Revised 11/2005
Regulating Medigap Policies
Lost
What could I do? he had me dead to right;
Him with a gun, I dared not run or fight.
He was the sheriff, me a lone cowpoke;
Quite a bit hungry, a lot more broke.
He said Put up your hands, come out slow.
I did as he told me, had no place to go.
I stumbled over sage like in a dream;
Looked at his face, knew he was mean.
All right, Red, put your hands in back.
Roped me up tight, took in the slack.
Youre a mean hombre, so hit the trail;
Jail house for you, no chance for bail.
Pointed the way with barrel of his gun;
Slouched along, wondering what I had done.
We hadnt gone far til he said, All right,
Camp close by; well stay here tonight.
He got off his horse, then untied the rope.
I felt less fear and a little more hope.
Some fellows came up, had a picture machine.
Said Thanks boys, thats a darn good scene.
Sheriff said, Red, you have what it takes.
I can make you a star with a few good breaks.
Now, most extras never learn how to act;
You looked scared; now thats a fact.
So, I got on the payroll, dont ask me how.
Making pictures easier than chasing a cow.
Been the same in every picture Ive made.
I act the parts right, for I still am afraid.
by Purdy Conrad
Medicare Supplement Policy Regulation
Although Medicare supplemental policies are now regulated
by federal standards, that was not always the case. The Claude Pepper
hearings of 1978, plus revelations made during "sting" operations
conducted in
Early Minimum Standards
At that time, they set forth these minimum standards for Medicare supplemental insurance policies:
1. A policy must cover the hospital copayments from the 61st day of confinement through the 150th day.
2. A policy must cover 90 percent of hospital expenses for an additional 365 days after Medicare benefits end in the hospital. When the 150 days are combined with the 365 days, the patient ends up with 515 consecutive days of confinement covered in the hospital.
3. A policy must cover the 20 percent copayment of Medicare's approved charges for Part B services. A $200 deductible was allowed at that time under the federal guidelines. A $5,000 limit could also be imposed at that time on the total payout per calendar year.
4. A policy could not have more than a six-month wait on preexisting conditions. A preexisting condition was determined by the previous six-month period. Medication was then and is still today considered to be treatment.
5. A policy had to give at least a 10-day "free look." Mail-order policies had to give a 30-day "free look" on Medicare supplemental policies.
6. The terms of the policy had to be clearly disclosed.
7. A policy had to be designed to pay out in benefits at least 60 percent of the amount of money taken in from the premiums. Under group policies, at least 75 percent had to be paid out in benefits.
It is important to note that these requirements applied only to Medicare supplemental policies commonly called Medigap policies. The requirements did not apply to burial plans, medical surgical plans or any other type of policy.
Early Medicare Supplements Had Common
Traits
Following this legislation, most Medigap policies had several things in common:
1. They paid for the first day deductible in the hospital under Part A of Medicare.
2. As required by federal regulations, they paid all hospital copayments beyond the first 60 days of confinement and an additional 365 days of confinement at 90 percent for a total of 515 days of hospitalization.
3. As required by Federal regulations, they paid the 20 percent copayment for Part B services.
4. They paid the Medicare copayment in a skilled nursing facility for skilled nursing care. After 100 days, Medicare paid no further benefits and, therefore, typically no Medicare supplemental policy would pay anything more either.
In addition, the Medicare supplemental policies may have had limitations of:
1. A $200 Part B deductible, which the patient had to pay before the insurance supplement would pay anything on the doctor's charges. That $200 could be on the approved charges or it could be on the excess charges (the amount above what Medicare had termed "allowable").
2. A calendar year maximum benefit of $5,000 on the Part B copayments.
Additional state and federal legislation has followed from time to time.
Current Medigap Requirements
Current federal legislation was enacted in an attempt to standardize Medicare supplemental insurance policies. The purpose of the changes in the federal standards for Medigap polices are:
1. To limit policy forms to specified standardized packages, as determined by Congress,
2. To establish new disclosure requirements,
3. To establish new filing requirements,
4. To establish regulatory oversight for Medicare Select Polices, and
5. To clarify the existing prohibition on attained age ratings.
The Goal
of Supplement Policy Standardization
The point of standardization was to make choosing a Medicare supplemental insurance policy easier for the general consumer. The standardized policies offer many seniors the same or better benefits than they had previously (before standardization took effect). It is possible that many seniors still have their old policies and have never updated them to one of the newer standardized plans, but the majority of policies will conform to one of the twelve standardized forms (originally there were ten standardized forms).
