Medicare: Supplementary "Medigap" Coverage
Medicare: Supplementary “Medigap” Coverage
Updated October 2, 2007
Specialist in Health Care Financing
Domestic Social Policy Division
Medicare: Supplementary “Medigap” Coverage
Medicare is a nationwide health insurance program for the aged and certain
disabled persons. Although the program provides broad protection against the costs
of many, primarily acute care, services, it covers only about one-half of beneficiaries’
total health care expenses. Most individuals have some coverage in addition to basic
Medicare benefits. Some persons have additional benefits through a managed care
plan. Most other individuals have some supplementary coverage through private
insurers or public programs such as Medicaid. Private supplementary coverage can
be obtained through an individually purchased policy, commonly referred to as a
“Medigap” policy. It can also be obtained through a current or former employer.
Some persons have both types of coverage.
Beneficiaries with Medigap insurance typically have coverage for Medicare’s
deductibles and coinsurance; they may also have coverage for some items and
services not covered by Medicare. Individuals generally select from one of 10
standardized plans, though not all 10 plans are offered in all states. The 10 plans are
known as Plans A through Plan J. Plan A covers a basic package of benefits. Each
of the other nine plans includes the basic benefits plus a different combination of
additional benefits. Plan J is the most comprehensive.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA, P.L. 108-73) added a new voluntary prescription drug benefit under a new
Medicare Part D. It also made a number of changes to the Medigap requirements.
The first significant change was the addition of two new standardized plan types,
Plan K and Plan L. There are two key differences between the benefits included
under these options and those offered under Plans A-H. First, Plans K and L
eliminate first-dollar coverage for most Medicare cost-sharing. Second, both Plans
K and L include an annual out-of-pocket limit on Medicare cost-sharing charges.
The second major MMA change was the prohibition, beginning January 1, 2006,
on the sale of Medigap policies with prescription drug coverage. Individuals who
had such policies could renew them provided they did not enroll in a prescription
drug plan under the new Part D. Alternatively, if they enrolled under Part D, they
could continue to enroll in a Medigap plan, but without drug coverage.
MMA also required the Secretary of the Health and Human Services to request
the National Association of Insurance Commissioners (NAIC) to review and revise
the Medigap benefit packages, taking into account changes made by the new law.
The NAIC announced its recommendations in March 2007. The Children’s Health
and Medicare Protection Act of 2007 (CHAMP), as passed by the House on August
1, 2007, incorporates these recommendations, as well as making additional Medigap
changes. This report will be revised as circumstances warrant.
Supplementary Coverage ...........................................3
New Plan Options.........................................6
Other Plan Types..........................................6
Policy Selection; Interaction with Medicare Part D Choices.............7
Six-Month Open Enrollment.................................8
Pre-Existing Condition Exclusions...........................12
Implications of guaranteed issue protections....................12
Additional Requirements ......................................13
Standardized Plan Options......................................14
Children’s Health and Medicare Protection (CHAMP) Act............16
Appendix A: Requirements for State Regulatory Programs, Policy Issuers,
and Insurance Sales...........................................17
Requirements Applicable to State Regulatory Programs...............17
Requirements for Policies and Policy Issuers.......................18
Insurance Sales Provisions......................................19
List of Tables
Table 1. Medicare Benefits, 2007.....................................2
Table 2. Benefits Under Standardized Medigap Plans A-H.................5
Table 3. Portion of Cost-Sharing Charges Paid Under Standardized Plans
K and L......................................................6
Table 4. Guarantee Issue Protections.................................10
Medicare is a nationwide health insurance program for the aged and certain
disabled persons. Most Medicare beneficiaries obtain covered health services
through the original fee-for-service program (also known as “original Medicare”).
Under the fee-for-service program, beneficiaries obtain covered services through the
providers of their choice and Medicare pays for each service or package of services
rendered. The basic package of Medicare services (which includes a range of
institutional and non-institutional services) is the same throughout the country.
Some beneficiaries are enrolled in a Medicare Advantage plan. These persons
have elected to obtain all of their Medicare services through a managed care
arrangement (such as a health maintenance organization (HMO)) instead of through
the fee-for-service program. At a minimum, these beneficiaries are entitled to the
basic Medicare benefit package. Some managed care enrollees may be entitled to
additional benefits; the scope of additional benefits varies by plan.
The basic Medicare benefit package provides broad protection against the costs
of many, primarily acute, health care services. However beneficiaries may still be
faced with significant additional costs. Medicare requires cost-sharing for most
covered services, provides only limited protection for some services (such as long-
term care) and includes no protection against the costs of other services (such as
hearing aids and dentures). Further, unlike most large group health insurance plans,
Medicare contains no upper (“catastrophic”) limit on out-of-pocket expenses. As a
result, the program covers only about half of beneficiaries’ total health costs.
Most Medicare beneficiaries have some form of public or private coverage to
supplement their Medicare benefits. Public coverage is provided primarily through
Medicaid. Private protection may be obtained through a current or former employer.
It may also be obtained through an individually purchased policy, commonly referred
to as a “Medigap policy.” Federal law has established a number of requirements
governing the sale of these Medigap policies.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA, P.L. 108-73) added a new voluntary prescription drug benefit under a new
Medicare Part D.1 It also made a number of additional changes to the program
including changes to the Medigap requirements. The most significant was the
prohibition, beginning January 1, 2006, on the sale of Medigap policies with
prescription drug coverage. Individuals who previously had such policies could
renew them provided they did not enroll in a prescription drug plan under the new
Part D. MMA also provided for the establishment of two additional plan types which
may be sold as Medigap policies.
