9 questions to ask about Medigap

Plan H includes: (1) the basic core benefit package; (2) the Hospital Insurance (Part A) deductible ($1,184 in 2013); (3) the coinsurance for care in a skilled nursing home (days 21-100, $148 a day in 2013); (4) coverage of foreign travel emergencies; and (5) coverage of 50% of the cost of outpatient prescription drugs after payment of a $250 deductible, up to a maximum benefit of $1,250. (But see the note below regarding prescription drug coverage.)

Plan I includes: (1) the basic core benefit package; (2) the Hospital Insurance (Part A) deductible ($1,184 in 2013); (3) the coinsurance for care in a skilled nursing home (days 21-100, $148 a day in 2013); (4) coverage of foreign travel emergencies; (5) at-home recovery assistance; (6) 100% of excess doctor charges under Medical Insurance (Part B); and (7) 50% of the cost of outpatient prescription drugs after payment of a $250 deductible, up to a maximum benefit of $1,250. (But see the note below regarding prescription drug coverage.)

Plan J includes: (1) the basic core benefit package; (2) the Hospital Insurance (Part A) deductible ($1,184 in 2013); (3) the coinsurance for care in a skilled nursing home (days 21-100, $148 a day in 2013); (4) the Medical Insurance (Part B) deductible ($147 in 2013); (5) coverage of foreign travel emergencies; (6) at-home recovery assistance; (7) 100% of excess doctor charges under Medical Insurance (Part B); (8) preventive screening and care; and (9) 50% of the cost of outpatient prescription drugs after payment of a $250 deductible, up to a maximum benefit of $3,000. (But see the note below regarding prescription drug coverage.)

There is also a plan that is the same as Plan J but with a $2,000 deductible. This high-deductible policy covers 100% of covered out-of-pocket expenses once the deductible has been satisfied in a year. It requires the beneficiary of the policy to pay annual out-of-pocket expenses (other than premiums) in the amount of $2,000 before the policy begins payment of benefits.

Note: As of January 1, 2006, beneficiaries who held standard plans H, I, or J could choose between enrolling in Part D or maintaining their prescription drug coverage under their Medigap plans. Beneficiaries who chose to enroll in Part D could keep their existing plan H, I, or J, less the prescription drug benefit, or could purchase a new Medigap policy. 

Some plan choices may not be available in Massachusetts, Minnesota, and Wisconsin because these states already required standardized Medigap policies prior to 1992.

6. What are Medicare SELECT policies?

The difference between Medicare SELECT and regular Medigap insurance is that a Medicare SELECT policy may (except in emergencies) limit Medigap benefits to items and services provided by certain selected health care professionals or may pay only partial benefits when the patient gets health care from other health care professionals.

See also: Retirees need advisors' help in transition to Medicare

Insurers, including some HMOs, offer Medicare SELECT in the same way they offer standard Medigap insurance. The policies are required to meet certain federal standards and are regulated by the states in which they are approved. A person is able to choose from among the 10 Medigap policies, but the premiums charged for Medicare SELECT policies are generally lower than premiums for comparable Medigap policies that do not have this selected-provider feature.

State insurance departments have information about Medicare SELECT policies that have been approved for sale in their states.

7. Should a person purchase the most comprehensive policy if he or she can afford the premiums?

Not necessarily. A person must determine which benefits he or she is likely to need before purchasing a Medigap policy. Often, a person does not need the most comprehensive policy.

For example, Plan A is the least expensive policy and offers the basic core package of benefits. Plans F and G might be considered if a person uses nonparticipating doctors — those who charge more than the amount approved by Medicare; however, excess charges are limited to 115% of what Medicare pays. If the doctors charge no more than the amount approved by Medicare, less expensive policies such as Plan C or Plan D may be appropriate. Plan D also includes important benefits not covered by Plan A, such as coverage of custodial care at home following an illness or injury and the cost of coinsurance for skilled nursing home care.

8. What Medigap insurance protections are there for those enrolled in the Medicare Advantage program?

For many years Medicare law allowed for Medicare-covered services to be furnished to individuals through HMOs that contracted with Medicare. Medicare Advantage expands the types of health plans that can contract with Medicare to enroll beneficiaries.

A person who currently has a Medigap policy may enroll in a Medicare Advantage plan and can keep the Medigap policy after enrollment. Keeping the Medigap policy may give a person time to determine whether to stay in the Medicare Advantage plan or return to the original Medicare plan with Medigap insurance. However, expenses paid for by the Medicare Advantage plan will not be reimbursed by the Medigap insurer. Eventually the person should drop Medigap coverage if satisfied with the Medicare Advantage plan.

A person already enrolled in a Medicare Advantage plan cannot buy Medigap insurance but may have the right to purchase a Medigap policy by returning to the original fee-for-service Medicare plan. To be guaranteed the right to buy Medigap insurance, the person must have enrolled in the Medicare Advantage plan at age 65, must terminate enrollment in the Medicare Advantage plan within 12 months of entry into that plan, and must not have had any previous enrollment in a Medicare managed-care plan.

If a Medicare Advantage plan terminates coverage because it leaves the Medicare program, plan enrollees have certain rights to new coverage, but these are time-limited. The Medicare Advantage plan is required to provide information to assist making a decision about enrolling in another Medicare Advantage plan or switching to the original Medicare plan with a Medigap policy to supplement the coverage. In general, most individuals with Medicare have the right to guaranteed issue of any Medigap plans designated A, B, C, or F that are offered to new enrollees by issuers in the state.

