Medicare Program; Recognition of NAIC Model Standards for Regulation of Medicare Supplemental Insurance, 15394-15504 [05-5816]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 70, Number 57 (Friday, March 25, 2005)]
[Notices]
[Pages 15394-15504]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-5816]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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Medicare Program; Recognition of NAIC Model Standards for Regulation of 
Medicare Supplemental Insurance; Notice

Federal Register / Vol. 70, No. 57 / Friday, March 25, 2005 / 
Notices

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-4080-N]
RIN 0938-AN66


Medicare Program; Recognition of NAIC Model Standards for 
Regulation of Medicare Supplemental Insurance

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

ACTION: Notice.

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SUMMARY: This notice describes changes made by the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 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 September 8, 2004, 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. 
Finally, the full text of the revised NAIC Model Regulation is included 
as an addendum to this notice. The NAIC has granted permission for the 
NAIC Model Regulation 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.

DATES: Medicare supplemental insurance policies issued in any State 
must conform to the requirements in the revised NAIC Model Regulation 
as of the date the State adopts the revised standards, which generally 
must be no later than September 8, 2005.

FOR FURTHER INFORMATION CONTACT: Julie Walton, (410) 786-4622 or David 
Mlawsky, (410) 786-6851.

SUPPLEMENTARY INFORMATION:

I. Background

A. The Medicare Program

    The Medicare program was established by the 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, and persons with 
end-stage renal disease.
    The Original Medicare Plan has two parts: a Part A and Part B. The 
``hospital insurance program'' (Part A) covers inpatient care furnished 
by hospitals, critical access hospitals, and skilled nursing 
facilities, and care furnished by home health agencies and hospices. 
The ``supplementary medical insurance program'' (Part B) covers a wide 
range of medical services and supplies, including physicians' services, 
outpatient hospital services, outpatient rehabilitation services, such 
as physical and occupational therapy, and some home health services. 
Part B also covers certain drugs and biologicals that cannot be self-
administered, diagnostic x-ray and laboratory tests, purchase or rental 
of durable medical equipment, ambulance services, prosthetic devices, 
and certain medical supplies.
    In addition to the Original Medicare Plan, Medicare contracts with 
private health plans, including managed care plans, under Part C of 
Medicare, the Medicare Advantage Program.
    Beginning in January 2006, Medicare will also have a Voluntary 
Prescription Drug Benefit Program, which will be referred to as Part D 
of Medicare. The new Medicare Part D program is discussed in this 
notice under Legislative Changes Affecting Medigap Policies.
    While the Original Medicare Plan provides extensive hospital 
insurance benefits and supplementary medical insurance, it was not 
designed to cover the total cost of medical care for Medicare 
beneficiaries. First, with respect to Medicare covered services, 
beneficiaries are responsible for various deductible and coinsurance 
amounts. In addition, there are medical expenses that are not covered 
by Medicare at all.
1. Deductibles
    Under Part A, a beneficiary is 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) 2004 
is $876. For CY 2005, it is $912.
    The Part B deductible is $100 for CY 2004. Section 629 of the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 
(MMA) (Pub. L. 108-173, enacted on December 8, 2003) requires that the 
Part B deductible be raised to $110 in CY 2005, and indexed in 
subsequent years to the increase in the average cost of Part B services 
for aged beneficiaries.
2. Coinsurance
    As noted above, beneficiaries are responsible for paying certain 
coinsurance amounts 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. 
When beneficiaries receive covered services from physicians who do not 
accept assignment of their Medicare claims, the beneficiaries may also 
be required to pay amounts in excess of the Medicare approved amount 
(``excess charges''), up to a limit established under the Act.
3. Noncovered Services
    There are a number of items and services that are not covered under 
either Part A or Part B; for example, custodial nursing home care, most 
dental care, eyeglasses, and most prescription drugs are currently not 
covered. Thus, the Original Medicare Plan covers many health care 
services and supplies, but it does not cover all expenses. Therefore, 
most people choose to get some type of additional coverage to pay some 
of the costs not covered by the Original Medicare Plan. This coverage 
most frequently includes Medicare supplemental (Medigap) insurance or 
employer group health plans. Some beneficiaries may also 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 to fill ``gaps'' in Original 
Medicare Plan 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. Under current provisions of section 1882 
of the Act, Medigap policies generally may not be sold unless they 
conform to one of the 10 standardized benefit packages that have been 
defined and designated as plans ``A'' through ``J'' by the National 
Association of Insurance Commissioners (NAIC). 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.
    Three of the 10 standardized Medigap plans ``H'', ``I'', and ``J'' 
currently contain coverage for outpatient

