Understanding Medigap

Medigap insurance is specifically designed to supplement Medicare’s benefits and is regulated by federal and state law. It must be clearly identified as Medicare supplemental insurance and it must provide specific benefits that help fill the gaps in your Medicare coverage. Other kinds of insurance may help you with out-of-pocket health care costs but they do not qualify as Medigap plans.

Standard Medigap Plans: To make it easier for you to compare Medigap insurance policies, all states (except Minnesota, Massachusetts and Wisconsin), U. S. territories and the District of Columbia limit the number of different Medigap policies that can be sold in any of those jurisdictions to no more than 10 standard Medigap plans.

The plans, which are detailed in the article "Standard Medigap Policies" elsewhere on this site, were developed by the National Association of Insurance Commissioners and incorporated into state and federal law. They have letter designations ranging from "A" through "J," with Plan A being the "basic" benefit package. Each of the other 9 plans includes the basic package plus a different combination of additional benefits. Plan J provides the most coverage of all the plans. The plans cover specific expenses either not covered or not fully covered by Medicare. Insurance companies are not permitted to change the combination of benefits or the letter designations of any of the plans.

States must allow the sale of Plan A and all Medigap insurers must make Plan A available if they are going to sell any Medigap plans in a state. While not required to offer any of the other 9 plans, most insurers offer several plans to pick from, and some offer all 10. Insurers can decide which of the 9 optional plans they will sell as long as the plans they select have been approved for sale in the state in which they are to be sold. Only two states--Delaware and Vermont--do not allow for the sale of all 10 standard plans. Delaware permits the sale of Plans A, B, D, E, I and J. Vermont permits the sale of Plans A, B, C, D, E, H, and J. The 10 standard plans do not apply to residents of Minnesota, Massachusetts and Wisconsin because these states were not required to change their Medigap plans. If you live in Minnesota, Massachusetts or Wisconsin, contact your state insurance department to find out what Medigap coverage is available.

What Medigap Plans Cover: Medigap policies pay most, if not all, Medicare coinsurance amounts and may provide coverage for Medicare’s deductibles. Some of the 10 standard plans pay for services not covered by Medicare such as outpatient prescription drugs, preventive screening, and emergency medical care while traveling outside the United States. Coverage is also provided in some plans for health care provider charges in excess of Medicare’s approved amount and for some care in your home. Benefits for each of the 10 standard plans are described elsewhere on this site in the article, "Standard Medigap Policies."

When describing the benefits of each of the Medigap plans, insurance companies must use the same format, language and definitions. They also are required to use a uniform chart and outline of coverage to summarize the benefits. These requirements are intended to make it easier for consumers to compare policies. As you shop for a Medigap policy, keep in mind that each company’s products are alike, so they are competing on service, reliability and price. Compare benefits and premiums and be satisfied that the insurer is reputable before buying.

Besides the standardized benefit plans, federal law permits states to allow an insurer to add "new and innovative benefits" to a standardized plan. Any such new or innovative benefits must be cost-effective, not otherwise available in the marketplace, and offered in a manner that is consistent with the goal of simplifying Medigap insurance. Check with your state insurance department to find out whether such benefits are available in your state.

Unlike some types of health coverage that restrict where and from whom you can receive care, Medigap policies generally pay the same supplemental benefits regardless of your choice of health care provider. If Medicare pays for a service, wherever provided, the standard Medigap policy must pay its regular share of benefits.

Medigap Premiums: Although the benefits are identical for all Medigap plans of the same type, the premiums may vary greatly from one company to another and from area to area. Insurance companies use three different methods to calculate premiums: issue age, attained age and no age rating.

If your company uses the issue age method, and you were 65 when you bought the policy, you will always pay the same premium the company charges people who are 65 regardless of your age. If it uses the attained age method, the premium is based on your current age and will increase as your grow older. Under the no age rating, everyone pays the same premium regardless of age. Your state insurance department must approve the rates charged for all Medigap policies. The insurance company can raise your premiums only when it has approval to raise the premiums for everyone else with the same policy.

Medicare SELECT: Another Medicare supplemental health insurance product called "Medicare SELECT," is permitted to be sold by insurance companies or managed care plans throughout the country. Medicare SELECT is the same as standard Medigap insurance in nearly all respects. If you buy a Medicare SELECT policy, you are buying one of the standard Medigap plans. The only difference between Medicare SELECT and standard Medigap insurance is that each insurer has specific hospitals, and in some cases specific doctors, that you must use, except in an emergency, in order to be eligible for full benefits. Medicare SELECT policies generally have lower premiums because of this requirement.