Medicare consists of four distinct parts: Part A (Hospital Insurance [HI]); Part
B (Supplementary Medical Insurance [SMI]); Part C (Medicare Advantage [MA]);
and Part D (the prescription drug benefit added by MMA). Most beneficiaries get
covered services through Medicare Parts A and B, also referred to as “original
Medicare.” Alternatively, beneficiaries can choose to receive all their Medicare
services (otherwise covered under Parts A and B) through managed care plans under
the MA program. Beginning January 1, 2006, Medicare beneficiaries have been able
to purchase drug coverage through private plans offered by prescription drug plan
(PDP) sponsors or through managed care organizations offering Medicare Advantage
prescription drug (MA-PD) plans.
Table 1 provides a brief outline of the coverage offered under Parts A and B,
including associated cost-sharing charges.
Table 1. Medicare Benefits, 2007
B e nef i t Cost - s hari ng
Days 1-60$992 deductible
Days 61-90$248 daily coinsurance
60 lifetime reserve days$496 daily coinsurance
Skilled nursing facility care
Days 21-100$124 daily coinsurance
Hospice carenominal cost-sharing
Physicians services, outpatient hospital services,$131 deductible; generally 20%
durable medical equipment, and other medicalcoinsurance after deductible has
Parts A and B
Home health carenone
1 For an overview of MMA, see CRS Report RL31966, Overview of the Medicare
Prescription Drug, Improvement and Modernization Act of 2003, by Jennifer O’Sullivan,
Hinda Chaikind, Sibyl Tilson, Jennifer Boulanger, and Paulette Morgan.
Most beneficiaries have some form of private or public coverage to supplement
Medicare. In 2004, only 9.3% of community-based beneficiaries relied solely on the
traditional fee-for-service program. An additional 14.5% relied on coverage through
their Medicare managed care organization. In 2004, 60.7% of community-based
Medicare enrollees had private supplemental coverage, an additional 14.0% had
coverage through Medicaid, and an additional 1.5% had other public sector coverage.
Private insurance protection may be obtained through a current or former employer
(31.9% had such coverage in 2004). It may also be obtained through an individually
purchased policy, commonly referred to as a Medigap policy (28.8% had these plans2
Medigap policies are intended to fill in some of the gaps in “original Medicare.”
Persons enrolled in a Medicare Advantage plan generally do not need a Medigap plan
because their MA plans generally cover some of the same benefits offered by
Beneficiaries with Medigap insurance typically have coverage for some or all
of Medicare’s deductibles and coinsurance. When a beneficiary receives care, the
Medicare contractor pays first; the contractor then forwards the claim directly to the
Medigap insurer which then pays its portion of the bill.3 Some Medigap policies also
cover some items and services not covered by Medicare. In this case, the claim is
sent directly to the Medigap insurer. The Social Security Act contains certain
requirements governing the sale of Medigap policies.4
Standardized Plans. Generally, insurance companies can not sell Medigap
policies unless they conform to one of the standardized benefit packages. Individuals
2 Medicare Payment Review Commission (MedPAC), A Data Book: Healthcare Spending
and the Medicare Program, June 2007. [http://www.medpac.gov/documents/Jun07
3 Effective October 1, 2007, this claims crossover can only be accomplished through the
coordination of benefits contractor (COBA) eligibility file-based crossover process. The
COBA has assigned Medigap insurers claim-based identifiers which must be used when
4 The law incorporates by reference, as part of the statutory requirements, certain minimum
standards established by the National Association of Insurance Commissioners (NAIC).
These minimum standards, known as the NAIC Model standards, are found in the NAIC
Model Regulation. The Centers for Medicare and Medicaid Services (CMS), the agency
that administers Medicare) published a Notice in the Federal Register on March 25, 2005,
which recognized the latest version (with clarifications) adopted by the NAIC on September
first purchasing a Medigap policy on or after July 30, 1992, have been able to select
from one of 10 standardized plans, though not all 10 plans have been offered in all
states. The 10 plans are known as Plans A through J. Plan A covers a basic package
of benefits. Each of the other nine plans includes the basic benefits plus a different
combination of additional benefits. Plan J is the most comprehensive. (See Table
The Balanced Budget Act of 1997 (BBA 97, P.L.105-33) added two high
deductible plans to the list of 10 standard plans. With the exception of the high
deductible feature, the benefit package under the high deductible plan is the same as
that under Plan F or Plan H. The 2007 deductible under these plans is $1,860. This
approach removed first-dollar coverage which was expected to result in a reduction
in premiums. Reportedly, few insurers have offered these high deductible plans.
As noted in Table 2, Plans H, I, and J include coverage for prescription drugs.
However, effective January 1, 2006 (the effective date of the Part D drug benefit),
new sales of policies with drug coverage are prohibited. Thus, new H, I, and J
policies sold on or after that date can not include drug coverage. Further, no
Medigap policy with an outpatient prescription drug rider can be sold.
Individuals who purchased H, I, and J policies prior to January 1, 2006, may
keep and renew such policies provided they do not enroll in a Part D plan. However,
there are potential consequences to this decision. (See “Policy Selection,” below.)
