If you have what is known as Original Medicare, you probably have a supplemental Medigap plan.
I thought I’d take you back through time to explore the history and regulatory evolution of these secondary health plans, which are designed to supplement Original Medicare’s cost sharing.
Since Medicare went into effect on July 1, 1966, private insurance companies have offered plans designed to cover some of the out-of-pocket costs not covered by the national healthcare program.
Medicare was never designed to cover all a person’s medical costs. Like most plans at the time beneficiaries had cost-sharing typically in the form of deductibles, copays, and coinsurance.
One of the concerning issues of Original Medicare is that Maximum Out-of-Pocket Limits weren’t built into its original design.
Part A has cost sharing in the form of a deductible per benefit period and daily copay that begins after 60 days of continuous hospital stay.
For Part B, after you meet your deductible for the year, you generally pay 20% of the bill for most doctor services. No matter how high the bill is, you’re responsible for that 20% of cost-sharing!
Medicare supplement plans, also known as Medigap plans, were designed to help cover these deductibles and coinsurances among other things.
The early Medigap plans weren’t the federally standardized plans we have now. They lacked much oversight, even at the state level. There were many different plans with various competing benefits, and it was hard to compare the differences between them.
A lot of seniors were concerned about out-of-pocket costs creating a financial hardship. Certain unethical agents took advantage of this and oversold plans that often overlapped or duplicated benefits. These additional policies in many cases provided very little value in return for the premiums paid.
Some of these rouge insurance agents didn’t even bother to deliver the policies they’ve written, and some even went as far as committing fraud by forging signatures on additional policies to receive bigger commissions! Complaints began to pile up at the state level through the Department of Insurance offices.
Several Committee hearings took place in the mid to late 1970’s that led to developing federal oversight of Medigap plans.
New York was one of the first states to crack down on these abuses, first from changing how insurance companies could do business in that state.
In most states, an insurance company could file and start accepting applications for a new policy right away. This is what insurance companies call a “file and use” state.
New York changed this to a process that needed pre-approval before business could be conducted. They required Medigap policies and brochures to have “easier to read” language and clearer benefits.
California made similar changes soon after.
The National Association of Insurance Commissioners (NAIC) developed model standards for Medigap plans around this time as well.
It’s important to note from the 1970’s well into the early 1980’s, employers were rapidly expanding benefits for retirees which included group health coverage that coordinated with Medicare.
Individually purchased Medigap coverage, however, remained and still is the most common way to supplement Original Medicare.
For the rest of this post, I’ll briefly cover the various federal legislative changes that have impacted Medigap plans beginning in 1980 all the way to the most recent legislation impacting Plan C & Plan F that became effective in 2020.
-The Social Security Disability Amendments of 1980-
Also known as the Baucus Amendments, for the first time established a voluntary certification option for Medigap issuers to follow. These minimum standards included meeting or exceeding the NAIC model standards and required medical loss ratios, which meant the percentage of premiums paid out as benefits had to be at least 60% (75% for group policies)
A rule was also established that new Medigap policies becoming effective in 1982 could no longer exclude preexisting conditions from coverage for more than 6 months after the policy takes effect.
The Secretary of Health, Education & Welfare, now called Health & Human Services was required to produce educational information on Medigap policies, examine the methods states were using to regulate Medigap plans, and keep Congress addressed on the effectiveness of this certification procedure at least once every two years.
-The Omnibus Budget Reconciliation Act of 1987-
This act permitted participating physicians and suppliers to be paid directly by the Medigap plans. This eventually led to the coordination of Medicare & Medigap plans with claims being paid automatically through the “crossover” system.
Today in most cases, when a beneficiary receives care that is covered by Part B of Medicare, the Medicare contractor pays the provider its portion of the bill, then the remaining portion is automatically forward to the Medigap issuer to be paid.
This results in virtually a “hands-off” claim experience for the beneficiary! Prior to this convenience, you had to file a paper claim to the Medigap issuer to receive your benefits!
-The Medicare and Medicaid Patient and Program Protection Act of 1987-
This act mainly covered amendments to anti-kickback legislation, but it also included a provision that makes individuals who knowingly and willfully provide false statements or misrepresent a medical fact in the sale of a Medigap policy guilty of a felony.
-The Medicare Catastrophic Coverage Act of 1988-
Most of this act’s provisions were repealed only a year later in the Medicare Catastrophic Coverage Repeal Act of 1989, but one provision that stuck made the voluntary certification of meeting or exceeding NAIC model standards for Medigap issuers now mandatory.
It also improved consumer protection by requiring the Secretary of Health & Human Services to inform beneficiaries of sales abuses, provide a toll-free number where such abuses can be reported, and publish the addresses and phone numbers of state and federal offices providing information and assistance.