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prescription drugs. In addition, there are Medigap policies that were 
issued before the standardization requirements went into effect 
(``prestandardized'' Medigap plans) that cover drugs, as well as 
Medigap policies in the waiver States, some of which have varying 
levels of coverage for outpatient prescription drugs.
    Section 1882 of the Act incorporates by reference, as part of the 
statutory requirements, certain minimum standards established by the 
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 Model Act,'' initially adopted 
by the NAIC on June 6, 1979 (see section 1882(g)(2)(A) of the Act). In 
particular, the Model Standards, as revised in 1992 according to the 
Omnibus Budget Reconciliation Act of 1990, prescribed 10 standardized 
benefit packages.
    Section 1882(b)(1) of the Act also provides that Medigap policies 
issued in a State are deemed to meet the Federal requirements if the 
State's program regulating Medicare supplemental policies provided for 
the application of standards 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 MMA, and the changes to the NAIC Model Standards made 
to comport with the requirements of MMA, which we attach to this 
notice. While States generally cannot modify the standardized benefit 
packages set out in the NAIC Model, with respect to other provisions 
States do retain the authority to enact regulatory provisions that are 
more stringent than those that are incorporated in the NAIC Model 
Standards or in the statutory requirements (see section 1882(b)(1)(A) 
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 10 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 the MMA.

II. Legislative Changes Affecting Medigap Policies

    Section 101 of the MMA amended title XVIII of the Act by 
redesignating Part D as Part E and inserting a new Medicare Part D, 
which establishes the Voluntary Prescription Drug Benefit Program. 
Effective January 1, 2006, Medicare Part D establishes an optional 
prescription drug benefit for individuals who are entitled to or 
enrolled in Medicare benefits under Part A and/or Part B. Beneficiaries 
will be able to enroll in Part D during an ``initial enrollment 
period'' (IEP) that will run from November 15, 2005 through May 15, 
2006. Full benefit dual eligible individuals (beneficiaries who qualify 
for both Medicare and Medicaid) who fail to enroll in a PDP or MA-PD 
during their initial enrollment period would be automatically enrolled 
into an appropriate Part D plan, specifically a PDP with a Part D 
premium that does not exceed the low-income premium subsidy amount.
    The prescription drug benefit program constitutes the most 
significant change to the Medicare program since its inception in 1965. 
The addition of outpatient prescription drugs to the Medicare program 
reflects Congress' recognition of the fundamental change in recent 
years in how medical care is delivered in the U.S. It recognizes the 
vital role of prescription drugs in our health care delivery system and 
the need to modernize Medicare to assure their availability to Medicare 
beneficiaries.
    In connection with the addition of a prescription drug benefit to 
Medicare, section 104 of the MMA also prescribes changes to the law 
applicable to Medigap policies. The most significant changes, discussed 
more fully in section II.A., include the prohibition against the sale 
of Medigap policies with prescription drug coverage (Medigap Rx 
policies) after December 31, 2005 and the establishment of two new 
standardized Medigap benefit packages that eliminate first-dollar 
coverage for most Medicare cost-sharing.
    In addition, section 1882(v) of the Act, as added by section 104 of 
the MMA, requires Medigap issuers to provide a written disclosure 
notice to individuals who currently have a Medigap Rx policy. This 
notice must be provided during the 60-day period before the beginning 
of the Part D IEP. The MMA requires the Secretary to establish 
standards for this disclosure notice in consultation with the NAIC. The 
purpose of this disclosure notice is to inform an individual who has a 
Medigap Rx policy about his or her choices once the new Medicare 
Prescription Drug Benefit Program goes into effect on January 1, 2006. 
Standards for the written disclosure notice and draft model language 
were set forth in the preamble to the proposed rule for the Medicare 
Prescription Drug Benefit in the Federal Register on August 3, 2004 (69 
FR 46632, 46760). CMS continues to develop the notice in consultation 
with the NAIC. We shared a revised draft of the notice with the NAIC at 
its spring quarterly meeting. The new draft responds to comments 
received on the proposed rule and incorporates the results of 
beneficiary focus testing.

A. Prohibition on the Sale of New Medigap Policies That Provide Drug 
Coverage

    As of January 1, 2006, section 1882(v) of the Act will prohibit the 
sale of new Medigap Rx policies and require the elimination of drug 
coverage from Medigap Rx policies held by beneficiaries who enroll 
under Medicare Part D. A Medigap Rx policy issued before January 1, 
2006 shall be renewed, at the option of the policyholder, if the 
policyholder has not enrolled in Medicare Part D. In addition, 
beneficiaries who do not enroll in Medicare Part D during the IEP, but 
choose to enroll later, will be charged higher Part D premiums unless 
they can establish that they had ``creditable prescription drug 
coverage'' before enrolling in Medicare Part D. (For more information, 
see the August 3, 2004 proposed rule (69 FR 46632).)

