2017-18605. Medicare Program; Recognition of Revised NAIC Model Standards for Regulation of Medicare Supplemental Insurance

AGENCY:

Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION:

Notice.

SUMMARY:

This notice announces the changes made by the Medicare Access and CHIP Reauthorization of 2015 (MACRA) to section 1882 of the Social Security Act (the Act), which governs Medicare supplemental insurance. This notice also recognizes that the Model Regulation adopted by the National Association of Insurance Commissioners (NAIC) on August 29, 2016, is considered to be the applicable NAIC Model Regulation for purposes of section 1882 of the Act, subject to our clarifications that are set forth in this notice.

DATES:

Amendments made by section 401 of MACRA apply to issuers of Medigap policies for policies issued on or after January 1, 2020.

FOR FURTHER INFORMATION CONTACT:

Derrick Claggett, [phone].

SUPPLEMENTARY INFORMATION:

I. Background

A. The Medicare Program

The Medicare program was established by Congress in 1965 with the enactment of title XVIII of the Social Security Act (the Act). The program provides payment for certain medical expenses for persons 65 years of age or older, certain disabled individuals, persons with end-stage renal disease (ESRD), and certain individuals exposed to environmental health hazards.

Medicare has three types of benefits. The Hospital Insurance Program (Part A) covers inpatient care. The Supplementary Medical Insurance Program (Part B) covers a wide range of medical services, including physicians' services and outpatient hospital services, as well as equipment and supplies, such as prosthetic devices. The Voluntary Prescription Drug Benefit Program (Part D) covers outpatient prescription drugs not otherwise covered by Part B.

Beneficiaries can get their Part A and Part B benefits in two ways. Under Original Medicare, beneficiaries get their Part A and Part B benefits directly from the Federal government. Beneficiaries can also choose to get their Part A and Part B benefits through private health plans that contract with Medicare. Most of these contracts are under Part C of Medicare, the Medicare Advantage (MA) Program.

While Medicare provides extensive benefits, it is not designed to cover the total cost of medical care for Medicare beneficiaries. Under Original Medicare, even if the items or services are covered by Medicare, most beneficiaries are responsible for various deductibles, coinsurance, and in some cases copayment amounts.

1. Deductibles

Under Original Medicare, a beneficiary with Part A is generally responsible for the Part A inpatient hospital deductible for each benefit period. A benefit period is the period beginning on the first day of hospitalization and extending until the beneficiary has not been an inpatient of a hospital or skilled nursing facility for 60 consecutive days. The inpatient hospital deductible is updated annually in accordance with a statutory formula. The inpatient hospital deductible for calendar year (CY) 2016 was $1,288.00 and for CY 2017 it is $1,316.00.

A beneficiary with Part B is responsible for the Part B deductible for each calendar year. The deductible is indexed to increase with the average cost of Part B services for aged beneficiaries. The Part B deductible for CY 2016 was $166.00 and for CY 2017 it is $183.00.

2. Coinsurance

As previously stated, beneficiaries are generally responsible for paying coinsurance for covered items and services. For example, the coinsurance applicable to physicians' services under Part B is generally 20 percent of the Medicare-approved amount for the service(s). If a physician or certain other suppliers accept assignment, the beneficiary is only responsible for the coinsurance amount. When beneficiaries receive covered services from physicians or other suppliers who do not accept assignment of their Medicare claims, beneficiaries may also be responsible for some amounts in excess of the Medicare approved amount (excess charges).

3. Non-Covered Services

Some items and services are not covered under either Part A or Part B; for example, custodial nursing home care, most dental care, eyeglasses, and items or services furnished outside the United States. Original Medicare covers many health care services and supplies, but beneficiaries are responsible for the out-of-pocket expenses described previously. As such, most beneficiaries choose to obtain some type of additional coverage to pay some of the costs not covered by Original Medicare. For people who do not have coverage from a current or previous employer that performs this function, or who do not qualify for Medicaid, the most common coverage is Medicare supplemental insurance (also called Medigap). Some beneficiaries may also try to defray some expenses with hospital indemnity insurance, nursing home or long-term care insurance, or specified disease (for example, cancer) insurance.