Table 2. Benefits Under Standardized Medigap Plans A-H
BenefitsABCDEF *GHIJ *
Basic benefits: Part A hospitalxxxxxxxxxx
coinsurance for days 61-90 in a benefit
period.** ($248 a day in 2007) and 60
lifetime reserve days ($496 a day in
2007); 365 days of hospital care after
exhaustion of Medicare benefits; Part B
cost-sharing; and first three pints of
Part A hospital deductible ($992 inxxxxxxxxx
Skilled nursing facility care Billedxxxxxxxx
charges up to coinsurance amount ($124
a day in 2007) for days 21-100 in a
Part B deductible ($131 in 2007)xxx
Medically necessary emergency carexxxxxxxx
in a foreign country for services which
would be covered by Medicare if
provided in U.S. (80% after a $250
deductible; $50,000 lifetime maximum)
At-home recovery (Up to $1,600 perxxxx
year for short-term assistance with
activities of daily living, subject to
Preventive care (up to $120 per year for
physicals and various screenings)
Part B excess charges (Difference100%80%100%100%
between Medicare’s recognized amount
and actual charges, subject to charge
limitations set by Medicare or state law)
Basic drug benefit ($250 deductible;xx
50% coinsurance; $1,250 maximum
($2,750 total spending)). This benefit
cannot be included in any new policy
sold after December 31, 2005.
Extended drug benefit ($250x
deductible; 50% coinsurance; $3,000
maximum ($6,250 total spending). This
benefit cannot be included in any new
policy sold after December 31, 2005.
* Plan F and Plan J may also be available as high-deductible plans.
** A benefit period begins when a beneficiary enters a hospital and ends when he or she has not been in a hospital
or skilled nursing facility for 60 days.
New Plan Options. MMA established two new standardized plan options
which are known as Plan K and Plan L. There are two key differences between the
benefits included under the new options and those offered under Plans A-H. First,
Plans K and L pay less than 100% of beneficiary cost-sharing until spending reaches
a specified level. Second, once spending reaches the annual out-of-pocket limit, the
policy covers 100% of Medicare Part A and B cost-sharing charges for the remainder
of the year. Note that neither plan includes any coverage for Part D cost-sharing.
(See Table 3.)
Table 3. Portion of Cost-Sharing Charges Paid Under
Standardized Plans K and L
BenefitsPlan KPlan L
Part A hospital deductible. ($992 in 2007)50%75%
Part A hospital care. Part A hospital coinsurance for100%100%
days 61-90 in a benefit period.* ($248 a day in 2007)
and 60 lifetime reserve days ($496 a day in 2007); 365
days of hospital care after exhaustion of Medicare
Skilled nursing facility care. Billed charges up to50%75%
coinsurance amount coinsurance ($124 a day in 2007)
for days 21-100 in a benefit period.
Hospice care. Nominal cost-sharing50%75%
Blood deductible. First three pints50%75%
Part B deductible. $131 in 2007not coverednot covered
Part B cost-sharing. Generally 20% coinsurance50%75%
Cost-sharing for Medicare Preventive Services.100%100%
Annual out-of-pocket limit. Coverage of all Part A$4,140 limit$2070 limit
and Part B cost-sharing once beneficiary has reachedin 2007;in 2007;
limit.**$4,440 in$2,220 in
(indexed in(indexed in
future years)future years)
* A benefit period begins when a beneficiary enters a hospital and ends when he or she has not been
in a hospital or skilled nursing facility for 60 days.
** Payments for excess charges do not count toward the out-of-pocket limit.
Other Plan Types. Some Medicare beneficiaries may be able to purchase
Medigap policies not meeting the requirements applicable for standardized plans.
Waivered States. The standardized plans do not apply to residents of
Massachusetts, Minnesota, and Wisconsin. These states operated their own
simplification programs prior to the enactment of the standardization requirements
and were allowed to continue these programs. They were, however, required to
modify their regulatory programs to come into compliance with the MMA
Pre-Standardized Plans. Beneficiaries first purchasing Medigap policies
prior to July 30, 1992 may continue to renew such policies provided the insurer keeps
offering them. However, the insurer may not sell these policies to any new enrollees.
There is considerable variation among the benefit packages offered by these pre-
SELECT. Medicare SELECT is a type of Medigap policy which is available
in some states. A SELECT policy is one of the 10 standardized policies A-J.
However, purchasers of SELECT policies are required (except in an emergency) to
obtain care through specified hospitals and doctors in order to have the SELECT plan
pay its share of costs. (Medicare always pays its share of costs regardless of whether
or not the provider is or is not a SELECT provider.)
Policy Selection; Interaction with Medicare Part D Choices
Individuals purchase Medigap policies based on decisions relating to health care
needs and policy costs. As a result of the enactment of MMA, individuals who
previously had Medigap policies with drug coverage (Medigap Rx policies) had to
make some decisions regarding their coverage after December 31, 2005. Medicare
RX polices were defined as Plans H, I, and J, prestandardized policies with drug
coverage, and Medigap policies with drug coverage riders.
MMA established specific rules relating to Medigap policies and drug coverage.
New Medigap Rx policies could no longer be sold after December 31, 2005. Further,
drug coverage had to be eliminated from polices for persons who enrolled in a drug
plan under Part D. This included Medigap policies with a separate drug coverage
rider. Medigap issuers had to provide a written disclosure notice to each person who
had a Medigap Rx policy. Individuals receiving the notice had several choices. They
could enroll in a drug plan under Part D and keep their existing Medigap policy with
the drug coverage removed (and an appropriate adjustment made to their premium).
If they enrolled in a Part D plan during the initial enrollment period (which closed
May 15, 2006), they also had a guaranteed right to buy another plan from the same
issuer. They could buy Plan A, B, C, F, K, or L if these plans were offered by the
issuer and available to new enrollees.
