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MEDIGAP INSURANCE AFTER JANUARY 1, 2006

By John J. Campbell, Esq., CELA

          Medicare, often referred to as America’s national health insurance plan for the elderly, was originally modeled after traditional medical insurance plans.  Benefits are limited to certain services and are subject to deductibles and coinsurance payments.  For many Medicare beneficiaries in the traditional Medicare program, these deductible and coinsurance amounts can be significant.  As a result, many Medicare beneficiaries depend on Medicare supplemental insurance policies to fill in the “gaps” in Medicare coverage.  These “Medigap” policies have been subject to standardization requirements under federal and state laws for many years. 

          Medigap policies sold in all but 3 “waiver states” must currently conform to one of 10 standardized policies, referred to by the letters “A” through “J”.  Each policy offers different combinations of supplemental coverage that can range from the fairly basic (A) to the fairly comprehensive (J).  As a result, the Medigap policies sold in most states are exactly the same, regardless of which insurance company may offer these policies.

          The Medicare Prescription Drug, Modernization and Improvement Act of 2003 (MMA) contains provisions that will affect Medigap insurance.  These provisions will change coverage under Medigap A-J policies; and will create two new Medigap policies (designated K and L policies) with minimum benefits that differ from Medigap A-J policies.  The provisions of the MMA will also provide for an initial enrollment period (IEP) and open enrollment periods for Medigap coverage.  The MMA also provide for when a Medicare beneficiary may be guaranteed the right to obtain Medigap insurance, regardless of health, age or pre-existing conditions. 

          The MMA requires the adoption of new uniform standards for all Medigap policies.  On March 25, 2005, the Centers for Medicare and Medicaid Services officially approved the new Medigap standards drafted by the National Association of Insurance Commissioners as being the official model regulation under the MMA.  All non-waiver states must adopt this regulation by no later than September 8, 2005.  The model regulation was published in 70 FR 15393, March 25, 2005, and can be viewed online at:  http://www.access.gpo.gov/su_docs/fedreg/a050325c.html.        

          Under the new model regulation, basic coverage under Medigap policies A-J will be the same as under the old regulations.  All Medigap A-J polices issued after December 31, 1005 will be required to provide the following minimum basic benefits: 1) Medicare Part A coinsurance amounts for days 61-90 of inpatient hospital stays in any spell of illness; 2) Medicare Part A coinsurance amounts for all of the beneficiary’s 60 lifetime hospital inpatient reserve days; 3) Coverage of 100% of Medicare covered costs for an additional 365 lifetime inpatient hospital days after Medicare Part A benefits are exhausted; 4) Coverage of Medicare Part B coinsurance amounts (after the $110 Medicare Part B deductible); and 5) The reasonable cost of the first 3 pints of blood.   

          The Medigap A policy will include only these basic benefits.  Medigap policies B-J will offer increased benefits in different packages, as illustrated in the following chart: 

*The prescription drug benefits available under Medigap policies H-I are for basic coverage only.  After the beneficiary pays an annual deductible of $250, the Medigap plan pays 50% up to a maximum of $1,250 per year. 

**The extended prescription drug coverage under the Medigap J policy pays 50% up to a maximum of $3,000 per year, after the annual deductible of $250.

***Medigap F and J policies are also available with high deductible options. 

          Beginning January 1, 2006, new Medigap policies containing prescription drug coverage (Medigap H, I or J policies) may no longer be sold.  Medicare beneficiaries who already have a Medigap H, I or J policy as of January 1, 2006, but who do not sign up for a Medicare Part D prescription drug plan, will have the option of renewing their Medigap H, I or J policies with prescription drug coverage.   

          Those Medicare beneficiaries who sign up for a Medicare Part D prescription drug plan during the Initial Enrollment Period (IEP) from November 15, 2005 through May 15, 2006 will be able to keep and renew their Medigap H, I or J policies, but without prescription drug coverage.  Premiums for these plans must be adjusted to reflect this loss of prescription drug benefits.  Alternatively, these Medicare beneficiaries may opt to drop their Medigap H, I or J policies during the IEP, with a guaranteed ability to purchase a Medigap A, B, C or F policy (or one of the new K or L policies) as a replacement.  The guaranteed issue period for replacement policies ends 63 days after enrolling in Medicare Part D. 

          Medigap policies under the new regulation do not provide coverage to fill the gaps not covered under a Medicare Part C Advantage Plan or under a Medicare Part D prescription drug plan.  The inability of any Medigap policy to provide supplemental coverage for Medicare Part D prescription drug benefits will be especially instrumental to any beneficiary’s decision whether to enroll in Medicare Part D. 

          The basic Medicare Part D prescription plan will provide only limited prescription drug coverage.  The beneficiary must pay 100% of the Part D deductible amount of $250 before coverage begins.  For annual prescription costs from $251 through $2,250, Medicare will pay 75%.   For prescription costs after the beneficiary reaches the annual out of pocket amount ($3,600 per year in 2006, and subject to increase annually thereafter), Medicare will pay up to 95%.   

          All beneficiary payments will all count toward the annual out of pocket amount.  The annual out of pocket amount will not be reached until the beneficiary's total annual prescription drug costs equal $5,100 (in 2006).  There is no Medicare Part D coverage for annual prescription costs from $2,251 up to $5,100.  This huge gap in coverage, often referred to as the “donut hole,”can represent a serious problem for Medicare beneficiaries with chronic illnesses.

          Chronically ill beneficiaries will often find that their total prescription costs will average more than $187.50 per month for necessary medications, but will not be great enough to fall within Medicare Part D catastrophic prescription drug coverage.  In these cases, beneficiaries will find themselves in the donut hole at some point before the end of the year.  Without Medigap benefits for these prescription drug costs, these beneficiaries will be required to pay for many of their prescription medication expenses on their own. 