B. Medicare Supplemental Insurance

A Medicare supplemental (Medigap) policy is a health insurance policy sold by private insurance companies specifically to fill “gaps” in Original Medicare coverage. A Medigap policy typically provides coverage for some or all of the deductible and coinsurance amounts applicable to Medicare-covered services, and sometimes covers items and services that are not covered by Medicare. Section 1882(d)(3)(A)(i) of the Act specifies that a party may not sell a Medigap policy with knowledge that the policy duplicates health benefits which the applicant is otherwise entitled to, including from Medicaid programs that cover Medicare cost-sharing (for example, the Qualified Medicare Beneficiary Program), MA plans, and individual market plans.

Section 1882 of the Act sets forth requirements and standards that govern the sale of Medigap policies. It incorporates by reference, as part of the statutory requirements, certain minimum standards established by the National Association of Insurance Commissioners (NAIC). These minimum standards, known as the NAIC Model Standards are found in the “Model Regulation to Implement the NAIC Medicare Supplement Insurance Minimum Standards Act” (NAIC Model), initially adopted by the NAIC on June 6, 1979, and revised periodically to reflect subsequent Federal legislative changes. (For additional information, see section 1882(g)(2)(A) of the Act.)

Under section 1882 of the Act, Medigap policies generally may not be sold unless they conform to the standardized benefit packages that have been defined and designated by the NAIC. The 10 original standardized plans were created in accordance with the Omnibus Budget Reconciliation Act of 1990 (OBRA '90), and designated A through J. The Balanced Budget Act of 1997 (BBA) authorized plans F and J to have high deductible options that are counted as separate plans. The Medicare Modernization Act of 2003 (MMA) created new plans K and L, and the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) authorized the creation of new plans M and N. Medigap plans E, H, I, and J are no longer available for sale. Three states (Massachusetts, Minnesota, and Wisconsin) are permitted by statute to have different standardized Medigap plans and are sometimes referred to in this context as the “waiver” States. There are also policies issued before the OBRA '90 requirements became applicable in 1992 (pre-standardized policies) that are still in effect.

Effective January 1, 2006, Medigap policies could no longer be sold with a prescription drug benefit. Three of the original standardized Medigap plans, H, I and J, as well as some Medigap policies in the waiver States, may still contain coverage for outpatient prescription drugs if the policies were sold before January 1, 2006. In addition, some pre-standardized plans cover drugs. If a beneficiary holding one of these policies enrolls in Medicare Part D prescription drug coverage, the prescription drug coverage is removed from the individual's Medigap policy.

Section 1882(b)(1) of the Act provides that Medigap policies issued in a State are deemed to meet the Federal requirements if the State's program regulating Medigap policies provides for the application of standards is at least as stringent as those contained in the NAIC Model Regulation, and if the State requirements are equal to or more stringent than those set forth in section 1882 of the Act.

States must amend their regulatory programs to implement all new Federal statutory requirements and applicable changes to the NAIC Model Standards. Thus, States will now be required to implement the statutory changes made by the Medicare Access and CHIP Reauthorization Act of 2015 the (MACRA), and the changes to the NAIC Model Standards made to comport with the requirements of MACRA. The revised NAIC Model is attached to this notice. States generally cannot modify the standardized benefit packages set out in the NAIC Model. However, with respect to other provisions, States retain the authority to enact provisions that are more stringent than those that are incorporated in the NAIC Model Standards or in the Federal statutory requirements. (See section 1882(b)(1)(B) of the Act.) States that have received a waiver under section 1882(p)(6) of the Act may continue to authorize the sale of policies that contain different benefits than the standardized benefit packages. However, those States are also required to amend their regulatory programs to implement the new Federal statutory requirements and changes to the NAIC Model Standards as a result of MACRA. (See section 1882(z)(3) of the Act.)

II. Legislative Changes Affecting Medigap Policies and Clarification

A. Medicare Access and CHIP Reauthorization Act of 2015 (MACRA)

Some standardized Medigap plans currently sold on the market provide first-dollar coverage for beneficiaries, which means the plan pays the Medicare deductibles, coinsurance, and copayments so that the beneficiary has no out-of-pocket costs for Medicare covered services. MACRA was enacted on April 16, 2015 (Pub. L. 114-10), and beginning on January 1, 2020, it prohibits the sale of Medigap plans with first-dollar coverage to an individual who is a “newly eligible Medicare beneficiary,” which is further defined in section II.C.1. of this notice. The effect of this provision is that as of this date, a “newly eligible Medicare beneficiary” will be required to pay out-of-pocket for the Medicare Part B deductible. The Part B deductible for CY 2016 was $166.00 and for CY 2017 it is $183.00.

