1. What is Medigap insurance? 

Medicare provides basic protection against the cost of health care, but it does not pay all medical expenses. For this reason, many private insurance companies sell supplemental insurance policies known as "Medigap" policies. The federal government does not sell or service insurance, but regulates the coverage offered by Medigap insurance. Many Medicare beneficiaries enrolled in Part A (Hospital Insurance) and Part B (Medical Insurance) also maintain Medigap policies to cover costs not paid for by Parts A and B.

Medigap insurance is a private insurance policy designed to help pay deductibles and/or coinsurance incurred by beneficiaries who are enrolled in original Medicare Part A (Hospital Insurance) and Part B (Medical Insurance). A Medigap policy may also pay for certain items or services generally not covered by Medicare at all, such as medical expenses incurred during foreign travel. Medigap policies coordinate only with original Medicare Parts A and B, not with Medicare Advantage plans. By law, a Medicare beneficiary cannot be sold a Medigap plan that duplicates benefits otherwise available to that beneficiary under Medicare, including through a Medicare Advantage plan.

2. 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.

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It is unlawful to sell or issue to an individual entitled to benefits under Part A (Hospital Insurance) or enrolled under Part B (Medical Insurance): (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 that individual's 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 generally is prohibited, but there is no prohibition on sale of policies to low-income Medicare beneficiaries for whom Medicaid pays only the Part B (Medical Insurance) premiums.

3. Are there federal standards for Medigap policies? 

Yes, Congress established federal standards for Medigap policies in 1990 and again in 2010. Most states have adopted regulations limiting the sale of Medigap insurance to no more than 10 standard policies. One of the 10 is a basic policy offering a "core package" of benefits. These standardized plans are identified as follows: A, B, C, D, F, G, K, L, M, and N. (Plans E, H, I, and J have not been sold since June 1, 2010, although beneficiaries who had purchased such policies before that date are able to maintain their coverage. Plans M and N became available June 1, 2010.) Plan A is the core package. Plans B, C, D, F, G, M, and N each have a different combination of benefits, but they all include the core package. Plans K and L do not include the core benefit package; they instead offer catastrophic coverage. The basic Plan A policy, offering the core package of benefits, is available in all states. The availability of other plans varies from state to state.

The core package of benefits which all policies (except Plans K and L) must contain includes:

  • Part A (Hospital Insurance) coinsurance for the 61st through 90th day of inpatient hospitalization in any Medicare benefit period,
  • Part A (Hospital Insurance) coinsurance for the 60 lifetime reserve days that can be used for an inpatient hospitalization that lasts more than 90 days,
  • Part A (Hospital Insurance) expenses for an extra 365 days in the hospital,
  • Part A (Hospital Insurance) and Part B (Medical Insurance) deductible for the cost of the first three pints of blood,
  • Part B (Medical Insurance) coinsurance (20% of allowable charges in most cases), and
  • Part A (Hospital Insurance) hospice coinsurance, if any.

4. What rules apply regarding Medigap insurance and Medicare Advantage plans? 

A Medicare Advantage plan is not considered a Medigap insurance policy. Medigap insurance policies supplement original fee-for-service Medicare coverage (Medicare Part A (Hospital Insurance) and Part B (Medical Insurance)). As an alternative to original Medicare Parts A and B, Medicare Advantage plans offer at a minimum the same basic coverage as traditional fee-for-service Medicare. Medicare Advantage plans may also offer additional benefits, subject to payment of additional premiums by enrollees (if the Medicare Advantage plan so requires). The additional benefits often duplicate what would otherwise be available through a private Medigap policy.

5. What are the special rules regarding Medigap protections under the Medicare Advantage program? 

If an individual described below seeks to enroll in a Medigap policy within 63 days of the events described below, the issuer may not (1) deny or condition the issuance of a Medigap policy that is offered or available, (2) discriminate in the pricing of a policy because of health status, claims experience, receipt of health care, or medical condition, and (3) impose a preexisting condition exclusion. 

 There is guaranteed issuance of Medigap Plans A, B, C, F, K or L for: 

  1. Individuals enrolled under an employee welfare benefit plan that provides benefits supplementing Medicare if the plan terminates or ceases to provide all benefits; 

  2. Persons enrolled with a Medicare Advantage organization who discontinue under circumstances permitting disenrollment other than during an annual election period. These include (1) the termination of the entity's certification, (2) the individual moves outside the entity's service area, or (3) the individual elects termination due to cause; 

  3. Persons enrolled with a risk or cost contract HMO, a similar organization operating under a demonstration project authority, a health care prepayment plan, or a Medicare SELECT policy, if enrollment ceases under the same circumstances that permit discontinuance of a Medicare Advantage election. In the case of a SELECT policy, there must also be no applicable provision in state law for continuation of the coverage; 
  4. Individuals enrolled under a Medigap policy, if enrollment ceases because of the bankruptcy or insolvency of the issuer, or because of other involuntary termination of coverage (and there is no provision under applicable state law for the continuation of coverage), or the issuer violated or misrepresented a provision of the policy. 

There is guaranteed issuance of Medigap Plans A, B, C, F, K, L, or the Medigap insurance policy that the individual most recently previously enrolled in, if the individual (1) was enrolled under a Medigap policy, (2) subsequently terminates enrollment and enrolls with a Medicare Advantage organization, a risk or cost contract HMO, a similar organization operating under a demonstration project authority or a Medicare SELECT policy, and (3) terminates the Medicare Advantage enrollment within 12 months, but only if the individual was never previously enrolled with a Medicare Advantage organization.

There is guaranteed issuance of any Medigap plan to an individual who, upon first becoming eligible for Medicare at age 65, enrolled in a Medicare Advantage plan and dis-enrolled from the plan within 12 months of the effective date of enrollment.

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