If an individual did not enroll in Part D during the initial enrollment period, he
or she could keep their existing Medigap Rx policy. However, the individual lost the
right to buy another Medigap policy on a guaranteed issue basis. Further, there are
consequences if the individual subsequently decides to enroll in Part D. First, the
individual can only enroll in Part D during an annual open enrollment period
(November 15-December 31for the following year). Second, the individual will be
subject to a delayed enrollment penalty (i.e., premium surcharge) unless the Medigap
Rx policy is considered to have creditable coverage (i.e., meet the standard for
actuarial equivalence, that is, having the same or greater dollar value, as Part D
CMS stated that Medigap issuers were responsible for determining if their
policies met the requirements for creditable coverage. It stated that it could not offer
guidance for the likelihood that any particular prestandardized policy or policy in a
waivered state would meet the requirements. However, it determined that no
Medigap policy H or I could qualify. Further, it was possible, but unlikely that a Plan
J would qualify.
The law contains certain requirements relating to enrollment in Medigap plans.
In certain cases, beneficiaries are guaranteed the right to enroll in specified Medigap
plans under certain conditions. These are known as guaranteed issue provisions.
Six-Month Open Enrollment. Federal law establishes an open enrollment
period for the aged. All insurers offering Medigap policies are required to offer open
enrollment for six months from the date a person first enrolls in Part B (generally
when the enrollee turns 65).5 During this time an insurer cannot deny the issuance,
or discriminate in the pricing of a policy because of an individual’s medical history,
health status or claims experience. This requirement is known as guaranteed open
If an individual applies for a Medigap policy after the open enrollment period,
the company is permitted to use medical underwriting. This means that the company
can use an individual’s medical history to decide whether or not to accept the
application and how much to charge for the policy.
There is no guaranteed open enrollment period for the non-aged disabled
population. However, when a disabled person turns 65, that individual has the same
open enrollment period as other aged persons.
Guaranteed Issue. The law guarantees issuance of specified Medigap
policies (without an exclusion based on a pre-existing condition) for certain persons
whose previous supplementary coverage was terminated. Guaranteed issue also
applies to certain persons who elect to try out a Medicare Advantage plan. In these
cases, individuals are guaranteed issue of specific Medigap plans (generally A, B, C,6
F, K or L) that are sold to new enrollees by Medigap insurers in the state. The
insurer is prohibited from discriminating in the pricing of such a policy on the basis
of the individual’s health status, claims experience, receipt of health care or medical
condition. This right must be exercised within 63 days of termination of other
Table 4 summarizes the guarantee issue protections of the law. Under certain
very specific conditions, these protections apply to persons who lose coverage under
employer-based plans, Medicare Advantage plans, or other Medigap plans. Table
5 Some persons who turn 65 and are still working may delay enrollment in Part B. The
six-month enrollment period for these individuals would not begin until they actually
enrolled in Part B.
6 Note that Plans B, C, F, K, or L may not be available in a particular state.
4 highlights the event that triggers these protections, the time period during which an
affected individual can enroll in a Medigap plan, and the types of Medigap plans that
Table 4. Guarantee Issue Protections
Last day to apply for Medigap
Current coverage; trigger eventFirst day to apply for Medigapunder guaranteed issue provisionsunder guaranteed issueMedigap plans guaranteed
individual enrolled under a plan that provides benefitsDate received notice of termination or63 days after the latest of: dateA, B, C, F, K, or L
pplementing Medicare and the plan terminates or ceases tocessation of benefits (in some casescoverage ends, date on termination
ovide all such supplemental benefitsthis could be in a letter saying that anotice (if provided), or date on
claim has been denied becauseclaim denial (if this is the only way
coverage has ended).individual knows coverage is
e nd i ng)
edicare Advantage (MA) plan
Plan leaves area or stops providing coverage. AnIn case of involuntary termination, the63 days after coverage endsA, B, C, F, K, or L
iki/CRS-RL31223ividual enrolled with a MA plan* whose enrollment isdate the termination notice is received.
g/wcontinued because the plan’s certification has beenIn the case of voluntary disenrollment,
s.orminated (or there is an impending termination) or the plan is60 days before the effective date of
leaking the Medicare program or is no longer providingerage in the individual’s service area. (See also C and D,disenrollment.
://wikiich may apply in these cases)
http Enrollee moves. The individual moves outside of theIn case of involuntary termination, the63 days after coverage endsA, B, C, F, K, or L
tity’s* service area.date the termination notice is received.
In the case of voluntary disenrollment,
60 days before the effective date of
d isenr o llment.
Medicare Advantage trial. An individual was: (1)In case of involuntary termination, the63 days after coverage endsFormer Medigap policy (If the
rolled in a Medigap policy; (2) subsequently terminateddate the termination notice is received.same policy is no longer sold by
rollment in that policy and enrolled in a MA organization* forIn the case of voluntary disenrollment,the insurer, the guarantee is for
irst time; and (3) then terminated enrollment with the MA60 days before the effective date ofplans A, B, C, F, K, or L)
ganization within 12 months.**disenrollment.
A enrollment upon turning 65. An individual, uponIn case of involuntary termination, the63 days after coverage ends or endAny Medigap policy
ning 65 and becoming eligible for Part A, joins a MA plandate the termination notice is received.of six-month open enrollment
d subsequently leaves the plan*** within 12 months.**In the case of voluntary disenrollment,period, whichever is later
60 days before the effective date of
d isenr o llment.
Last day to apply for Medigap
Current coverage; trigger eventFirst day to apply for Medigapunder guaranteed issue provisionsunder guaranteed issueMedigap plans guaranteed
Entity fails to meet contract obligations. The individualIn case of involuntary termination, the63 days after coverage endsA, B, C, F, K, or L
to disenroll with a MA organization* due to cause (fordate the termination notice is received.
ample, the marketing materials were misleading or qualityIn the case of voluntary disenrollment,
ndards were not met).60 days before the effective date of
d isenr o llment.