B. Changes to the NAIC Model #651 (Model Regulation To Implement the NAIC Medicare Supplement Insurance Minimum Standards Model Act) Approved by the NAIC on August 29, 2016

Consistent with the process authorized in section 1882(p)(1) of the Act, the NAIC formulated a task force consisting of State regulators, consumer advocates, industry representatives, and staff from the Centers for Medicare & Medicaid Services (CMS) to draft changes to the Medigap standardized plan structure and the NAIC Model Standards to align with section 401 of MACRA. The draft changes were approved by the NAIC task force on April 4, 2016. The revised NAIC Model (with the approved changes) was adopted by the NAIC on August 29, 2016. The changes apply to Medigap policies or certificates issued on or after January 1, 2020.

The following are the changes, effective January 1, 2020, to the standardized Medigap plans:

• A new Plan G With High Deductible is created, which is identical to the Plan F With High Deductible except there is no coverage for the Part B deductible.
• For a “newly eligible Medicare beneficiary”—

++ Plan C is redesignated as Plan D, which does not provide coverage for the Part B deductible;

++ Plan F is redesignated as Plan G, which does not provide coverage for the Part B deductible; and

++ Plan F With High Deductible is redesignated as Plan G With High Deductible, which does not provide coverage for the Part B deductible.

As a result of these changes, the revised NAIC Model contains the following three sets of standardized plans:

• Sections 8 and 9 of the NAIC Model outline the benefits for standardized plans with an effective date of coverage prior to June 1, 2010 (the 1990 standardized plans).
• Sections 8.1 and 9.1 of the NAIC Model spell out the benefits for the standardized plans with an effective date for coverage on or after June 1, 2010 (the “2010 standardized plans”).
• Section 9.2 of the NAIC Model contains the benefits for the standardized plans for an individual who is a “newly eligible Medicare beneficiary” with an effective date for coverage on or after January 1, 2020 (the 2020 standardized plans for Newly Eligible Medicare Beneficiaries).

C. Clarifications

1. Definition of Newly Eligible Medicare Beneficiary

Section 401 of MACRA defines a newly eligible Medicare beneficiary” as an individual who is neither of the following:

• An individual who has attained age 65 before January 1, 2020.
• An individual who was entitled to benefits under Medicare Part A pursuant to section 226(b) or 226A of the Act, or deemed eligible for benefits under 226(a) of the Act, before January 1, 2020.

Section 9.2.B. of the NAIC Model captures this definition. An individual who is not a newly eligible Medicare beneficiary can continue to purchase Medigap policies that provide coverage of the Medicare Part B deductible.

Individuals retroactively entitled to Medicare Part A after January 1, 2020, with an effective date for Medicare coverage before January 1, 2020 would not fall under the definition of a “newly eligible Medicare beneficiary” because their Part A benefits would begin before January 1, 2020. In addition, an individual who has attained age 65 before January 1, 2020, but who was not entitled to Medicare Part A until after January 1, 2020, would also not be a “newly eligible Medicare beneficiary.” Similarly, environmental exposure affected individuals deemed eligible for Medicare before January 1, 2020 would not be a “newly eligible Medicare beneficiary.”

2. Upon Exhaustion Benefit

Section 8.B. of the NAIC Model describes the standards for basic benefits common to the 1990 standardized Plans A through J. Section 8.D.(1) of the NAIC Model describes the standards for benefits common to the 1990 standardized Plans K and L. Section 8.1.B. of the NAIC Model describes the basic benefits common for the 2010 standardized plans A through D, F, F with High Deductible, G, M and N. Section 9.1.E.(8) of the NAIC Model describes the standards for benefits common to the 2010 standardized plans K and L. Section 9.2.A. of the NAIC Model describes the standards for benefits common to the 2020 standardized plans for a “newly eligible Medicare beneficiary”. Sections 8.B.(3)., 8.D.(1)(c)., 8.1.B.(3)., and 9.1.E.(8)(c). of the NAIC Model describe what is commonly referred to as the “upon exhaustion” benefit. Medicare provides inpatient hospital benefits for up to 90 days in a benefit period, plus any of the 60 lifetime reserve days that have not already been used. After a beneficiary exhausts this coverage, including the lifetime reserve days, all Medigap policies cover 100 percent of Medicare Part A eligible expenses for hospitalization paid at the applicable prospective payment system (PPS) rate or other appropriate Medicare standard of payment, subject to a lifetime maximum benefit of 365 days.

