Medicare Supplement Insurance, commonly referred to as “Medigap” insurance, provides supplemental health insurance coverage for Medicare beneficiaries. Enrollees in the “Original” Medicare program may want to purchase this insurance since Medicare often covers less than the total cost of an individual’s health care.

Medicare is divided into two coverage components: Part A, and Part B. Both programs have gaps in coverage that might be covered with the help of supplemental insurance.

GAPS IN COVERAGE

Part A

Medicare Part A (also known as Hospital Insurance) covers inpatient hospital and skilled nursing facilities, home health and hospice services. Here is a partial list of gaps in coverage that Medicare doesn’t reimburse:

  • Hospital deductible per illness ($1,068 for 2009)
  • Hospital coinsurance payments. Medicare covers the first 60 days in full after the deductible has been met
  • The daily coinsurance payment for days 61 to 90 (which was $267 in 2009)
  • The daily coinsurance payment for days 91 to 150 (which was $534 in 2009)
  • The “lifetime reserve” days
  • Hospital services beyond 150 days per illness
  • Skilled nursing facility coinsurance payments. Medicare covers the first 20 days in full; the daily coinsurance payment for days 21 to 100 was $133.50 in 2009)
  • Skilled nursing facility services beyond 100 days per illness
  • Home health aide services that are provided on more than a part-time or intermittent basis
  • Home health nursing and aide services that don’t have a skilled care component.

Part B

Medicare Part B (also known as Supplementary Medicare Insurance) covers a variety of outpatient and physician services. It also pays for durable medical equipment, prosthetic devices, supplies incident to physician’s services and ambulance transportation.

Here is a list of gaps in coverage that Medicare doesn’t reimburse:

  • Part B deductible: This annual deductible ($135 in 2009) must be met before Medicare will pay for covered services.
  • Part B 20% coinsurance payment: Medicare pays 80% of the approved charge for all Part B services and items. This amount varies according to what is provided.
  • Balance billing above the Medicare-approved charge: Many physicians and providers charge above what Medicare approves.

WHO NEEDS MEDICARE SUPPLEMENT INSURANCE?

Medicare beneficiaries can fill their coverage gaps in several ways:

  • Government Programs (Medicaid/QMB/SLMB)
  • Group Retirement Policies (Non-Standardized)
  • Non-Standardized Individual Medigap Policies (issued prior to July 31, 1992)
  • Standardized Individual Medigap Policies (issued after July 31, 1992)

Medicare beneficiaries eligible for Medicaid (Title 19) don’t need Medigap insurance. Medicaid takes care of their health care expenses. So you can rest assured knowing that your Medicaid eliminates the need for supplemental coverage.

If you don’t qualify for Medicaid, but are within 100% of the federal poverty level, you’re eligible for coverage under the Qualified Medicare Beneficiary Program (QMB). Program benefits include paying for Medicare premiums, annual deductibles, and coinsurance amounts. Like Medicaid, the QMB program eliminates the need for Medicare Supplement Insurance. Keep in mind, however, that the qualifying income amount changes every April. Contact your local Department of Social Services for more information about Title 19 and QMB eligibility and enrollment.

If you don’t qualify for QMB because of your income, you may be eligible for the Specified Low-Income Medicare Beneficiary Program (SLMB) or Qualified Individual Program (QI). If your income is within 120%–135% of the federal poverty level, you’re eligible. However, these programs only pay your monthly premium for Medicare Part B. That’s why SLMB and QI individuals may still want to purchase Medigap insurance (if it’s affordable). Like QMB, the qualifying income changes every April.

Some employers offer health insurance to their retirees. Anyone covered by a group plan may not have to purchase an individual policy. While a retiree may decide to switch over to an individual plan, that might not be a good move. Typically, group retiree plans are free for the individual and the group coverage is often as good as or better than most individual Medigap policies. It is in the individual’s best interest to compare the company’s policy cost and coverage with the ten Medigap policies. They should also consider the company’s stability. If it’s possible that the company could falter, forcing an increase in costs or a reduction in coverage, the retiree may want to purchase an independent policy. Keep in mind that if a new policy is purchased, the old one must be dropped.