Bankruptcy or insolvency of issuer. An individualEarlier of the date that the notification63 days after coverage endsA, B, C, F, K, or L
rolled under a Medigap policy if enrollment ceases because ofof termination is received or the date
kruptcy or insolvency of the issuer or because of otherthe coverage ends
oluntary termination of enrollment and there is no provision
iki/CRS-RL31223er state law for continuation of such coverage.
g/wCause. The individual disenrolls because the issuer violated60 days before disenrollment date 63 days after coverage endsA, B, C, F, K, or L
s.oraterial provision of the policy or materially misrepresented
://wikirollment in Part D
httpdividual was enrolled with a Medicare Rx plan, receivedDate individual received notice63 days after effective date ofA, B, C, F, K, or L
tice from issuer during the required notice period (Septemberindividual’s Part D coverage
November 15, 2005); elected to enroll in Part D
ring initial enrollment period (November 15, 2005-May 15,
d therefore terminated Medigap Rx enrollment.
lso applies to (1) Programs of All-Inclusive Care for the Elderly (PACE) program (for persons 65 or older) that covers Medicare benefits and certain long-term care services; (2)
ealth maintenance organization cost contracts; (3) Medicare managed care demonstration projects; and (4) Medicare SELECT plans if there is no provision under applicable
law for continuation or conversion of coverage under such policy.
n general, the guarantee only applies if the individual was never previously enrolled in a MA or similar plan. However, special rules apply if an individual enrolls for the first time
a MA organization and was in the plan less than one year before the plan left the program or stopped giving care in the area. In this case, the individual may enroll in another
plan for up to one year and still keep the right to return to his or her old Medigap policy.
lso applies to enrollees in a PACE program.
Pre-Existing Condition Exclusions. For purposes of Medigap, pre-
existing conditions are defined as those diagnosed or treated during the six months
immediately preceding the start of a Medigap policy. At the time insurers sell a
Medigap policy they are generally permitted to limit or exclude coverage for services
related to a preexisting health condition. Such pre-existing condition exclusions
cannot be imposed for more than six months. However, preexisting limitations may
not be imposed at all in the following cases:
!Any individual who falls into one of the qualifying events categories
discussed above under “Guaranteed Issue.” These include persons
whose previous coverage was involuntarily terminated or persons
who elect to try out Medicare Advantage.
!During the first six-month open enrollment period, if on the date of
application, the individual had at least six-months of health
insurance coverage meeting the definition of “creditable coverage”
under the Health Insurance Portability and Accountability Act. If the
individual has less than six months of creditable coverage, the
waiting period is reduced by the number of months of creditable
coverage. (Note that the insurer may impose a pre-existing
exclusion limitation if the individual did not have such creditable
!An individual who met the pre-existing condition limitation in one
Medigap policy. The individual does not have to meet the
requirement under a new policy for previously covered benefits;
however, an insurer could impose exclusions for newly covered
benefits (i.e., for at-home recovery if not covered under the previous
The prohibition applies to persons who had coverage under a prior policy for at
least six months. If the individual has less than six months prior coverage, the policy
must reduce the pre-existing exclusion by the amount of the prior coverage.
Implications of guaranteed issue protections. The guaranteed issue
provisions apply only to policies actually offered by insurers. For example, Plans
“B,” “C” or “F” may not actually be available in a particular state.
While beneficiaries leaving a terminating MA plan may be able to obtain
Medigap coverage, their out-of-pocket expenditures are likely to increase. First, they
will have to pay the Medigap premium. Second, they may have to pay out-of-pocket
for some services previously covered by the managed care plan but not covered under
original Medicare or their Medigap policy. Finally, it is possible that the drug
coverage available through a stand-alone Part D drug plan may be more expensive
than that available through the MA plan.
The guaranteed issue protections (except for the one for persons who try MA
upon turning 65 and disenroll within 12 months) apply to both aged and disabled
Medicare enrollees. However, not all disabled persons will be able to take advantage
of them because many Medigap insurers do not market to the under-65 population,
nor does federal law require these insurers to market to the disabled. However, a
number of states have instituted requirements guaranteeing access to Medigap
coverage for at least some of the disabled; beneficiaries in these states may be able
to take advantage of state rules.7
Policy Renewal. Standardized policies are guaranteed renewable. Insurance
companies in some states may refuse to renew prestandardized policies. If a
company makes a nonrenewal decision, it must cancel all policies of the same type
in the state. The affected individuals have the right to purchase a Medigap Plan A,
B, C, F, K or L sold in the state.
The law and regulations contain a number of additional provisions relating to
the sale of Medigap policies. Appendix A provides an overview of these
requirements including those relating to state regulatory programs, Medigap policies
and policy issuers, and policy sales.