We note that the last sentence of sections 8.B.(3)., 8.D.(1)(c)., 8.1.B.(3)., and 9.1.E.(8)(c). of the NAIC Model is not part of the benefit description of the “upon exhaustion” benefit. Therefore, a State's failure to include this language in its regulatory program does not affect the State's compliance with Federal Medigap standards and requirements. Similarly, section 17.D.(4). of the NAIC Model sets forth the outlines of coverage for Plans A through D, F or High Deductible F, G or High Deductible G, K through N. Each outline contains, at the bottom of the chart on Part A benefits, a “NOTICE” to prospective purchasers about the “upon exhaustion” benefit. The final sentence of this notice is also not part of the benefit description, and therefore, a State's failure to include this language in the outlines of coverage does not affect the State's compliance with Federal Medigap standards and requirements.

3. Guaranteed Issue Opportunities

Consistent with the December 4, 1998 (63 FR 67078) Federal Register notice published in recognizing the BBA changes to the NAIC Model, we reiterate that, in contrast to both the general open enrollment provision of section 1882(s)(2)(A) of the Act and the guaranteed issue provision in section 1882(s)(3)(B)(vi) of the Act, which specifically state that the protected individual must be at least at age 65, the guaranteed issue provisions in section 1882(s)(3)(B)(i) through (v) of the Act do not contain an age restriction. Therefore, the latter provisions apply by their terms both to individuals eligible for Medicare based on age, and those whose eligibility is based on disability, end stage renal disease (ESRD) or exposure to an environmental hazard. All individuals who meet the criteria set forth in section 1882(s)(3)(B)(i) through (v) of the Act qualify for the Federal guaranteed issue protections. (In some situations policies may not be available to beneficiaries under 65. In other situations, a policy designated B, C, or F may not be available in a particular State.) Furthermore, we note that in some states, individuals under age 65 with Medicare have additional rights under State law to purchase Medigap coverage on a guaranteed issue basis.

Section 1882(z)(4) of the Act, as added by section 401 of MACRA, generally provides that for a “newly eligible Medicare beneficiary” any reference in section 1882 of the Act to Plans C and F shall be deemed, as of January 1, 2020, to be a reference to Plans D and G, respectively. As a result, the references to Plans C and F as plans that must be offered by issuers on a guaranteed issue basis under section 1882(o)(5), (s)(3)(C)(i), and (v)(3)(A)(i) of the Act are replaced with references to Plans D and G, respectively, for a “newly eligible Medicare beneficiary.” Further, State laws that currently provide additional guaranteed issue rights for Plans C and F may need to be changed for coverage with an effective date on or after January 1, 2020, to align with MACRA prohibition on the sale of first-dollar Medigap coverage to a “newly eligible Medicare beneficiary.”

4. Definition of Medicare-Eligible Expenses

Payment of Medigap benefits is, in many cases, based on whether a service is one that is generally covered by Medicare. The NAIC Model accordingly contains a definition of “Medicare eligible expenses.” This definition provides that “Medicare eligible expenses” means only those expenses of the kinds covered by Medicare Parts A and B, to the extent recognized as reasonable and necessary by Medicare. As outlined in the March 25, 2005 Federal Register (70 FR 15394), this definition clarifies that a Medigap policy does not pay cost-sharing for expenses under Medicare Part D and also clearly states the position of the NAIC and CMS that Medigap policies do not pay cost sharing incurred under Part C.

5. New Standardized Plan G With High Deductible

Consistent with section 1882(z)(4) of the Act, section 9.2A.(4) of the revised NAIC Model redesignates Plan F With High Deductible as a new Plan G With High Deductible for an individual who is a “newly eligible Medicare beneficiary,” as defined by section 401 of MACRA. As a result, the references to Plan F With High Deductible under section 1882(p)(11)(A)(i) of the Act is replaced with a reference to Plan G With High Deductible for a “newly eligible Medicare beneficiary.” Plan G With High Deductible does not provide coverage for any portion of the Part B deductible and will be available beginning on January 1, 2020.