When you go to the insurer's "preferred providers," Medicare pays its share of the approved charges and the insurer is responsible for the full supplemental benefits provided for in the policy. In general, Medicare SELECT policies are not required to pay any benefits if you do not use a preferred provider for non-emergency services. Medicare, however, will still pay its share of approved charges regardless of the provider you choose.

Medicare SELECT is authorized for sale until at least June 1998. At that time, if you have a Medicare SELECT policy, you will be able to either keep the SELECT policy with no changes in benefits or regardless of the status of your health, purchase another Medigap policy offered by the insurer, if the insurer issues Medigap insurance other than Medicare SELECT. To the extent possible, the replacement would have to provide similar benefits.

Open Enrollment Guarantees Your Right To Medigap Coverage: State and federal laws guarantee that for a period of 6 months from the date you are both enrolled in Medicare Part B and age 65 or older, you have a right to buy the Medigap policy of your choice regardless of any health problems you may have. If, however, your birthday falls on the first day of the month, your Part B coverage (if you buy it) begins on the first day of the previous month, while you are still 64. Your Medigap open enrollment period would also begin at that time.

During this 6-month open enrollment period, you can buy any Medigap policy sold by any insurer doing Medigap business in your state. The company cannot deny or condition the issuance or effectiveness, or discriminate in the pricing of a policy because of your medical history, health status or claims experience. The company can, however, impose the same preexisting condition restrictions that apply to Medigap policies sold outside the open enrollment period. Preexisting conditions are generally health problems for which you saw a doctor within the 6 months before the date that the policy went into effect. Your Medicare card shows the effective dates for your Part A and/ or Part B coverage. To figure whether you are in your Medigap open enrollment period, add 6 months to the effective date of your Part B coverage. If the date is in the future and you are at least 65, you are eligible for open enrollment. If the date is in the past, you are generally not eligible. (If you were entitled to Medicare before age 65, see the following section on open enrollment and persons with disabilities.)

If you are covered under an employer group health plan when you become eligible for Part B at age 65, carefully consider your options. Once you enroll in Part B, the 6-month Medigap open enrollment period starts and cannot be extended or repeated.

If you are covered under an employer plan that is primary to Medicare in paying your medical bills, you will not need a Medigap plan until you are no longer covered under the employer plan. If you begin buying Part B as a supplement to your employer plan while it is the primary payer, you will start your Medigap open enrollment period when it is of little use to you.

You may, therefore, want to wait to buy Part B until you are ready to make optimum use of your Medigap open enrollment period. Also keep in mind that if you have already triggered your Medigap open enrollment period at age 65, you cannot get another one by dropping Part B and re-enrolling during a special enrollment period after you are no longer covered under the employer plan.

Medigap Open Enrollment and the Persons With Disabilities: If you become eligible for Part B benefits before age 65 because of a disability or permanent kidney failure, federal law guarantees you access to the Medigap policy of your choice when you reach age 65. During the first 6 months you are age 65 and enrolled in Part B, you can buy the policy of your choice regardless of whether you had enrolled in Part B before you were 65.

During these 6 months, you cannot be refused a policy because of your disability or for other health reasons. Moreover, you cannot be charged more than other applicants, which can greatly reduce the amount you are paying. This includes Medigap policies that cover outpatient drugs, if they are available in your state. A waiting period of up to 6 months, however, may be imposed for coverage of a pre-existing condition.

Several states go beyond federal law and require at least a limited open enrollment for Part B beneficiaries under 65. Check to see whether your state does. In addition to any state requirement, federal law requires that you be given an open enrollment opportunity when you turn 65, even if you were previously entitled to open enrollment under state law.

Guaranteed Renewable: All standard Medigap policies are guaranteed renewable. This means that the insurance company cannot refuse to renew your policy unless you do not pay the premiums or you made material misrepresentations on the application. Older Medigap policies (sold before 1992) may allow the company to refuse to renew on an individual basis. These older policies provide the least permanent coverage.

Older Medigap Policies: Many federal requirements do not apply to Medigap policies sold before 1992, when Medigap was standardized. There is generally no requirement that you switch to one of the standard plans if you have an older policy. However, you may be required to switch if your older plan was not guaranteed renewable and the company discontinues the type of policy you have. Check with your state insurance department to find out what state-specific requirements are in force.

Switching Medigap Policies: Even if you are not required to convert an older policy, you may want to consider switching to one of the standardized Medigap plans if it is to your advantage and an insurer is willing to sell you one. If you do switch, you will not be allowed to go back to the old policy. Before switching, compare benefits and premiums, and determine if there are waiting periods for any of the benefits in the new policy. Some of the older policies may provide better coverage, especially for prescription drugs and extended skilled nursing care. On the other hand, older Medigap polices, which cannot be sold to new applicants, may experience greater premium increases than newer standardized policies that can enroll new applicants (younger, healthier policyholders whose better claims experience will help to moderate premiums).