In the past, price comparisons were nearly impossible since benefits were stated so differently from company to company. This was often true of various plans within the same company, as well as competing companies. With standardized plans, price comparisons became relatively easy. It is hoped that standardizing plans will prevent agents from moving their clients from company to company unless the moves are truly beneficial for the policyholder.
Prescription Drug Coverage and Part B
Excess Charge Coverage
The two areas that were especially well received were the coverage for prescription drugs and coverage for "excess charges" on Part B services. An excess charge is the amount charged above what Medicare has allowed. At the time of standardization it was estimated that only 15 percent of Medigap policyholders were covered for prescription drugs and only about 5 percent were covered for excess charges on Part B services.
Some insurers worried that these two benefits could be too popular. Coverage for prescription drugs added an average of $400 to the price of a policy at that time. Only those policyholders who anticipated spending over $1,050 per year on drugs would recoup their additional premium investment. That was because the benefit called for a $250 calendar year deductible and a 50 percent co-payment.
Four of the original ten standardized policies paid for coverage for excess charges on Part B services (there are now twelve plans). Many experts felt this was a good buy for Medicare beneficiaries, since a number of doctors were not accepting assignment. Not everyone agreed with this concept. As far back as August of 1994 Consumer Reports magazine stated that the opposite was true. The author of Filling the Gaps In Medicare clearly felt that Plan C was the best buy. The author stated: Plans C and F, the darlings of the insurance industry, are nearly identical, but Plan F is particularly attractive to insurers.
The article went on to state that, while it is true that many doctors did not accept assignment in the past and were allowed to charge virtually any amount they desired, since the Limiting Physician Charge, the need to have excess charges covered by an insurance policy no longer existed. It is true that the Limiting Physician Charge caps what all doctors can charge (whether they accept assignment or not) at 115 percent of the amount allowed by Medicare. In other words, if Medicare allows $70 on an original charge of $100, the most that doctors can charge is $70 times 115 percent or $80.50 maximum. Because of this charge limitation, Consumer Reports magazine felt that most consumers should be purchasing Plan C rather than Plan F.
Furthermore, Consumer Reports magazine felt that more and more physicians would be accepting assignment. In fact, according to their figures, the doctors least likely to accept what Medicare allowed (accept assignment) were family practitioners and internists. According to figures provided by the Health Care Financing Administration specialists were often accepting assignment.
The consumer must always make informed choices. That has not changed with standardization of the Medigap plans. For those consumers who are considering upgrading their current policies, it is important that they look carefully at what is being offered. New Medicare beneficiaries (those just turning 65 years old) will be given a six-month "open enrollment period" during which they may buy any policy without medical screening for preexisting conditions or discrimination based on past claims experience.
Medicare Supplement Policies Do Not
Cover Everything
It is important to note that the new standardized policies do not cover all types of care that may be needed. None of the possible choices will cover long-term nursing home care or home care, which is the largest financial expense that many older Americans face. Nor will the standardization of policies prevent, as Consumer Reports magazine noted, selecting benefits that do not fit the needs of the individual. Selection of benefits will always be the responsibility of each Medicare beneficiary.
OBRA 1990 legislation required changes in Medicare
supplemental policies, which were issued on or after
Medicare Coverage Options
There was a time when agents representing Medicare products merely had to select the insurance company and products they felt were most reliable. Todays Medicare beneficiaries have many more choices. Medicare now works with private companies allowing additional options. As of January 2006 there is also prescription drug coverage available through private insurers approved by Medicare. The plan chosen by the Medicare beneficiary will affect the amount of premium they pay to private insurers and the benefits that will be covered.