Most Medicare beneficiaries aren’t eligible for Medicaid or QMB. Instead, roughly two-thirds of them purchase Medigap policies. These policies became standardized throughout the country in July 1992. This mandatory standardization resulted from legislation Congress passed as part of the Omnibus Budget Reconciliation Act of 1990. According to federal law, ten specific benefit plans can be sold as Medigap policies. Two new plans were added in 2006. States may allow all or some of these plans to be marketed. There is, however, a basic benefit package, known as the “core benefit” plan, which must be allowed in all states and be offered by any company selling Medigap insurance.

Although individual Medigap policies are standardized, some seniors are still covered by previously issued non-standardized plans. While you can’t purchase these policies anymore, many policy holders have chosen to keep their old ones. If you’re covered by an old policy, you should think about switching to a new one. Before doing so, however, you should compare the benefits and costs of each policy so you can make an informed decision. If you purchase a standardized policy, you’ll be required to drop your old, non-standardized plan. This protects you from the unnecessary costs of duplicate coverage.

STANDARD MEDICARE SUPPLEMENT POLICIES

The twelve standardized benefit policies are labeled A through L. Policy A contains the basic or “core” benefits. The remaining ones contain the core benefits plus several additional ones. Below is a list of those benefits contained in the core policy and must be included in all new Medigap policies:

  1. Part A Hospital Coinsurance for Days 61-90 ($267/2009)
  2. Part A Hospital Lifetime Reserve Coinsurance for Days 91-150 ($534/2009)
  3. 365 Lifetime Hospital Days Beyond Medicare Coverage
  4. Parts A and B Three Pint Blood Deductible
  5. Part B 20% Coinsurance

Additional benefits are offered in policies B through L. Each plan features a different combination as well as the core benefits. Those benefits include:

  1. Part A Skilled Nursing Facility Coinsurance for Days 21-100 ($133.50/2009)
  2. Part A Hospital Deductible ($1,068/2009)
  3. Part B Deductible ($135/2009)
  4. Part B Charges Above the Medicare-Approved Amount (if provider does not accept assignment)
  5. Foreign Travel Emergency Coverage
  6. At-Home Recovery (Home Health Aid Services)
  7. Preventive Medical Care

Policies B through L vary considerably. Policy holders should review their package carefully and decide which coverage is suitable for them. The chart at the end of these materials illustrates the various coverages for Medigap policies A through L.

A host of issues must be considered before purchasing Medigap insurance.

  • What specific benefits do you require?
  • How much will the premiums cost?
  • Are the benefits worth the cost?
  • Will you be able to afford the premiums in the future?
  • What if you decide to switch to a Medicare Advantage plan and then want or have to switch back?

Certain consumer protections provided under federal law safeguard Medicare beneficiaries. Connecticut provides additional protections (some of which are described below).

CONSUMER PROTECTIONS UNDER FEDERAL LAW

Guaranteed Issue

Guaranteed issue means an insurance company is required to sell a policy and cannot force someone to prove “insurability” by making them pass a physical examination.

All newly entitled Medicare beneficiaries have a right to guaranteed issue of any Medigap policy offered for sale for the first six months after their Medicare entitlement begins. This only applies to individuals over 65. Federal law doesn’t require insurance companies to offer the same range of Medigap policies to Medicare beneficiaries with disabilities that they sell to those over 65. Some states do require insurance companies to sell designated Medigap policies to Medicare beneficiaries with disabilities. Connecticut, for example, requires companies to offer Plans A, B and C to individuals with disabilities if those policies are sold to older Medicare beneficiaries. The state also requires insurance companies that offer plans A–L to sell them to everyone over 65.