If you have had a Medigap policy for at least 6 months and you decide to switch, the replacement policy generally cannot impose a waiting period for a preexisting condition. If, however, a benefit is included in the new policy that was not in the old policy, a waiting period of up to 6 months--unless prohibited by your state--may be applied to that particular benefit.

You do not need more than one Medigap policy. If you already have a Medigap policy, you must sign a statement when you buy another indicating that you intend to replace your current policy and will not keep both policies. However, do not cancel the old policy until the new one is in force and you have decided to keep it.

Use the "Free-Look" Provision: Insurance companies must give you at least 30 days to review a Medigap policy. If you decide you don’t want the policy, send it back to the agent or company within 30 days of receiving it and ask for a refund of all premiums you paid. Contact your state insurance department if you have a problem getting a refund.

Non-Standard Plans: It is illegal for anyone to sell you a Medigap plan that does not conform to Medigap standardization requirements. This may include a "retainer agreement" that your doctor may offer you under which he or she will provide certain non-Medicare-covered services and waive the Medicare coinsurance and deductible amounts. This arrangement may violate federal laws governing Medigap policies. If a doctor refuses to see you as a Medicare patient unless you pay him or her an annual fee and sign one of these retainer agreements, you should register a complaint with federal authorities by calling 1-800-638-6833.

Carrier Filing of Medigap Claims: Under certain circumstances, when you receive medical services covered by both Medicare and your Medigap insurance, you may not have to file a separate claim with your Medigap insurer in order to have payment made directly to your doctor or medical supplier.

By law, the Medicare carrier that processes Medicare claims for your area must send your claim to the Medigap insurer for payment when the following three conditions are met for a Medicare Part B claim:

  1. Your doctor or supplier must have signed a participation agreement with Medicare to accept assignment of Medicare claims for all patients who are Medicare beneficiaries;
  2. Your policy must be a Medigap policy; and
  3. You must instruct your doctor to indicate on the Medicare claim form that you wish payment of Medigap benefits to be made to the participating doctor or supplier. Your doctor will put your Medigap policy number on the Medicare claim form.

When these conditions are met, the Medicare Carrier will process the Medicare claim, send the claim to the Medigap insurer and generally send you an Explanation of Medicare Benefits (EOMB) or Medicare Summary Notice (MSN). Your Medigap insurer will pay benefits directly to your doctor or medical supplier and send you a notice that it has done so.

If the insurer refuses to pay the doctor directly when these three conditions are met, you should report this to your state insurance department. For more information on Medigap claim filing by the carrier, contact your Medicare Carrier (see Directory).

Under another arrangement, some Medigap insurers have "crossover" contracts with Medicare. If your company has a crossover contract, Medicare will automatically send all of your claims directly to the insurer, even if the doctor has not signed a participation agreement with Medicare.

Managed Care Plans and Medigap: If you have a Medigap policy and decide to enroll in a managed care plan, you may either keep the policy or, if after deciding you like the plan, you may cancel it. You will generally not need a Medigap policy if you enroll in a Medicare managed care plan. Keeping it after you enroll means that you may be paying twice for the same coverage.

In fact, until recently, insurers would have been prohibited from selling you a policy because it would duplicate benefits you were getting through the plan.

However, this is no longer true. Therefore, before you give up your Medigap policy or let a Medigap open enrollment period expire, you should take the following factors into account and also consider discussing your particular circumstances with your state insurance counseling office.

If you enroll in a plan with a risk contract, a Medigap policy will likely be of little or no value to you during the time you are enrolled. For example, a Medigap policy will not pay any copayments or premiums charged by the plan. If you go outside the plan for Medicare-covered services, neither Medicare nor the Medigap policy will pay for those services because you are enrolled in a Medicare risk plan. For services not covered by Medicare such as prescription drugs, many of the same benefits that would be covered under a Medigap policy will likely be available through the plan. A Medigap policy might be of value to you only if you left the plan for fee-for service Medicare. In returning to fee-for-service, the Medigap policy of your choice may not be available to you if you have health problems.

If you enroll in a cost plan, it is advisable to get all services through the plan, since you may already be paying a premium and would probably incur only minimal copayments each time you used a service. However, if you expect to go outside the plan for services, a Medigap policy might cover the Medicare deductibles and coinsurance you will incur.

Source: Health Care Financing Adminsitration

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