare supplement policy cannot reduce the benefits for any continuous loss or claim that started prior to termination. Medicare Supplement Buyer s Guide must be provided to all applicants. This guide must be in the form developed jointly by the National Association of Insurance Commissioners and the Health Care Financing Administration. This guide must be delivered to the applicant at the time the application is taken and the agent must obtain an acknowledgment of receipt from the applicant. In the case of direct response insurers, the guide must be delivered to the applicant upon request but never later than at the time the policy is delivered. An outline of coverage must be given to all applicants at the time of the sales presentation or at the time application is made. Direct response insurers must obtain a written acknowledgment of receipt of the outline of coverage from the applicant. If the Medicare supplement policy that is issued differs from the outline, a substitute outline of coverage must be provided at the time of delivery and must have a prominent notice to the buyer to read the outline carefully as it is not identical to the previous outline provided. All insurers must disclose on the cover page of the outline of coverage the loss ratio of the policy during the preceding year. If replacement is involved, the insurer must provide the applicant with the appropriate replacement information. The insured must be given a free-look period of 30 days in which to review the policy and, if dissatisfied for any reason, may return the policy for a full refund of premium. Medicare supplements cannot exclude pre-existing conditions for longer than six months. If a Medicare supplement that has been in effect for six months is replaced, the new supplement must waive any pre-existing exclusion period. If a person with a Medicare supplement policy begins receiving Medicaid (Medi- Cal), the insured may request (within a 90-day period) a suspension of premiums and benefits under the policy for up to two years and receive a refund of premiums. OBRA also states that benefits provided through an employer are primary and that Medicare benefits are secondary. This is unless an employee rejects his/her employer s group coverage. Employers cannot offer incentives to employees who are eligible for Medicare to terminate the group coverage in order to lower the group premium. Employers who do so may be fined $5,000 for such a violation. 5
If a group Medicare supplement policy is replaced by another supplement, the succeeding insurer must offer coverage to all individuals covered under the old policy and the new policy cannot exclude any pre-existing conditions covered by the former policy. If a group Medicare supplement policy is terminated by the group sponsor, the insurance company must give the insureds the choice of an individual supplement that provides for a continuation of benefits contained in the group policy or an individual Medicare supplement policy that provides coverage under one of the standardized policies. Some of the other topics addressed by OBRA include a regulation that a Medicare supplement cannot be sold to someone who already has another policy containing the same type of benefits. The law states that Medicare supplements cannot be denied due to the applicant s health, claims experience, or medical condition for the first six months a Medicare beneficiary age 65 or older first enrolls in Medicare Part B. An individual enrolled in Medicare Part B by reason of disability will be entitled to open enrollment for six months after he/she reaches age 65. Every insurer shall make available to every applicant qualified for open enrollment all policies and certificates offered by that insurer at the time of application. Insurers shall not discourage sales during the open enrollment period by any means, including the altering of the commission structure. (CIC 10194.8) An individual shall be entitled to an annual open enrollment period lasting for 30 days or more, commencing with the individual s birthday. During this time the person may purchase any Medicare supplement policy that offers benefits equal to or lesser than those provided by the previous coverage. During this open enrollment period, no issuer shall deny or condition the issuance of Medicare supplement coverage or discriminate in the pricing of coverage because of health status, claims experience, receipt of health care, or medical condition of the individual as long as at the time of open enrollment the individual is covered under another Medicare supplement policy or contract. An issuer shall notify a policyholder of his/her rights at least 30 days and no more than 60 days before the beginning of the open enrollment period. (CIC 10192.11) With respect to the guaranteed issue of a Medicare supplement policy, eligible persons are individuals whose coverage has been terminated. This termination of coverage could be due to an employee welfare benefit plan terminating or it could be a result of a Medicare Advantage plan having its certification terminated, withdrawing from an area of operation, or the individual moving out of the service area. Termination might be caused by insolvency of the issuer or bankruptcy of the non-issuer organization. In the case of enrollment being terminated involuntarily, the guaranteed issue period begins on the date that the individual receives a notice of termination and ends 63 days after the date the applicable coverage is terminated. If an individual disenrolls voluntarily, the guaranteed issue period begins on the date that is 60 days before the 6