Since 1997, pursuant to the Balanced Budget Act of 1997, Medicare beneficiaries who are 65 or older will also be issued certain Medigap policies if they apply within 63 days after leaving a Medicare managed care plan. The circumstances under which these rights exist include:

  • A Medicare beneficiary who enrolled in a Medicare managed care plan when they first became eligible for Medicare and then disenrolled within one year can enroll in any Medigap policy their state offers.
  • If that beneficiary enrolled in a Medicare managed care plan that withdrew from the geographic area within the first year of their enrollment and they enrolled in another such plan, the time in which the beneficiary may disenroll and purchase any Medigap plan is extended for a second year (a total of 24 months).
  • A Medicare beneficiary who dropped a Medigap policy when they first enrolled in a Medicare managed care plan but who subsequently disenrolled from the managed care plan within one year is guaranteed the same Medigap policy will be issued by the same insurance company if that policy is still being sold. Otherwise, that individual is entitled to Medigap Plan A, B, C or F.
  • If that person enrolled for the first time in a Medicare managed care plan that withdrew from the geographic area within the first year of their enrollment, these special Medigap rights would apply for another year, for a total of 24 months.
  • A Medicare beneficiary who left the area or whose Medicare managed care plan terminated service to their area, became bankrupt or violated or misrepresented one of the plan’s provisions is guaranteed Medigap Plan A, B, C or F. These same rights apply to Medicare beneficiaries whose employer no longer provides retiree health insurance coverage.
  • NOTE: Connecticut beneficiaries over 65 have the right to purchase Policies A–L from any company selling those policies in the state.

IMPORTANT NOTE: The Centers for Medicare and Medicaid Services (CMS) has stated that the above Balanced Budget Act provisions do NOT apply to Medicare beneficiaries whose entitlement is based on their disability or End-Stage Renal Disease. According to CMS, they only affect to those who are at least 65.

When buying a Medigap policy, the beneficiary has 30 days to change their mind, terminate their policy and receive a refund for the previously paid premium.

Pre-Existing Conditions

A pre-existing condition exclusion means that policy may not cover costs incurred as a result of a medical condition which the enrollee had before purchasing their health insurance. The ability of insurance companies to impose these exclusions has been severely constricted after the federal “HIPAA” (Health Insurance Portability and Accountability Act) law was enacted. Under HIPAA, if an individual had health insurance for at least 6 months before their initial open enrollment period for Medicare, no pre-existing condition exclusion could be imposed. Most types of health coverage offer this “creditable coverage,” including employee or union group health and retiree health insurances, Medicare Parts A and B, and Medicaid (Title 19).

For Medigap purposes, creditable coverage is conferred for how many months an individual was covered by another policy or was enrolled in a Medicare HMO. Consequently, if an individual was previously enrolled in another Medigap or Medicare managed care plan for at least six months, no pre-existing condition limit can be imposed by a new plan.

Prohibition on Duplicate Policies

Another important provision of the law prohibits insurance companies and agents from selling a beneficiary a second Medigap policy. Agents are obligated to disclose this provision to Medicare beneficiaries and must acknowledge it in writing. A new policy may be sold to replace an existing one but that must also be acknowledged in writing. An individual may, however, keep or purchase another medical insurance policy other than a Medigap. Such policies include hospital indemnification coverage that only provides hospitalization benefits. When an insurance company or independent insurance agency sells this type of policy, the policy holder must be informed about the specific coverage and that it isn’t a Medigap policy.

Agents must also ask if the individual is eligible for Medicaid. If they are, their premiums may be suspended for up to two years. If that eligibility is terminated during that period, the enrollee can return to their previous Medigap policy.

RECENT CHANGES TO MEDIGAP INSURANCE

Provisions of the Medicare Prescription Drug, Modernization and Improvement Act (MMA) affect Medigap insurance. This new law, which took effect on January 1, 2006, changed coverage under Medigap Plans H, I and J and created Medigap Plans K and L.

Changes to Medigap Plans H, I and J

Federal law now prohibits selling Medigap Plans H, I or J with prescription coverage. These plans can still be sold without that coverage. The premiums will be adjusted to reflect this change. Individuals already enrolled in one of these plans on December 31, 2005, may renew their enrollment as long as they don’t sign up for Medicare Part D’s prescription drug coverage. If the individual does enroll in a Part D prescription drug plan, their Medigap plan’s coverage will be modified to eliminate that coverage as of the effective date of the Part D Plan.