The
Original Medicare Plan:
This is the fee-for-service plan that agents may be most familiar with. It allows the participant to go to any doctor of their choice without referrals from a primary care physician. The beneficiary remains on Medicare, without assigning it over to any care provider (as would be required for an HMO participant, for example). An individual will be on the Original Medicare Plan unless they choose to join a Medicare Advantage Plan or other type of health care service.
The Original Medicare Plan is managed by the Federal Government. To participate:
1. The participant would use their red, white, and blue Medicare card when health care services are received. The health care provider will send the claim in to Medicare for their patients.
2. If the participant has Medicare Part A, as most do, he or she will receive all Part A-covered services available through Medicare.
3. If the participant has Medicare Part B, which must be purchased by the beneficiary, he or she will receive all Part B-covered services. The monthly fee for Part B changes from year to year; it will be deducted from the participants Social Security income payments.
4. The participant may go to any doctor or supplier that accepts Medicare and is accepting Medicare patients, or to any hospital or other facility.
5. There will be deductibles that the patient would pay if he or she does not have a Medicare supplemental insurance plan.
When a beneficiary uses a health care service, he
or she will receive a Medicare Summary Notice, called an
If the participant receives Part B drugs during the
doctor visit, such as certain cancer drugs, he or she may receive two separate MSNs for the same doctor visit. The drug-related
As we said, there are out-of-pocket costs with the Original Medicare Plan. This might be true even if the beneficiary has purchased a supplemental insurance policy. Looking just at how the Original Medicare Plan pays (separate from any supplemental policy), the participants financial costs will depend upon whether he or she has both Parts A and B (most do), whether or not the doctor or medical supplier accepts assignment (the amount of the charge allowed by Medicare), how often the participant seeks services (some services have limitations on use), and whether or not the service is covered at all by Medicare. If Medicare denies the claim entirely it is likely that any Medigap policy that was purchased will also deny the claim since these types of policies supplement what Medicare pays. Therefore, if the claim were entirely denied, Medicare would cover no portion. Therefore, there would be nothing to supplement, so the insurance policy would also deny the claim.
The term assignment is very important to the Original Medicare Plan. Assignment is an agreement from the doctor or medical supplier that they will accept as payment the amount that is approved by Medicare. Medicare pays 80% of the approved amount, so there would still be 20% remaining. Even so, the total cost of the service will be considerably less than the doctor or medical supplier would normally charge.
For Example: Mary goes to her
doctor for a medical condition. He normally charges $100 for the
visit. Medicare approves the treatment at $60 and then pays 80% of the
$60 ($48). Mary is responsible for the remaining 20% of the approved
charges plus the balance above the approved amount ($12 approved charges plus
$40 above the amount approved by Medicare or $52). If the doctor accepts
the amount approved by Medicare, he is a participating physician because he
accepts assignment. Under these circumstances, Mary would owe just the
remaining $12 of the approved charge rather than $52. If state statute
requires doctors to accept the amount approved by Medicare, they are
participating whether they really wanted to or not. Doctors do have the
choice of accepting or rejecting Medicare patients. Doctors who agree to
accept assignment are not allowed to collect more than the Medicare deductible
and coinsurance amounts from those they treat, their insurance company, or any
party responsible for the beneficiarys bills.
Where state statute allows doctors and other medical care providers to charge their normal rate, if they choose not to participate, they may then collect their normal rate from their patients and the patients insurance companies. This means they will charge more than the Medicare approved amount for the services. Balances that remain after Medicare pays will be the obligation of the patient. For most services, however, there is a limit on the amount over the Medicare-approved amount that doctors and other providers may bill the patient for. The highest amount of money that can be charged for a Medicare-covered service is called the limiting charge. The limiting charge is 15 percent over Medicares approved amount. The limiting charge applies only to specified services and does not apply to supplies and items. In addition, the beneficiary may have to pay the entire charge at the time of service. Medicare will send the beneficiary its share of the charge when the claim is processed.
It is important to note that none of these rules apply to a provider that does not participate with Medicare. While most physicians and medical suppliers do participate, they are not required to do so. If a doctor or supplier does not participate in Medicare, the patient must file his or her own claim with Medicare. Those physicians and suppliers that do participate file the claim with Medicare for the patient.