There is wide variation in Medigap premiums nationwide. This reflects a
number of factors including differences in the benefits of Plan A through Plan L (as
well as differences in non-standardized policies), differences in underwriting
practices, and the difference in pricing structures. Medigap insurers typically use one
of three pricing mechanisms — age at issue (which bases the premium on the
policyholder’s age when they first sign up), attained age (which bases the premium
on the current age of the policyholder), or community rating (under which all
policyholders pay the same rate). Attained age policies, which are rapidly becoming
the norm, generally offer good rates to younger enrollees; however, premiums go up
significantly as the policyholders age. Community-rated policies, are not widely
The last available survey of Medigap premiums is for 2005, the year before
implementation of the Part D drug benefit. The survey, conducted by Weiss Ratings,8
Inc. found wide disparities in rates. Not only were there substantial variations
between geographic regions, but there were also dramatic differences for individuals
purchasing identical plans in the same location. There were significant differences
between the minimum and maximum premium for each policy type. For example,
for Plan C, one of the most popular plan types, premiums ranged from $651 to
7 The Centers for Medicare and Medicaid Services (CMS, the agency that administers
Medicare) reports that in 2007 the following states require insurance companies to offer at
least one kind of Medigap policy during a special open enrollment period to people with
Medicare under age 65: California, Colorado, Connecticut, Hawaii, Kansas, Louisiana,
Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New Jersey,
New York, North Carolina, Oklahoma, Oregon, Pennsylvania, South Dakota, Texas,
Vermont, and Wisconsin.
8 This survey is no longer conducted.
$9,798, with an average premium of $1,766. For Plan F, the other most popular plan
type, premiums ranged from $516 to $10,799, with an average premium of $1,756.9
Currently, the major issues facing Medigap are the types of policy options
provided to Medicare beneficiaries.
Standardized Plan Options
The Omnibus Budget Reconciliation Act of 1990 (OBRA 90, P.L. 101-508)
assigned the federal government responsibility for regulating Medigap policies. This
legislation was enacted in response both to widespread marketing abuses in the sale
of supplemental policies and consumer confusion with the wide array of policy
choices. Among other things, OBRA 90 provided for the standardization of
For a number of years, observers suggested that the existing standardized Plans
A-J over-emphasized first-dollar coverage (namely coverage of Medicare’s cost-
sharing charges) which many beneficiaries could potentially budget for. The plans
included no out-of-pocket protection for Medicare cost-sharing charges. Further,
they provided limited or no protection for services not covered by Medicare such as
long-term care services.
Another consideration was the impact of private coverage on Medicare
spending. Some studies estimated that Medicare spending for beneficiaries with
supplemental coverage was significantly higher than expenditures for those without
such coverage.10/11 Higher Medicare spending reflected higher overall use of
services. High service use among those with private supplementary coverage
(particularly Medigap) appeared to be a direct consequence of having such insurance.
Beneficiaries who faced little or no out-of-pocket costs at the time they used services,
even though they paid an often substantial monthly premium for Medigap, may have
perceived the services to be free. Comparison of service use between those with and
without private supplementary coverage suggested that there may be some
10 A review of 1995 data by the Physician Payment Review Commission (PPRC) showed
that Medicare spending for Medicare beneficiaries having Medicare coverage only was less
than 75% of that for beneficiaries with Medigap. Medicare beneficiaries with employer-
provided benefits averaged 10% less than that for persons with Medigap. (Physician
Payment Review Commission, Annual Report to Congress, 1997, Washington, 1997.
11 A study of 1994 data reported that Medicare enrollees with Medigap used 28% more
services (both inpatient and outpatient) than those with no supplementary coverage, while
those with employer-based coverage used 17% more. The authors attributed the differences
to the fact that Medigap plans often covered all of Medicare’s cost-sharing charges, while
employer-based plans typically did not. (Sandra Christensen, and Judy Shinogle, “Effects
of Supplemental Coverage on Use of Services by Medicare Enrollees,” Health Care
Financing Review, vol. 19, no. 1 [fall 1997], 5-17).
overutilization of services. However, some of the increase may represent appropriate
These observations prompted a number of recommendations for change. Some
observers recommended that the standardized plans should be prohibited from
offering first-dollar coverage for Medicare’s cost-sharing charges. Medigap policies
would begin paying only after the beneficiary had incurred some out-of-pocket
costs.12 This approach would be expected to make beneficiaries more cost conscious
in their use of services and thereby hold down Medicare’s expenditures. Proponents
asserted that Medigap premiums should drop and therefore become more affordable.
Other observers noted that the elderly are risk adverse and may not want to be liable
for any out-of-pocket costs. Further they argued that beneficiaries might forgo
needed medical services because they would be unable to pay the cost-sharing
MMA provided for the establishment of two additional plan types which may
be sold as Medigap policies. Unlike Plans A-H, these plans include significant
beneficiary cost-sharing coupled with a catastrophic limit on out-of-pocket costs.
The legislation did not however, eliminate existing beneficiary choices. They are still
able to purchase Plans A-H (with the requisite modifications in Plans H, I, and J).
In theory, insurers should be able to offer these policies for lower premiums,
thereby attracting some purchasers. However, the risk adverse nature of the elderly
population may encourage them to continue purchasing plans that offer coverage for
most out-of-pocket costs.
There are also questions relating to the interaction of Part D with Medigap
purchase decisions. It is possible that with the addition of drug coverage under Part
D, and the accompanying premium, some beneficiaries may elect to forgo Medigap
entirely. Data are not available to answer these questions.
MMA required the Secretary to request the NAIC to review and revise the
Medigap benefit packages, taking into account changes made by the new law. The
NAIC announced its recommendations in March 2007. The recommendations as
described by the NAIC would:
!Eliminate unnecessary and duplicative plans by eliminating Plans H,
I, and J (which contained drug benefits) and Plan E (which becomes
identical to another plan).
!Add 2 plan options with higher cost-sharing and lower estimated
12 These out-of-pocket costs would, however, be considerably less than under the high
deductible plans discussed earlier.
