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Medicare Supplement plans, referred to as Medigap, are policies issued by private insurance companies that are designed to fill in some of the gaps in Medicare — the gap in coverage attributable to Medicare's deductibles, copayment requirements, and benefit periods. These plans are not administered through the federal Social Security program, as Medicare is, but instead are sold and serviced by private insurers and HMOs. Medigap policies must meet certain requirements and be approved by the state department of insurance, and pay some or all of Medicare's deductibles and copayments.
Under the Omnibus Budget Reconciliation Act of 1990 (OBRA), Congress passed a law authorizing the NAIC to develop a standardized model for Medicare supplement policies. This model requires Medigap plans to meet certain requirements as to participant eligibility and the benefits provided. The purpose of this law was to eliminate questionable marketing practices and to provide consumers with a degree of protection, and to standardize the protection afforded.
Medicare supplement plans are sold through private insurers, not federal health insurance programs.
In order to standardize the coverage provided under Medicare supplement policies, the NAIC has developed standard Medicare Supplement benefit plans identified with the letters A through N. The core benefits found in Plan A must be offered in all the plans, and the other plans have a variety of additional benefits. Plan A must be offered by any insurer marketing Medigap plans, while the other plans are optional.
Once a person becomes eligible for Medicare supplement plans, and during the open enrollment period, coverage is offered on a guaranteed issue basis. In these situations, an insurance company must:
The California Insurance Code (CIC 10194.2–.3) requires Medicare Supplement Plans A–N to include the benefits described below. Know that insurers offering Medicare Supplement policies must offer Medicare Supplement Plan A, and either Plan C or F.
Medicare Supplement Plan A provides only the core benefits, also known as basic benefits, covering:
In addition to Plan A, which offers only the core benefits, most insurers also offer some or all of the additional plans. Insurers are not allowed to change the benefits offered in these supplemental plans, nor may they change the designation letter of any of the plans.
Plan B — core benefits plus the Medicare Part A deductible.
Plan D — core benefits, the Medicare Part A deductible, skilled nursing facility coinsurance, and the foreign travel benefit.
Plan G — core benefits, the Medicare Part A deductible, skilled nursing facility coinsurance, 100% of Medicare Part B excess charges, and the foreign travel benefit. This plan must pay for services of activities of daily living (ADL) that Medicare doesn't cover.
Plans C, E, F, H, I, and J are no longer available. These plans will remain in force for those insureds who purchased them when they were still available.
Medicare Supplement Plans K and L are lower-premium plans with higher out-of-pocket costs. The core benefits are different in these 2 plans as well, covering:
Plan K includes 50% of the Medicare Part A deductible and 50% of skilled nursing facility coinsurance. Plan L includes 75% of the Medicare Part A deductible and 75% of skilled nursing facility coinsurance. Plans M and N provide benefits similar to Plan D, but the co-pays and deductibles might be different.
| Plan | Basic Benefit | Skilled Nursing Coinsurance | Part A Deductible | Part B Excess (100%) | Foreign Travel Emergency |
|---|---|---|---|---|---|
| A | Yes | No | No | No | No |
| B | Yes | No | Yes | No | No |
| D | Yes | Yes | Yes | No | Yes |
| G | Yes | Yes | Yes | Yes | Yes |
| K | Yes (partial) | 50% | 50% | No | No |
| L | Yes (partial) | 75% | 75% | No | No |
| M | Yes | Yes | 50% | No | Yes |
| N | Yes | Yes | Yes | No | Yes |
Medigap Plan Benefits Comparison
All Medicare supplement plans must offer the core benefits available in Plan A.
Other Requirements — insurers are required to use the same format, language, and definitions in describing the benefits available in each of the Medigap plans. They are required to use a standardized chart and outline that summarizes the benefits. Although insurers are not allowed to alter the standardized benefits offered in each of these plans, they are allowed to offer new, innovative benefits which can be proven cost-effective and which are not currently available in the marketplace.