effective date of the disenrollment and ends on the date that is 63 days after the effective date of the disenrollment. (CIC 10192.12) APPROPRIATE SALES AND REPLACEMENT (10192.20) An issuer shall do the following: Establish marketing procedures to ensure that any comparison of policies by its agents will be fair and accurate. Establish marketing procedures to ensure that excessive insurance is not sold or issued. Display prominently on the first page of the policy the following: Notice to buyer: This policy may not cover all of your medical expenses. Make every effort to determine whether a prospective applicant for a Medicare supplement policy already has health insurance and the types and amounts of that insurance. Establish auditable procedures to verify compliance with the code. Each year the commissioner shall prepare a rate guide for Medicare supplement insurance and contracts. Each insurer that markets Medicare supplement contracts in California must provide on the application form a statement that reads as follows: A rate guide is available that compares the policies sold by different insurers. You can obtain a copy of this rate guide by calling the Department of Insurance s consumer toll-free telephone number (1-800-927-HELP), by calling the Health Insurance Counseling and Advocacy Program (HICAP) toll-free telephone number (1-800-434-0222), or by accessing the Department of Insurance s Internet Web site (www.insurance.ca.gov). In order to protect seniors, California has certain requirements for the replacement of Medicare supplement policies. All Medicare supplement applications must include questions asking if the individual has a supplement policy or if the proposed supplement policy is intended to replace any other health policy. No insurer, agent, broker, or other person should replace unnecessarily a Medicare supplement policy that results in decreased benefits and higher premiums. Every agent is required to list any other health policies the agent or his/her agency has sold to the applicant including those still in effect and those no longer in effect and sold during the last five years. If a replacement is involved, the insurer is required to give the applicant a notice regarding replacement of health coverage. The notice has to be given prior to the replacement policy being issued or delivered. A copy of the notice signed by both the applicant and agent must be given to the applicant. The insurer must retain another copy of the signed notice. Direct response insurers must deliver a similar notice about replacement upon issuance of the policy. (10192.18) 7
Agents selling Medicare supplement insurance need to have a good understanding of the Medicare program and what it does and does not cover. The agent will need to explain to the applicant the need for Medicare supplement insurance and the benefits of such a policy. Agents have a fiduciary duty to applicants to act in an ethical manner making sure they sell appropriate policies and do not duplicate coverage. Agents are prohibited from engaging in twisting, high-pressure tactics, and cold lead advertising. Twisting is the attempt by an agent through misrepresentations to have a client lapse, cancel, or surrender a policy in order to sell the client another policy. High-pressure tactics involve any sales method using force, fright, threat, or undue pressure to bring about a sale. Cold lead advertising is a marketing method that fails to disclose that the purpose is to sell insurance and the fact that contact will be made by an agent. MEDICARE AND MANAGED CARE There are a number of Managed Care Organizations (MCOs) that have contracted with the Health Care Financing Administration to provide both Part A and Part B services to Medicare recipients. Medicare managed care plans are offered by private companies. A company can make a plan available to everyone with Medicare in a state or only be open in certain counties. A company also may choose to offer more than one plan in an area providing different benefits and costs. Each year a managed care company can decide to join or leave Medicare. Medicare Select Coverage means Medicare supplement coverage through a preferred provider organization (PPO) or any other type of restricted network whose coverage has been approved by the commissioner. A PPO is a health care provider or an entity that contracts with health care providers that establish alternative or discounted rates of payment and offers the insureds certain advantages for selecting the member providers. Examples of Medicare Select organizations include provider groups, hospital marketing plans, and groups that are formed or operated by insurers or third-party administrators. A Medicare Select issuer shall file a plan of operation with the commissioner that includes: (CIC 10192.10) Evidence that all covered services that are subject to restricted network provisions are available and accessible through network providers. That services can be provided with reasonable promptness with respect to geographical location, hours of operation, and after-hour care. That the number of network providers in the service area is sufficient to deliver adequately all services that are subject to a restricted network provision, to make appropriate referrals, and to make available emergency care 24 hours per day, seven days per week. 8