Those who elect to remain on the Original Medicare
Plan often purchase a policy to supplement it called Medigap insurance
plans. As of
In all states except
Medicare Prescription Drug Plan
As of
Medicare Prescription Drug Coverage is insurance, not a welfare program. Private companies will provide the coverage. The member chooses the drug plan and pays a monthly premium for it. The beneficiary must accept the program when first eligible. Like Part B of Medicare, if they delay joining the program, they may have to pay a penalty to join at a later date.
There are two types of Medicare plans that provide insurance coverage for prescription drugs. It will be available under Medicare Advantage Plans and other Medicare health plans. You would get all of your Medicare health care through these plans. The Original Medicare Plan and some Medicare Cost Plans and Medicare Private Fee-for-Service Plans will also have prescription drug coverage. These will be offered through private insurance companies that have been approved by Medicare. Both types of plans are referred to as drug plans in most of the Medicare literature.
Like all types of insurance, there will be a premium to acquire the prescription drug coverage. The premium cost will not waiver according to the amount of prescriptions required. Rather it will be a specified amount that will be charged regardless of how many prescriptions the beneficiary requires. However, some plans will offer more coverage at a higher cost.
Medicare drug plans will cover generic and brand name drugs. Plans may vary regarding which drugs are covered based on different drug categories. People with different medical conditions will want to pay special attention to the types of drugs covered by their plan. Plans will have a formulary (defined as a list of certain kinds of prescription drugs that a Medicare drug plan will cover, subject to limits and conditions) listing covered drugs. Although there may be variances, the list must always meet Medicares requirements. Changes may occur as new information is obtained. Plans must inform their members at least 60 days before a drug is removed fro the list or costs are increased.
A monthly premium will be charged for the prescription drug benefit. The exact cost, as well as the beneficiarys portion of the cost, will depend upon the plan chosen. Drug plans will contract with local pharmacies and beneficiaries will also be allowed to get prescriptions through the mail.
Many people who could join may not do so because
they do not currently need many prescriptions. However, it may be wise to
join even if no drugs are currently required. As we age, we are likely to
need such coverage. Joining when first eligible will insure the lowest
premium cost. Those who do not join by
While costs for the prescription drug coverage will vary, most estimate the premium to be around $37 to $40 per month in 2006. Rates are likely to increase on a yearly basis. The first $250 is the deductible that must be paid before the policy will pay anything. This is a yearly deductible. After the $250 is paid, the beneficiary will pay 25 percent of the prescription cost up to $2,250, with the insurance policy paying the other 75 percent. After $2,250 has been reached the beneficiary will pay 100% of the next $2,850 in drug costs. Then the beneficiary will pay 5 percent of drug costs or a small copayment for the rest of the calendar year after $3,600 has been paid out-of-pocket. Then the drug plan pays the rest.
Lets look at that again:
First $250 Paid by Medicare beneficiary.
From $251 to $2,250 25% is paid by the Medicare beneficiary; 75% paid by the
insurance policy.
$2,251 to $5,100 Paid entirely by the beneficiary ($2,250 +$2,850)
From $5,100 until additional $3,600 out-of-pocket: 5% paid by beneficiary with
remainder paid by insurer. After the beneficiary has paid
an additional $3,600 out of pocket, the plan will pay 100%
of the costs per calendar year.
So, the beneficiary will pay the first $250, and then 25% until a total of $2,000 has been paid out of pocket, then 100% of the next $2,850, which totals up to $5,100 paid by the Medicare beneficiary. At this point the beneficiary pays 5% of the drug costs until that 5% totals $3,600. Add that to the $5,100 already paid and the beneficiary would have to spend $8,700 before all of his or her prescription costs would be covered by the insurance policy. While this may sound like the beneficiary is paying the primary cost of their drugs, considering that many Medicare beneficiaries say their prescriptions can be a major monthly cost it may well be worth the approximately $40 premium per month. For many people, the $250 initial deduction would be met within 30 days.