Any individual who puts off enrolling in a Part D Plan in favor of keeping a Medigap plan that covers prescription drugs faces late enrollment penalties for that part if the Medigap plan doesn’t appear to be as good as Part D’s standard benefit (creditable coverage). Most plans’ coverage isn’t considered creditable because it’s not as good as the standard Part D benefit.

Medigap Plans K and L

In January 2006 two new Medigap plans were offered. Plan K fully covers the cost sharing for Part B preventive services, the Part A hospital coinsurance and an additional 365 days of hospital coverage. It also covers 50% of Parts A and B’s blood deductibles, the Part B and the skilled nursing facility coinsurance, the cost sharing associated with the hospice benefit and the Part A hospital deductible. Plan K covers 100% of all cost sharing under Medicare Parts A and B for the rest of the calendar year once the individual’s out-of-pocket limit reaches $4,000.

Plan L fully covers the cost sharing for Part B preventive services, the Part A hospital coinsurance and an additional 365 days of hospital coverage. It also covers 75% of the Part A and B blood deductibles, the Part B coinsurance, the skilled nursing facility coinsurance, the cost sharing associated with the hospice benefit and the Part A hospital deductible. Plan L covers 100% of all cost sharing under Medicare Parts A and B for the rest of the calendar year once a beneficiary’s out-of-pocket limit reaches $2,000.

WHAT TO CONSIDER WHEN PURCHASING MEDIGAP INSURANCE

When buying Medigap insurance, it is important to consider the enrollee’s medical needs and financial abilities. The individual should review their current needs and capabilities and try to foresee any potential future concerns.

Obtaining Coverage and Switching Policies

Remember that, under federal law, anyone 65 or older can enroll in any of the twelve policies during the six-month period after they are first covered by Part B. Connecticut beneficiaries are able to purchase Medigap Plans A–L beyond that period.

Prior coverage under another Medigap policy or Medicare managed care plan counts toward the six-month waiting period for covering pre-existing conditions. Finally, some companies have liberal rules about letting you switch from one policy to another offered by that company.

Cost

The next major consideration in selecting a Medigap policy is cost. Individuals must be able to afford the policy of their choice.

*Effective 1/1/06, Plans H, I and J can no longer be sold with prescription drug benefits. Beneficiaries who purchased these plans before that date can renew them and retain the prescription drug benefits.

**Plan K covers 100% of cost sharing for Medicare Part B preventive services and 100% of all cost sharing under Medicare Parts A and B for the balance of the calendar year once an individual has reached the out-of-pocket limit on annual expenditures of $4,620 in 2010.

**Plan L covers 100% of cost sharing for Medicare Part B preventive services and 100% of all cost sharing under Medicare Parts A and B for the balance of the calendar year once an individual has reached the out-of-pocket limit on annual expenditures of $2,310 in 2010.

2010 MEDIGAP DEDUCTIBLE AMOUNT FOR HIGH DEDUCTIBLE POLICY OPTIONS

CMS released the 2010 deductible amount for Medigap high deductible Plans F and J. Effective January 1, 2010, the annual deductible amount for those two plans is $2,000. The high deductible amount for Medigap Plans F and J is updated each year and is based on the August CPI-U figures released by the Bureau of Labor Statistics. The full text of the announcement is available on the CMS website at http://www.cms.gov/Medigap/. This figure represents the out-of-pocket expenses, excluding premiums, a beneficiary must incur before the policy starts paying benefits. Under the high deductible option, policies pay 100% of covered out-of-pocket expenses once the deductible has been satisfied in any given year. Note, the high deductible option for benefit packages F or J was added by Section 4032 of the Balanced Budget Act of 1997, Section. 1882(p) of the Social Security Act, 42 U.S.C. 1395ss(p).

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