!New Plan M would include 50% coverage of the Medicare Part A
deductible and not cover the Part B deductible;
!New Plan N would not cover the Part B deductible and would add
a copayment of $10 for each physician visit and $50 for each
emergency room visit (waived upon admission to the hospital)
!Modernize certain benefits:
!Eliminate at-home recovery benefit (currently offered under Plans
D, G, I, and J) and substitute hospice benefit in all plans
!Eliminate preventive care benefit (in Plans E and J) in recognition
of additions to Medicare over the years;
!Increase the 80% Part B excess benefit (under Plan G) to 100%.
The NAIC cautioned that these changes would require federal action before they
could be implemented.
Children’s Health and Medicare Protection (CHAMP) Act
CHAMP (H.R. 3162), passed by the House on August 1, 2007, contains a
number of Medicare provisions.13 Section 907 of the bill would require the Secretary
to accept the recommendations made by the NAIC in March 2007, as further
modified by CHAMP. The section would require policy issuers to offer, in addition
to the core package, at least policies classified as “C” or “F.” The provision would
also eliminate policies classified as “K” and “L,” which were added by MMA.
As of this writing, the Senate has not considered a Medicare package this year.
At this time, it is unclear how Congress will proceed on any Medicare legislation.
13 Subsequently, Congress passed H.R. 976, which incorporated provisions relating to the
state health children’s health insurance program (SCHIP). The SCHIP provisions were a
revised version of the comparable provisions contained in CHAMP.
Appendix A: Requirements for State Regulatory
Programs, Policy Issuers, and Insurance Sales
The law states that no Medigap policy may be issued in a state unless: (1) the
state’s regulatory program has been approved by the Secretary of the Department of
Health and Human Services as providing for the application and enforcement of the
National Association of Insurance Commissioners’ (NAIC’s) Model Standards; or
(2) (if the state’s program has not been approved), the policy has been approved by
the Secretary as meeting the standards. CMS published a Notice in the Federal
Register on March 25, 2005, which recognized the latest version (with clarifications)
adopted by the NAIC on September 8, 2004.
The following sections detail the requirements applicable to state regulatory
programs, Medigap policies and policy issuers, and sellers of Medigap policies.
Requirements Applicable to State Regulatory Programs
In order to approve a state regulatory program established under state law, the
Secretary must determine that it:
!provides for application and enforcement of standards equal to or
more stringent than the NAIC standards;
!includes specified requirements for policies and policy issuers at
least as stringent as those specified in law;
!provides that either information on loss ratios (i.e., ratios of
aggregate benefits to premiums) will be reported to the state on
forms conforming to NAIC standards or such ratios will be
monitored in an alternative manner approved by the Secretary;
!provides for application of these standards (specified in the previous
three items) to all Medigap policies issued in the state;
!provides to the Secretary, at least annually, a list of policy issuers
including changes from previous report;
!reports to the Secretary on implementation and enforcement of
standards, and information on loss ratios of policies sold, at intervals
established by the Secretary;
!provides a process for approving or disapproving premium increases
and establishes a policy for the holding of public hearings prior to
approval of a premium increase; and
!provides for application of standards for Medicare SELECT policies
(which may limit items and services furnished by certain entities or
reduce benefits when items and services are furnished by other
entities) that are at least as stringent as those established in law.
The Secretary is required to periodically review state programs to determine if
they continue to meet the standards. If a state fails to meet requirements, it is given
the opportunity to adopt a correction plan. If the Secretary makes a final
determination that the regulatory program fails to meet the standards and
requirements, the state would no longer be considered to have a program meeting
such requirements. Medigap policies are not considered to meet the standards for
state programs unless the policy issuer provides a copy of any advertisement to the
Commissioner of Insurance (or other comparable officer) for review or approval, to
the extent required by state law.
Requirements for Policies and Policy Issuers
The following minimum standards apply to policies or policy issuers:
!the policies meet or exceed NAIC model standards (with certain
exceptions for SELECT policies) ;
!the policies meet minimum loss ratio standards of 75% for group
polices and 65% for individual policies and provide for refunds
where appropriate to meet these standards;
!the policy issuer accepts a notice from the Part B carrier for a claim
from a participating physician or supplier as a claim for Medigap
benefits, provides appropriate notice to the physician or supplier and
beneficiary on the claim, provides each enrollee with a card listing
where the notice is to be sent, and agrees to pay any user fees
established for transmittal of information;
!the policy issuer permits full refund of premiums for at least 30 days
!each policy meets standards relating to benefits;
!each policy is guaranteed renewable;
!policies provide, on the request of a policyholder, for the suspension
of premiums and benefits when a policyholder becomes eligible for
Medicaid and reinstatement if it is requested during the first 24
months and within 90 days of the loss of Medicaid;
!policies provide, on the request of a disabled policyholder, for the
suspension of premiums and benefits if the beneficiary is eligible
under a group health plan and reinstatement if the policyholder
provides notification of loss of group coverage within 90 days;
!issuers of replacement policies waive any time periods applicable to
pre-existing conditions to the extent time was spent under the
original policy for similar conditions;
!pre-existing condition exclusions are not applied for longer than six
!policies comply with six-month open enrollment requirement for
persons turning 65; and
!policies comply with guaranteed issue provisions for persons in
specified circumstances (such as involuntary loss of other coverage).
The standards relating to benefits specify that with limited exceptions no more
than 12 different specified benefit packages (plus two high deductible packages) may
be offered in all states and by all insurers. One package must cover only a “core”
group of basic benefits and nine others must include the core benefits. Two policy
types added by MMA differ from the other 10 options by eliminating first-dollar
coverage for most Medicare cost-sharing. and including an annual out-of-pocket limit
on Medicare cost-sharing charges.