It is important to stress that prescription drug coverage is insurance. It is not doctor samples, discount cards, Medicare-approved discount cards with or without the $600 credit, free clinics, or drug discount websites. We recommend that anyone interested in understanding this coverage consult with those who have special knowledge on the subject. It may also be beneficial to obtain the 2006 Medicare & You handbook provided by Medicare and Medicaid services. Most insurance companies issuing Medigap policies can also provide you with a copy.
The beneficiary must fill their prescriptions at pharmacies that belong to or are in the network of the Medicare Prescription Drug Plan that is chosen. If the participant goes to a pharmacy that is not part of the network they joined the drugs will not be covered and the beneficiary will have to pay the full cost. Each Medicare Prescription Drug Plan has a list of covered prescription drugs that might vary from plan to plan. In most cases, only drugs on this list are covered.
Medicare Advantage Plans and Other
Medicare Health Plans
These plans include Health Maintenance Organizations (HMO), Preferred Provider Organizations (PPO), and Private Fee-For-Service Plans (PFFS). They may cover more services and have lower out-of-pocket costs than the Original Medicare Plan, which is often the reason Medicare beneficiaries select them. Most of these have some limitations as to how the beneficiary chooses or seeks out medical care. For example, HMOs generally require that certain specified physicians and hospitals be utilized.
Specifically, Medicare Advantage Plans are health plan options that are part of the Medicare Program. If a beneficiary joins one of these plans, he or she will usually get all their Medicare-covered health care through that plan. They do not necessarily have the choice providers as beneficiaries do in the Original Medicare Plan. Despite this, many people prefer such plans because their coverage is broader and less expensive. It may include prescription drug, coverage and other services not otherwise available.
Under these plans, beneficiaries assign their Medicare benefits over to the organization and Medicare pays a set amount of money each month to the organization for each of their Medicare members. The organization receives this money whether no services are provided to the member or multiple services are provided. Just as private insurers rely on balancing out the costs between those who receive lots of care and those who receive little care, Medicare Advantage plans must provide the care within the scope of the money they receive from Medicare and their members.
Not all health care plans of this type are part of Medicare Advantage. However, they are still part of the Medicare program. In some of the plans the participant receives all their Medicare-covered health care within the plan. In others, they have the options of receiving a portion of their care outside of the plan (although the patient must usually pay more out-of-pocket when they go outside of the plan).
Medicare Advantage Plans include HMOs, PPOs, and PFFS plans. Under HMOs (health maintenance organizations) the beneficiary receives all of their care from primary care doctors, specialists, and hospitals that are part of the plan. The exception is emergency care, which may be received wherever necessary.
In preferred provider organizations the member pays less if they use the primary care doctors, specialists and hospitals that participate with the plan and more if they go to those outside of the plan.
In private fee-for-service plans the member can go to any primary care doctor, specialist or hospital that accepts the terms of the plans payment. The private company, rather than Medicare, decides how much it will pay and how much the member must pay.
There are also Medicare Cost Plans where the member uses primary care doctors, specialists, and hospitals from the plans network list. The member may use medical care providers that are not on the plans list. When this is the case, they are covered under the Original Medicare Plan because the member is still in the Medicare program.
When an individual joins a Medicare Advantage Plan or other type of Medicare health plan, he or she is still in the Medicare program. Each person still has the rights guaranteed to all under Medicare.
If a Medicare beneficiary joins a Health Maintenance Organization (HMO) it is important to realize that all such organizations are not the same. It is necessary to read each plan offering carefully. Generally speaking, however, there will be some similarities:
1. Most HMOs have doctors and hospitals that join the plan, called the plans network. The HMO will provide the member with a list of who they may seek care from. There may be a primary physician assigned. He or she will determine if and when a specialist may be seen by one of their members.
2. The member typically is allowed to choose their primary care physician. If one is assigned and the member is not happy with the doctor, they may usually request a transfer to a different primary care physician.
3. Doctors can join or leave an HMO. Therefore, there is no guarantee that a chosen doctor will continue to be available. However, the plan typically notifies the member in advance of the change so that he or she may chose a new doctor.
4. The HMO will not necessarily pay for care received outside of the network. Except in an emergency, an HMO member should specifically ask whether or not a service would be covered prior to seeking it. Since Medicare benefits are assigned to the HMO, it is possible that Medicare also would not cover the service. This means the patient might have to absorb the full cost of the medical service.