This right applies to individuals by virtue of the involuntary termination of their coverage. However, certain Medicare beneficiaries in terminating Medicare Advantage plans may have another basis for entitlement to guaranteed issue of a Medigap plan. If a person had been enrolled in the Medicare Advantage plan for fewer than 12 months, was never enrolled in any other Medicare HMO, and had a previous Medigap plan, that person may return to the former Medigap plan if the previous Medigap insurance company still sells the plan in the state.

If that coverage is not available under the previous Medigap policy, the individual may purchase Medigap plans A, B, C, or F from any insurer that sells these policies in the state.

The insurance company selling the policy may not (1) deny or condition the sale of the policy, (2) discriminate in the pricing of the policy because of health status, prior history of claims experience, receipt of health care for a medical condition, or (3) impose an exclusion for any pre-existing condition.

But the individual has only 63 days after coverage ends to select a Medigap insurer. Also, if the individual moves outside the Medicare Advantage plan's service area, he has 63 days to select a Medigap insurer.

An individual is guaranteed issuance of any Medigap policy if (1) at least 65 years old, (2) eligible for Medicare, (3) enrolled in a Medicare Advantage plan, and (4) disenrolled from that plan within 12 months of the effective date of enrollment.

9. Are there rules for selling Medigap insurance?

Yes, both state and federal laws govern sales of Medigap insurance. Companies or agents selling Medigap insurance must avoid certain illegal practices.

It is unlawful to sell or issue Medigap insurance to an individual entitled to benefits under Hospital Insurance (Part A) or enrolled under Medical Insurance (Part B). Additionally, it is unlawful to sell or issue: (1) a health insurance policy with knowledge that the policy duplicates health benefits the individual is otherwise entitled to under Medicare or Medicaid; (2) a Medigap policy with knowledge that the individual is entitled to benefits under another Medigap policy; or (3) a health insurance policy, other than a Medigap policy, with knowledge that the policy duplicates health benefits to which the individual is otherwise entitled.

Penalties do not apply, however, to the sale or issuance of a policy or plan that duplicates health benefits to which the individual is otherwise entitled if, under the policy or plan, all benefits are fully payable directly to or on behalf of the individual without regard to other health benefit coverage of the individual. In addition, for the penalty to be waived in the case of the sale or issuance of a policy or plan that duplicates benefits under Medicare or Medicaid, the application for the policy must include a statement, prominently displayed, disclosing the extent to which benefits payable under the policy or plan duplicate Medicare benefits.

The National Association of Insurance Commissioners (NAIC) has identified 10 separate types of health insurance policies that must provide an individualized statement of the extent to which the policy duplicates Medicare. These policies include the following:

• Policies that provide benefits for expenses incurred for an accidental injury only
• Policies that provide benefits for specified limited services
• Policies that reimburse expenses incurred for specified disease or other specific impairments (including cancer policies, specified disease policies, and other policies that limit reimbursement to named medical conditions)
• Policies that pay fixed dollar amounts for specified disease or other specified impairments (including cancer, specified disease policies, and other policies that pay a scheduled benefit or specified payment based on diagnosis of the conditions named in the policy)
• Indemnity policies and other policies that pay a fixed dollar amount per day, excluding long-term care policies
• Policies that provide benefits for both expenses incurred and fixed indemnity
• Long-term care policies providing both nursing home and non-institutional coverage
• Long-term care policies primarily providing nursing home benefits only
• Home care policies
• Other health insurance policies not specifically identified above

Certain policies are not required to carry a disclosure statement: (1) policies that do not duplicate Medicare benefits, even incidentally, (2) life insurance policies that contain long-term care riders or accelerated death benefits, (3) disability insurance policies, (4) property and casualty policies, (5) employer and union group health plans, (6) managed-care organizations with Medicare contracts, and (7) health care prepayment plans (HCPPs) that provide some or all Medicare Part B benefits under an agreement with the Centers for Medicare & Medicaid Services.

Policies offering only long-term care nursing home care, home health care, or community-based care, or any combination of the three, are allowed to coordinate benefits with Medicare and are not considered duplicative, provided the coordination is disclosed.

An insurer is subject to civil money and criminal penalties for failing to provide the appropriate disclosure statement. Federal criminal and civil penalties (fines) may also be imposed against any insurance company or agent that knowingly:

• sells a health insurance policy that duplicates a person's Medicare or Medicaid coverage, or any private health insurance coverage the person may have;
• tells a person that they are employees or agents of the Medicare program or of any government agency;
• makes a false statement that a policy meets legal standards for certification when it does not;
• sells a person a Medigap policy that is not one of the 10 approved standard policies (after the new standards have been put in place in the person's state);
• denies a person his Medigap open-enrollment period by refusing to issue the person a policy, placing conditions on the policy, or discriminating in the price of a policy because of the person's health status, claims experience, receipt of health care or the person's medical condition; or
• uses the United States mail in a state for advertising or delivering health insurance policies to supplement Medicare if the policies have not been approved for sale in that state.

The sale of a Medigap policy to a Medicaid beneficiary is prohibited. There is no prohibition on sale of policies to low-income Medicare beneficiaries for whom Medicaid pays only the Medical Insurance (Part B) premiums.

For more from Joseph F. Stenken, see:

13 Medicare facts you need to know

The content in this publication is not intended or written to be used, and it cannot be used, for the purposes of avoiding U.S. tax penalties. It is offered with the understanding that the writer is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought.