INSURANCE 101: Medigap

Medigap History

The Original Medicare program, composed of Part A and Part B, provides Medicare recipients with substantial coverage towards their overall healthcare needs; however, it still leaves ‘gaps’ in its coverage and requires recipients to cover certain Medicare costs.

Typical enrollee expenses include Part B premium payments, Parts A and B deductibles, coinsurance, and copays, as well as any expenses that exceed the Original Medicare’s coverage limits.

Unless a Medicare recipient is also enrolled in a welfare program such as Medicaid, or is receiving benefit payments from Social Security disability coverage, he or she will be required to pay some out-of-pocket Medicare expenses each year.

Shortly after the introduction of the Medicare program in the late 1960s and early 1970s, many private insurers began selling private Medicare supplement insurance plans to help cover the out-of-pocket costs that remained for Medicare recipients.  Commonly referred to as Medigap Plans, these private supplement plans were designed to help cover the costs associated with the ‘gaps’ in the Original Medicare coverage.

Federal and State Regulation
When Medigap plans were first introduced to the public, many private Medicare supplement insurers lacked consistency between the supplement plans that they marketed to Medicare recipients.  In addition, several incidences of sales marketing deception and abuse led to the introduction of federal regulation to help regulate the private Medicare supplement market.

Though it was considered to be voluntary by each state, in an attempt to coordinate and standardize private Medigap policies, Congress authorized Medigap regulation through the Omnibus Budget Reconciliation Act (OBRA) of 1990 and the states began regulating the private Medicare supplement market.

In order to protect vulnerable consumers in their healthcare purchasing decisions and to ensure that each private Medicare supplement plan met specific coverage standards, the National Association of Insurance Commissioners (NAIC) developed a standardized model in which the states regulate the private Medigap market.  Except for a few states including Massachusetts, Minnesota and Wisconsin that had already enacted its own regulation, all other states regulate Medigap insurance under the standardized NAIC model.

Medigap Eligibility and Enrollment
Unlike Part C which ‘disenrolls’ an individual from Parts A and Part B, a Medigap plan works with Part A and Part B, requiring recipients to first enroll into the Original Medicare program and then supplement it with a Medigap plan.  Individuals who are enrolled in Part C cannot also receive coverage from a Medigap plan and must re-enroll into Parts A and B in order to purchase a Medigap plan.

All Medigap insurers are required to offer a one-time, 6-month enrollment period after turning age 65 for individuals who have already enrolled in Medicare Part B that guarantees an enrollee the right to purchase any part of a Medicare supplement insurance policy, regardless of his or her health status.  Beyond the initial enrollment period, an insurer can require a paramedical exam or an attending physician’s statement if needed to ensure the health of the enrollee.

Types of Standardized Medigap Plans
Medigap insurance consists of 10 standardized ‘plans, each one titled according to the following letters: Plans A, B, C, D, F, G, K, L, M and N.  Letters E, H, I and J are older Medigap plans that were eliminated over the years.  Each of the 10 standardized plans includes fundamental benefits found in Plan A, with additional benefits attached to the remaining plans: B, C, D, F, G, M and N.

All plans must supplement both Part A and Part B of Medicare and automatically adjust benefits to reflect statutory changes in Medicare.  Though all Medigap plans must provide coverage as prescribed in Plan A, additional benefits are provided depending on the plan chosen.

If a Medigap plan excludes coverage for pre-existing conditions, coverage cannot exclude pre-existing conditions after the plan has been in effect for 6 months.  All Medigap plans must also include a minimum of a 30-day free look provision.

Plan A Coverage
The fundamental or ‘core’ benefits found in Plan A include the following:

• Medicare Part A copayments for the 61st through the 90th day of hospitalization in each benefit period
• Medicare Part A copayments for each of the 60 nonrenewable lifetime impatient hospital reserve days
• Medicare Part A hospital coinsurance costs up to an additional 365 days after Medicare benefits have been exhausted
• 100% of Medicare-eligible expenses for the first 3 pints of blood for Medicare Part A and Part B
• After the annual deductible is met, Medigap plans must provide coverage for the 20% coinsurance required in Medicare Part B, up to a maximum of $5,000 per year; however, Medigap plans may include a deductible before this benefit becomes payable.
• Medicare Part B coinsurance for preventive care expenses

Plan B Coverage
In addition to the core benefits required in Plan A, Plan B covers the Medicare Part A deductible.

Plan C Coverage
In addition to the core benefits required in Plan A and the Medicare Part A deductible covered in Plan B, Plan C also covers the Medicare Part B deductible, as well as Skilled Nursing Facility (SNF) care coinsurance amounts and any foreign travel emergency coverage up to Plan C’s coverage limits.

Plan D Coverage
Similar to Plan C, Plan D provides the same coverage amounts, with the exclusion of Medicare Part B’s deductible.  Plan D also provides ‘at-home recovery,’ which covers personal care services during recovery from an injury or illness that may be excluded from home health coverage paid under Part A.

Plan F Coverage
Similar to Plan C, Plan F also covers any ‘excess’ charges remaining from Medicare Part B.

Plan G Coverage
Similar to Plan F, Plan G provides the same coverage amounts, with the exclusion of the Medicare Part B deductible. Plan G also provides ‘at-home recovery,’ which covers personal care services during recovery from an injury or illness that may be excluded from home health coverage paid under Part A.

Medigap Plans K and L provide different benefits than the other Medigap plans and were established to provide some motivation for insured individuals to help control their own healthcare costs.  Accomplished through higher out-of-pocket costs and a lower percentage of covered healthcare costs, Plans K and L are also lower in premium and more affordable to the average Medicare recipient.

Plan K Coverage
In addition to the required benefits of Plan A, Plan K includes the following:

• 50% of Medicare Part A deductible
• 50% of Skilled Nursing Facility (SNF) care costs
• 50% of Part A hospice care costs
• 50% of Medicare-eligible expenses for the first 3 pints of blood for Medicare Part A and Part B
• 50% of Part B coinsurance (and 100% of Part B preventive care services)

Plan L Coverage
In addition to the required benefits of Plan A, Plan L includes the following:

• 75% of Medicare Part A deductible
• 75% of Skilled Nursing Facility (SNF) care costs
• 75% of Part A hospice care costs
• 75% of Medicare-eligible expenses for the first 3 pints of blood for Medicare Part A and Part B
• 75% of Part B coinsurance (and 100% of Part B preventive care services)

Plan M Coverage
In addition to the required benefits of Plan A, Plan M includes the following:

• 50% of Medicare Part A deductible
• Skilled Nursing Facility (SNF) care
• Foreign travel emergency coverage up to Plan M’s coverage limits.

Plan N Coverage
Similar to Plan D, except that Plan N includes limits on physician visits and ER visits.

Medicare SELECT vs. Medigap Insurance
Medicare SELECT plans are similar to traditional Medigap plans except that SELECT plans are less costly to the insured individual.  Unlike a traditional Medigap plan, Medicare SELECT is considered to be a managed care plan in which an insured must see ‘in-network’ physicians and hospitals in order for healthcare expenses to be covered.

Medigap Restrictions Relating to Part D
As previously mentioned, Medicare Part D is the optional outpatient prescription drug coverage for Medicare recipients who are approved for Medicare Part A or Part B.  Created as a result of The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), this Act also enacted the prohibition against selling Medigap policies with prescription drug coverage after December 31, 2005, such as the sales of Medigap plans H, I and J.  If these plans (H, I, and J) were sold prior to January 1, 2006, they could be renewed as long as the policyholder does not purchase Part D.