5. Some HMOs offer a Point-of-Service option. This allows the member to go to other doctors and hospitals that are not part of the HMO network, but usually the member must pay a larger portion of the cost.
6. Copayments and deductibles might be part of the HMO plan. Each member must read their plan manual to determine this.
As of 2006 regional PPOs (Preferred Provider Organizations) will be available in most areas to provide choices for Medicare health care coverage. Local PPOs serve individual counties, but regional PPOs will serve an entire region. A regional PPO may serve a single state or multiple states. In regional PPOs members will have an added protection for Medicare Part A and Part B benefits in the form of an annual limit on their out-of-pocket costs. The amount of the limit will depend upon the plan.
In 2005 Medicare began offering plans that offered benefits for those with special needs. Referred to as Special Needs Plans, these plans limit all or most of their membership to people in certain long-term care facilities, such as nursing homes, people eligible for both Medicare and Medicaid, and those with certain chronic or disabling conditions.
Special Needs Plans are not available in all areas. In most of the plans, there are extra benefits and lower copayments than those found in the Original Medicare Plan.
Federal and
State Statutes Rule Medicare
Most states have adopted some basic provisions:
1. No policy may be advertised, solicited or issued for delivery as a Medicare supplement insurance policy unless such policy meets or exceeds the requirements for such policies.
2. No Medicare supplement policy or certificate of insurability may contain limitations or exclusions on coverage that are more restrictive than those of Medicare.
3. No Medicare supplement policy or certificate of insurability may duplicate benefits that are provided by Medicare.
4. Terminology referring to Medicare supplemental insurance must be uniform.
There are some basic minimum benefit standards:
1. Coverage for either all or none of the Medicare Part A (hospital) inpatient deductible amount. Previously, some policies paid a portion of this deductible.
2. Coverage of Part A (hospital) Medicare eligible expenses for hospitalization to the extent not covered by Medicare, from the 61st day through the 90th day in any Medicare benefit period.
3. Coverage of Part A Medicare eligible expenses incurred as daily hospital charges during use of Medicare's lifetime hospital inpatient reserve days, which is from the 90th day through the 150th day of hospitalization.
4. Upon exhaustion of all Medicare hospital inpatient coverage, including the lifetime reserve days, coverage of ninety percent of all Medicare Part A eligible expenses for hospitalization not covered by Medicare, subject to a lifetime maximum benefit of an additional three hundred sixty-five (365) days.
5. Coverage under Medicare Part A for the reasonable cost of the first three pints of blood, or the equivalent quantities of packed red blood cells, as defined under federal regulations unless replaced in accordance with federal regulations or already paid for under Part B of Medicare.
6. Coverage for the coinsurance amount of Medicare eligible expenses under Part B (medical) regardless of hospital confinement. This coinsurance amount is subject to a maximum calendar year out-of-pocket amount equal to the current Part B deductible. In other words, an insurer must pay the coinsurance, but is not required to pay the annual Part B deductible.
7. Coverage under Medicare Part B (medical) for the reasonable cost of the first three pints of blood, or the equivalent quantities of packed red blood cells, as defined under federal regulations unless replaced in accordance with federal regulations or already paid for under Part A of Medicare (refer also to #5, which addresses this benefit under Part A of Medicare). If the blood is covered under Part B of Medicare, the cost is then subject to the annual Part B deductible amount.
The standardized plans seem to have made shopping for Medigap policies much easier for the general consumer. Each of the plans or forms contain the same basic benefits.
Basic Benefits
1. Part A (hospital) coinsurance plus coverage for 365 additional days after Medicare benefits end.
2. Part B (medical) coinsurance, which is the 20 percent of the approved amount of the physician or supplier's bill. That does not mean 20 percent of the amount actually charged.
3. The first three pints of blood each year, whether under Part A or Part B.
In most states, Medicare supplement insurance must follow the twelve plans established by Congress. Every company must make available Plan A if they market any of the other plans. Some plans may not be available in all states. Insurance companies do not necessarily market all plans.
End of Chapter 14