All Medigap policies are guaranteed renewable. The insurance company cannot cancel or nonrenew coverage except for nonpayment of the premium or because of material misrepresentation on the application. Although the benefits provided by these plans are identical from one company to the next, the premiums vary greatly — depending on how the insurer determines the premium charge, they can usually increase premiums on the policy anniversary date. Medigap policies must also include a 30-day free-look provision that allows the insured to return the policy to the insurer within 30 days for a full refund of the premium paid.
Medigap policies cannot include a provision that restricts coverage for pre-existing conditions for more than 6 months. In addition, if the insured has had a Medigap policy for at least 6 months and decides to change to another policy, the new policy cannot have a waiting period for pre-existing conditions for the same coverage that was included in the old policy. If the replacement policy includes additional coverage that was not in the old policy, the 6-month waiting period can be applied, but only as it pertains to the additional coverages.
Every insurance company's application for Medicare Supplement insurance must contain a question designed to determine if the applicant has another Medicare Supplement policy, or if this policy will replace any other accident and health policy. The application must also ask if the applicant is eligible for Medicaid and advise the applicant that counseling services may be available. It is the responsibility of the issuers, brokers, and agents to ensure that Medicare Supplement policies are not being unnecessarily replaced.
If replacement is involved, the insurance company or its agent must furnish the applicant with the "Notice Regarding Replacement" before issuing or delivering the policy. The insurance company must retain one copy, signed by the applicant and the agent. The notice must inform the applicant of the 30-day free-look provision, warn the applicant to review the new coverage carefully and replace existing coverage only if it materially improves their position, advise the applicant not to cancel present coverage until the new policy is received, and confirm the applicant's right to return the new policy within 30 days for a full refund.
If a Medicare supplement policy replaces another, the replacing insurance company must waive any time periods on pre-existing conditions, waiting periods, elimination periods, and probationary periods in the new Medicare supplement policy to the extent that these time periods were met under the policy being replaced. If a Medicare Supplement policy replaces another that has been in effect for 6 months or more, the replacing policy may not have any time requirement on pre-existing conditions, waiting periods, elimination periods, or probationary periods for benefits similar to those contained in the original policy.
In order to avoid abuses, Medicare supplement policies issued in California (CIC 10197) must meet the following rules regarding replacement and solicitation:
A Medicare SELECT policy is a Medicare supplement policy that contains restricted network provisions — provisions that condition the payment of benefits, in whole or in part, on the use of network providers. SELECT plans negotiate with a provider network of doctors, hospitals, and specialists to charge lower rates for medical services. It essentially operates like an HMO — the lower rates keep costs down for the SELECT plan provider, and plan members pay lower premiums.
Each Medicare SELECT policy must be approved by the head of a state's department of insurance. Currently, issuers are not allowed to sell new Medicare SELECT policies to individuals whose primary residence is located outside of the issuer's service area.
Every Medicare SELECT policy must:
The outline of coverage provided with Medicare supplement policies must be in the language and format prescribed by the California Insurance Code, be in at least 12-point type, and include disclosures that the policy may not fully cover all of the buyer's medical costs, that neither the company nor its agents are connected with Medicare, that the outline does not give all the details of Medicare coverage, and that additional information concerning policy benefits is available by contacting HICAP or the agent (whose phone number must be included).
Application forms used for Medicare supplement policies must include questions designed to elicit whether, as of the date of the application, the applicant has current Medicare supplement, Medicare Advantage, Medi-Cal coverage, or another health insurance policy in force, or whether a Medicare supplement policy is intended to replace any other disability policy in force.
The Commissioner of Insurance prepares an annual consumer rate guide for Medicare supplement insurance and Medicare supplement contracts, on or before the date of the fall Medicare annual open enrollment. The guide compares policies sold by different insurers, and must be available through HICAP offices, by telephone using the department's consumer toll-free number, and on the department's website.