          Any Medicare beneficiaries falling into this group, and who currently own Medigap H, I or J policies, may want to preserve their coverage under those policies as an alternative to enrolling in Medicare Part D.  Those with Medigap H or I policies may even wish to upgrade to a Medigap J policy if possible before December 31, 2005.  However, since the prescription drug benefits under Medigap H, I & J policies are less valuable than Medicare Part D basic coverage, these policies will not be considered “creditable coverage” under the MMA.  Therefore, by delaying Part D enrollment in favor of maintaining prescription drug coverage under an existing Medigap H, I or J policy will result in late enrollment penalties if the beneficiary later decides to enroll in Medicare Part D; and preexisting condition exclusions may be applied. 

          The new Medigap K and L policies, which will be available as of January 1, 2006, must also provide minimum, standardized benefit packages.  Some of the basic benefits will differ from those under Medigap A-J policies, including a limitation on coverage for the first 3 pints of blood.  Further, many of the extended benefits under each of these policies will be limited until annual out-of-pocket amounts are met. 

          Medigap K policies must provide the following minimum basic benefits:

1) Medicare Part A coinsurance amounts for days 61-90 of inpatient hospital stays in any spell of illness;

2) Medicare Part A coinsurance amounts for the beneficiary’s 60 lifetime hospital inpatient reserve days;

3) Coverage for an additional 365 lifetime inpatient hospital days after Medicare Part A benefits, including all lifetime reserve days, are exhausted; 

4) Coverage of 50% of the Medicare Part A deductible amount until the beneficiary has paid the annual out-of-pocket amount is met; 

5) Coverage of 50% of the Skilled Nursing Facility coinsurance for days 21-100 until the annual out-of-pocket amount is met; 

6) Coverage of 50% of Medicare Part A coinsurance for hospice and respite care until the annual out of pocket amount is met;  

7) Coverage for 50% of the reasonable cost of the first 3 pints of blood until the annual out-of-pocket amount is met;

8) Coverage for 100% of Medicare Part B coinsurance for preventive services (after payment of the $110 Medicare Part B deductible);

9) Coverage for 50% of the Medicare Part B coinsurance for other Part B covered services until the annual out-of-pocket amount is met; and

10) Coverage for 100% of all Medicare Part A and Part B coinsurance amounts for the rest of the calendar year after the annual out-of-pocket amount is met.  The annual out-of-pocket amount under Plan K is $4,000 for all Medicare Part A and Part B expenditures.

Medigap L policies must provide the following minimum basic benefits:

1) Medicare Part A coinsurance amounts for days 61-90 of inpatient hospital stays in any spell of illness;

2) Medicare Part A coinsurance amounts for the beneficiary’s 60 lifetime hospital inpatient reserve days;

3) Coverage for an additional 365 lifetime inpatient hospital days after Medicare Part A benefits, including all lifetime reserve days, are exhausted;

4) Coverage of 75% of the Medicare Part A deductible amount until the beneficiary has paid an annual out-of-pocket amount is met;

5) Coverage of 75% of the Skilled Nursing Facility coinsurance for days 21-100 until the annual out-of-pocket amount is met;

6) Coverage of 75% of Medicare Part A coinsurance for hospice and respite care until the annual out of pocket amount is met;

7) Coverage for 75% of the reasonable cost of the first 3 pints of blood until the annual out-of-pocket amount is met;

8) Coverage for 100% of Medicare Part B coinsurance for preventive services (after payment of the $110 Medicare Part B deductible);

9) Coverage for 75% of the Medicare Part B coinsurance for other Part B covered services until the annual out-of-pocket amount is met; and

10) Coverage for 100% of all Medicare Part A and Part B coinsurance amounts for the rest of the calendar year after the annual out-of-pocket amount is met.  The annual out-of-pocket amount under Plan L is $2,000 for all Medicare Part A and Part B expenditures.          

          New Medicare beneficiaries will continue to be able to purchase a guaranteed issue Medigap policy within their open enrollment period, which extends for 6 months after the first day of the month in which the beneficiary is age 65 and is enrolled in Medicare Part B.  States are also encouraged to apply the open enrollment period to persons who delay enrollment in Medicare Part B past age 65.  During the open enrollment period, the beneficiary is entitled to purchase a Medigap A, B, C, F, K or L policy, regardless of health or preexisting conditions.  Further, Medigap policies may not impose preexisting condition exclusions upon beneficiaries who have maintained at least 6 months of creditable coverage without a gap in coverage of more than 63 days. 

          The different policies generally become more expensive as the coverage package becomes more comprehensive.  Also, while the policies are standardized by law, the amount the issuing company can charge for premiums is not.  In other words, a Medigap J policy through one insurer may be more expensive than the same policy through another insurer.  Once the particular type of policy (A-J, K or L) is decided upon, compare price and service in order to choose a company.

          Federal law permits anyone who enrolls in Medicare Part B to purchase a Medigap policy.  However, federal law does not require that fee-for-service Medigap policies be offered to beneficiaries under age 65 who are eligible for Medicare Part B due to disability; or who are not enrolled in Medicare Part B at age 65.  The ability of disabled Medicare beneficiaries under age 65 to purchase a Medigap policy will depend on the state in which the beneficiary lives.

          In Colorado, the current state Medigap regulations extend the 6 month initial open enrollment period for guaranteed issue of Medigap policies to all Medicare beneficiaries who enroll in Medicare Part B after September 1, 2003, including beneficiaries under age 65 (which includes beneficiaries entitled to Medicare due to 24 months of SSDI eligibility and due to end state renal disease) and beneficiaries over age 65.

Law Offices of John J. Campbell, P.C.

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