The policy or certificate shall provide payment for full coverage under the policy for covered services that are not available through network providers. A Medicare Select policy or certificate shall make full and fair disclosure in writing of the provisions, restrictions, and limitations of the policy or certificate. This disclosure shall include an outline of coverage sufficient to allow the applicant to compare the coverage and premiums of the Medicare Select policy or certificate. Prior to the sale of a Medicare Select policy or certificate, the issuer shall obtain from the applicant a signed and dated form stating that the applicant understands the restrictions of the Medicare Select policy or certificate. Detailed information describing in writing how to register an appeal or grievance shall be provided to the insured prior to, or simultaneously with, the issuance of the policy or certificate. Traditionally MCOs that deliver Medicare services do so in exchange for a fixed monthly payment per patient from the Medicare program. Some MCOs do not charge any premiums beyond the payment received from Medicare. Some charge premiums and may offer plans that have deductibles and co-payments. Other MCOs charge a premium and offer broader benefits. The ones offering broader benefits eliminate the need for a Medicare supplement policy. A disadvantage to managed care plans is that subscribers only can go to certain doctors and hospitals. If a subscriber wishes to see a specialist, a referral from the primary care physician is required. However, some managed care plans offer a point-of-service option that allows subscribers to go to a doctor or hospital outside the system. Usually such an option costs more. An advantage of managed care is subscribers frequently can get extra benefits such as vision care. PERMITTED COMMISSIONS (CIC 10192.16) Every insurer shall file with the commissioner its commission structure. An issuer or other entity providing Medicare supplements can provide commission to an agent or other representative for the sale of a Medicare supplement policy or certificate only if the first year commission is not more than 200% of the commission paid for selling or servicing the policy or certificate in the second year or period. The commission or compensation in following years must be the same as that paid in the second year or period and must be provided for no fewer than five renewal years. No issuer may pay compensation that is greater than the renewal compensation payable by the replacing issuer on renewal policies if an existing policy is replaced. 9
REVIEW QUESTIONS 1. Medicare supplement policies: A. Are provided by the federal government. B. Are especially needed by someone covered by Medi-Cal. C. Offer duplicate coverages of the services offered by Medicare. D. Pay some or all of Medicare s deductibles and co-payments. 2. Core benefits refer to: A. Coverage for Part A coinsurance amounts for hospital days 61-90 in a benefit period, the coinsurance for the 60 lifetime reserve hospital days, and coverage for an additional 365 hospital days as well as Part A Hospice Coinsurance. B. Coverage under Part A and B for the reasonable cost of the first three pints of blood. C. Coverage under Part B for the 20% co-payment for Medicare-approved services. D. All the above. 3. Medicare supplement policies: A. Are approved by the federal government and not the state DOI. B. Are developed by insurers and may contain any coverages the insurers wish to offer. C. Are sold by commercial companies who are allowed to sell just the supplements they choose. D. Are offered by commercial insurers who must offer A and either C or F. 4. Which of the following is incorrect regarding Medicare supplement policies? A. Medicare supplements cannot exclude pre-existing conditions for longer than six months. B. Medicare supplements must be issued on a guaranteed renewable or non-cancelable basis. C. Medicare supplements may cover sickness on a different basis than a loss resulting from an accident. D. Medicare supplements have a free-look period of 30 days. 10
5. It is considered to be ethical for an agent to sell an additional Medicare supplement policy to someone who has an existing Medicare supplement policy. A. True B. False 6. Which of the following is/are true? A. 1 & 3 B. 1 & 4 C. 1, 2, & 4 D. 1, 3. & 4 1. Standardized Medicare supplement policies were developed by the NAIC. 2. Supplements B through N have core benefits; A has no core benefits. 3. All Medicare supplements have some coverage for prescriptions. 4. Foreign travel emergency is a coverage offered by some Medicare supplements. 7. If a Medicare supplement that has been in force for over six months is replaced, the new supplement cannot exclude pre-existing conditions for six months. A. True B. False 8. According to OBRA, insurance benefits provided through an employer are primary and Medicare benefits are secondary. A. True B. False 11