All insurers offering any of the Medigap policies for sale other than the core
plan must also offer the core plan. Uniform language, definitions, and format are to
be used in the policies to facilitate comparison among Medigap policies and with
Medicare. The following exceptions apply: (1) states that have received a waiver
because they had a stringent regulatory program in effect prior to standardization may
provide different benefit packages (applies only in Massachusetts, Minnesota, and
Wisconsin); (2) states may approve the addition of new or innovative benefits to an
otherwise approved plan; and (3) while a state must approve a core plan for sale, it
does not have to permit all of the other plans to be sold in the state.
Medicare SELECT policies are considered to meet benefit requirements if:
!full benefits are provided for services furnished through network
!full benefits are provided when furnished by other entities if
medically necessary and immediately required;
!the network offers sufficient access;
!the issuer of the policy has arrangements for an ongoing quality
!each enrollee is provided information on the policy’s coverage and
limitations, and each enrollee acknowledges receipt of this
!the issuer makes available any other Medigap policy otherwise
offered by the issuer in the state.
Insurance Sales Provisions
The law contains a number of provisions relating to Medigap sales practices and
includes penalties for failure to meet these requirements.
Anti-Duplication. The law contains anti-duplication provisions. Under these
provisions it is unlawful to sell:
!a health insurance policy with the knowledge that it duplicates
benefits under Medicare or Medicaid;
!a Medigap policy to an individual (not enrolled in Medicare
Advantage with knowledge that the individual is entitled to benefits
under another Medigap policy, or in the case of a MA enrollee, with
knowledge that the benefits duplicate MA benefits or benefits under
another Medigap policy; or
!a health insurance policy (other than a Medigap policy) with
knowledge that the benefits duplicate benefits to which the
individual is otherwise entitled except as required by state or federal
A health insurance policy is not considered to duplicate benefits if it pays for
benefits without regard to other coverage. A health insurance policy is also
considered not to duplicate benefits if it: (1) provides health care benefits only for
long-term care, nursing home care, community-based care or any combination of
these; (2) coordinates against or excludes items and services available or paid for
under Medicare or another health insurance policy; and (3) discloses such
coordination or exclusion in the policy’s outline of coverage.
Disclosure Statement. Medicare beneficiaries applying for health insurance
must be furnished a disclosure statement containing specified language including the
statement that the policy is not a Medigap policy. This requirement is not applicable
to: Medigap policies; those policies, described above, which are not considered to
duplicate benefits; or certain polices enumerated in regulations (including policies
that do not duplicate Medicare even incidentally, life insurance policies, disability
insurance polices, property and casualty policies, and employer and union group
It is unlawful to sell a Medigap policy unless the seller obtains a signed
statement from the applicant detailing the other insurance the individual has. The
statement is to be on a form that states that:
!a Medicare beneficiary needs only one Medigap policy;
!a beneficiary eligible for Medicaid usually does not need a Medigap
policy and that benefits and premiums can, at the request of the
policyholder be suspended for up to 24 months and be reinstituted
upon loss of Medicaid entitlement (see above); and
!counseling services may be available in the state to assist the
Selling a policy to an individual who indicates in the statement that they have
a another Medigap policy is considered a violation of the anti-duplication provision
unless the individual indicates that they intend to terminate their other Medigap
policy. Selling a policy to an individual who indicates in the statement that they have
Medicaid coverage is considered a violation of the anti-duplication provision unless:
(1) the state pays the Medigap premiums; or (2) the only Medicaid coverage the
individual is entitled to is payment of Medicare Part B premiums.
Sanctions. The law contains sanctions provisions for persons violating the
anti-duplication and disclosure requirements. Specifically penalties are established
!making false statements or misrepresentation of material facts;
!pretending to be acting on behalf of any federal agency;
!violating anti-duplication provisions;
!failing to furnish the required disclosure statement;
!violating requirements relating to obtaining a signed statement from
the applicant; and
!advertizing or soliciting through the mails a policy which has not
been approved in the state.
The law includes additional sanctions related to selling of policies which fail to
meet specific requirements. Penalties are established for anyone issuing a policy in
a state unless the state’s regulatory program provides for the application and
enforcement of the NAIC standards. Penalties are also established for anyone who
sells a Medigap policy: (1) in violation of the requirements relating to standardized
benefits and guaranteed renewal; (2) without making available a policy offering only
the core benefits or failing to provide the applicant an outline of the coverage
provided; or (3) which fails to comply with provisions relating to suspension of
policies for Medicaid beneficiaries or disabled beneficiaries with group health
coverage. Penalties are also provided for failure to make refunds to policyholders
when required to meet loss ratio requirements.
Issuers of SELECT policies are subject to penalties if they fail to substantially
provide medically necessary items and services, impose premiums in excess of those
approved by the state, expel an enrollee for reasons other than non-payment of
premiums, or do not provide the enrollee the requisite explanation of benefits at the
time of application.
It is also unlawful to sell a health insurance policy to an individual with the
knowledge that such individual has elected a Medicare medical savings account
(MSA) or a MA private fee-for-service plan. Certain types of policies such as
liability policies, policies for specified diseases, or policies paying a specified amount
per day for hospitalization are exempt form this prohibition.
The Secretary is required to provide to beneficiaries (and to the extent feasible,
persons about to become beneficiaries) information: (1) to help them evaluate
Medigap policies; (2) about actions subject to sanctions under the duplication and
disclosure provisions; and (3) listing addresses and telephone numbers of state and
federal agencies who can assist them with selection of Medigap policies.