Section 9.1.E.(7). of the NAIC Model provides that states may permit the sale of Plan “G” With High Deductible to an individual who is not a “newly eligible Medicare beneficiary.” While states are permitted to provide additional rights and protections beyond the Federal minimum standards, we note that this option and the last sentence of section 9.1.E.(7). of the NAIC are not part of the Federal standards. Therefore, a state's failure to include this language in its regulatory program does not affect the state's compliance with Federal Medigap standards and requirements.

III. Standardized Benefit Packages

The following tables list the standardized Medigap benefit packages (by standardized plan year and effective date of coverage), with a cross-reference to the sections of the attached NAIC Model where the packages are described in detail. The revised NAIC Model, adopted by the NAIC on August 29, 2016, is reprinted at the end of this notice. The NAIC has granted permission for the NAIC Model to be published and reproduced. Under 1 CFR 2.6, there is no restriction on the republication of material as it appears in the Federal Register.

Table 1—1990 Standardized Plans With an Effective Date of Coverage Prior to June 1, 2010

Plan	NAIC model section number
Plan A (Core Benefit Plan)	Section 9.E.(1).
Plan B	Section 9.E.(2).
Plan C	Section 9.E.(3).
Plan D	Section 9.E.(4).
Plan E	Section 9.E.(5).
Plan F	Section 9.E.(6).
Plan F High Deductible	Section 9.E.(7).
Plan G	Section 9.E.(8).
Plan H	Section 9.E.(9).
Plan I	Section 9.E.(10).
Plan J	Section 9.E.(11).
Plan J High Deductible	Section 9.E.(12).
Plan K	Section 9.F.(1).
Plan L	Section 9.F.(2).

Table 2—2010 Standardized Plans With an Effective Date of Coverage On or After June 1, 2010 But Prior to January 1, 2020:

Plan	NAIC model section number
Plan A (Core Benefit Plan)	Section 9.1.E.(1).
Plan B	Section 9.1.E.(2).
Plan C	Section 9.1.E.(3).
Plan D	Section 9.1.E.(4).
Plan F	Section 9.1.E.(5).
Plan F High Deductible	Section 9.1.E.(6).
Plan G	Section 9.1.E.(7).
Plan K	Section 9.1.E.(8).
Plan L	Section 9.1.E.(9).
Plan M	Section 9.1.E.(10).
Plan N	Section 9.1.E.(11).

Table 3—2020 Standardized Plans With an Effective Date of Coverage On or After January 1, 2020 for a “Newly Eligible Medicare Beneficiary,” as Defined by Section 401 of MACRA

Plan	NAIC model section number
Plan A (Core Benefit Plan)	Section 9.1.E.(1).
Plan B	Section 9.1.E.(2).
Plan D	Section 9.1.E.(4).
Plan G	Section 9.1.E.(7).
Plan G High Deductible	Section 9.1.E.(7).
Plan K	Section 9.1.E.(8).
Plan L	Section 9.1.E.(9).
Plan M	Section 9.1.E.(10).
Plan N	Section 9.1.E.(11).

Table 4—2020 Standardized Plans With an Effective Date of Coverage On or After January 1, 2020 for an Individual Who Is Not A “Newly Eligible Medicare Beneficiary,” as Defined by Section 401 of MACRA

Plan	NAIC model section number
Plan A (Core Benefit Plan)	Section 9.1.E.(1).
Plan B	Section 9.1.E.(2).
Plan C	Section 9.1.E.(3).
Plan C	Section 9.1.E.(4).
Plan F	Section 9.1.E.(5).
Plan F High Deductible	Section 9.1.E.(6).
Plan G	Section 9.1.E.(7).
Plan G High Deductible	Section 9.1.E.(7).1
Plan K	Section 9.1.E.(8).
Plan L	Section 9.1.E.(9).
Plan M	Section 9.1.E.(10).
Plan N	Section 9.1.E.(11).
1 Consistent with the last sentence of section 9.1.E.(7) of the NAIC Model, states may permit the sale of Plan G With High Deductible to an individual who is not a “newly eligible Medicare beneficiary.” However, a State's failure to adopt this sentence and provide this option does not affect the State's compliance with Federal Medigap standards and requirements.

IV. Collection of Information Requirements

This document does not impose information collection requirements, that is, reporting, recordkeeping or third-party disclosure requirements. Consequently, there is no need for review by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

Dated: August 24, 2017.

Seema Verma,

Administrator, Centers for Medicare & Medicaid Services.