-Omnibus Budget Reconciliation Act (OBRA) of 1990-
This act further changed all the voluntary requirements to now mandatory requirements of Medigap policies including standardizing benefits, limiting pre-existing conditions to six months, and minimum loss ratios.
It established 10 standardized plans, (A through J) in all but three states. Massachusetts, Minnesota, and Wisconsin had their own Medigap model standards established at the time and were granted waivers.
Also added was a 15-state demonstration plan option called Medicare SELECT, which offers a limited provider network. Medicare SELECT became a nationwide plan in 1995.
These standardized plans went into effect in 1992 for new purchasers. Existing policyholders could keep their pre-standardized plans.
-The Social Security Act Amendments of 1994-
Amended the anti-duplication provision to further clarify the situations a Medigap carrier could sell health insurance policies with duplicative (non-Medigap) coverage.
An unintended consequence of earlier legislation resulted in Medigap carriers refusing to sell Medigap policies to beneficiaries that had any other type of private coverage.
-The Balanced Budget Act (BBA) of 1997-
A high deductible option for Plans F & J were added, and restrictions on pre-existing conditions exclusions during the initial Medigap open enrollment were added for those aged 65 or older with previous health insurance.
It’s important to note that in 1972 the social security act extended Medicare to people under age 65 with long-term disabilities and those with End-Stage Renal Disease.
However, there has been no federal requirement that Medigap issuers have to offer plans for people under 65 that otherwise qualify for Medicare.
Some states guarantee that applicants under age 65 will have access to at least one plan, but others don’t.
Unfortunately, the Medigap 6-month open enrollment period did not give beneficiaries under 65 the same protection as those aged 65 and over.
-The Ticket to Work & Work Incentives Act of 1999-
This act permitted disabled Medicare beneficiaries to suspend their Medigap coverage when they were covered under a major medical group health policy.
-The Omnibus Consolidation and Emergency Supplemental Appropriation Act of 1999-
This act enforced penalties for providers or facilities that paid beneficiaries Medigap premiums. This was an attempt to avoid conflicts of interest created when providers or facilities first paid premiums and then self-referred patients.
-The Consolidated Appropriations Act of 2001-
This act gave guaranteed rights to purchase a new Medigap plan free from pre-existing conditions exclusions when individuals experienced certain changes in their health insurance, such as an involuntary termination of a group health or Medigap plan.
-Medicare Prescription Drug Improvement and Moderation Act of 2003-
Since this act added the Part D Drug provision, Medigap plans selling drug benefits could no longer be sold to those who didn’t already have them beginning June 1st, 2010.
The dropped plans were E, H, I, and J including the high deductible option.
People who already had these plans could keep them if they wanted to but were also given a guaranteed option to purchase plans A, B, C, and F with the same insurance carrier.
The Home Recovery and Preventative Care benefits were removed from all Medigap plans.
The Home Recovery benefit was very seldom used and actually required the tedious process of manually filing a claim to receive benefits!
The Preventative Care benefits became redundant because Medicare now covered many of the benefits that were covered under this benefit.
The Excess Charges benefit for Plan G was increased to 100% and a Hospice Benefit was added to the basic benefits of Plans A through G. Plans K, L, M & N were created as well.
-The Medicare Improvements for Patients and Providers Act of 2008-
This act set standards for which plans Medigap insurance carriers could offer. Insurers who wanted to offer plans beyond the least comprehensive Plan A had to at least offer one of the most comprehensive plans such as Plan C or F.
-The Genetic Information Nondiscrimination Act of 2008-
This act prohibited discrimination by health insurers and employees based on genetic information.
-The Patient Protection and Affordable Care Act of 2008-
This act required that the Secretary of Health & Human Services request that the NAIC review and revise cost sharing in Plans C & F.
The “first dollar” coverage benefit of these two plans had been linked to higher use costs for the Medicare program, which explains why they were considering revising the cost-sharing provisions of these two plans.
-The Medicare Access and CHIP Reauthorization Act of 2015-
This act brought an end to the popular “First Dollar Coverage” plans Plan C and Plan F as an enrollment option to those newly eligible for Medicare in 2020.
These two plans pay the Part B deductible which is specifically what the new legislation prohibits.
People who joined Part A before January 1st, 2020, are still able to purchase or switch plans C and F from any insurance company that offers them today. (But I typically don’t recommend you do that. Ask me why, and I’ll explain.)
But newly eligible Medicare beneficiaries can’t enroll in Plan F or C Medigap plans. They’ll have to pick one of the other standardized letter plans.
They will have to meet the annual Part B deductible (currently $240 in 2024) before the Medigap plan’s Part B supplemental benefits kick in.
Thanks for making it all the way to the end of this post!
I hope you found it enlightening!