B. Elimination of Duplicative Drug Coverage Upon Part D Enrollment

    Under section 1882(v) of the Act, if an individual with a Medigap 
Rx policy does enroll in Medicare Part D, he or she can keep the 
Medigap policy but the drug coverage must be eliminated and the premium 
for the policy must be adjusted. Alternatively, as discussed in section 
II.C, if an individual with a Medigap Rx policy enrolls in Medicare 
Part D during the IEP, the individual has certain guaranteed issue 
rights to buy a different Medigap policy.

C. Guaranteed Issue Rights

    If an individual with a Medigap Rx policy enrolls in the Medicare 
Part D Prescription Drug Program during the IEP that runs from November 
15, 2005 through May 15, 2006, the individual, in most cases, has the 
right to buy another Medigap policy that does not include drug 
coverage, from the same issuer. The individual has a guaranteed right 
to buy Plan ``A'', ``B'', ``C'', or ``F'' (including the high 
deductible Plan ``F'')

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or one of the new Medigap benefit packages mandated by section 1882(w) 
of the Act, as added by section 104(b) of the MMA (designated Plan 
``K'' and Plan ``L''), if these plans are offered by the issuer and 
available to new enrollees. The issuer may also offer other Medigap 
plans on a guaranteed issue basis. The guaranteed issue period begins 
on the date the individual receives the notice, described above, that 
the Medigap Rx issuer is required to send to policyholders during the 
60-day period immediately preceding the initial Part D enrollment 
period. The guaranteed issue period ends 63 days after the effective 
date of the individual's Medicare Part D coverage. For example, if a 
beneficiary enrolls in Part D on May 15, 2006, the effective date of 
the Part D coverage is likely to be June 1, 2006. In this case, the 
beneficiary's guaranteed issue period would not end until August 2, 
2006, which is 63 days after Part D coverage becomes effective.
    Beneficiaries who enroll in Medicare Part D after May 15, 2006 lose 
the right to guaranteed issuance of a Medigap policy without outpatient 
drug coverage. These beneficiaries will only retain the right to keep 
their original Medigap policies, stripped of outpatient prescription 
drug coverage.

D. Development of New Standards for Medigap Policies

    Section 1882(w) of the Act, added by section 104 of the MMA, 
requires the Secretary to request that the NAIC review and revise 
standards for the benefit packages authorized by subsection (p)(1) of 
the Act, taking into account the changes in benefits required by the 
MMA. Subsection (w) of the Act also requires the inclusion of two new 
Medigap benefit packages. These two new benefit packages have been 
designated by the NAIC as Plan ``K'' and Plan ``L''. These two new 
plans eliminate first dollar coverage for most Medicare cost-sharing 
and have a limit on annual out-of-pocket expenditures incurred by a 
policyholder. Once the out-of-pocket limit on annual expenditures is 
reached, the policy covers 100 percent of all cost-sharing under 
Medicare Parts A and B for the balance of the calendar year. For 2006, 
the out-of-pocket limit for Plan ``K'' is $4,000 and $2,000 for Plan 
``L''. These two new plans do not cover the Medicare Part B deductible.

E. Other Changes to the NAIC Model Regulation

1. 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 
Regulation accordingly contains a definition of ``Medicare eligible 
expenses.'' Because Medigap policies held by individuals enrolled in 
Medicare Part D can no longer contain any prescription drug benefits, 
no Medigap policy will ever supplement the Part D benefit. The 
definition of ``Medicare eligible expenses'' in the NAIC Model 
Regulation has been revised to clarify 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. The revised definition clarifies that a Medigap policy does 
not pay cost-sharing for expenses incurred under Medicare Part D, and 
also more clearly states the position of the NAIC and CMS that Medigap 
policies do not pay cost-sharing incurred under Part C.
2. Medicare Advantage Program
    Section 201 of the MMA established the Medicare Advantage program 
under part C of title XVIII of the Act. Medicare Part C was formerly 
known as ``Medicare+Choice.'' The revised NAIC Model Regulation 
reflects the change from ``Medicare+Choice'' to ``Medicare Advantage'' 
when referring to Medicare Part C.
3. Upon Exhaustion Benefit
    Section 8.B. of the revised NAIC Model describes the standards for 
basic benefits common to plans ``A'' through ``J''. Section 8.D.(1) 
describes the standards for benefits common to plans ``K'' through 
``L''.
    Section 8.B.(3) and section 8.D.(1)(c) 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 section 8.B.(3) and of section 
8.D.(1)(c) is not part of the benefit description of the ``upon 
exhaustion'' benefit. Therefore, for purposes of complying with Federal 
Medigap standards and requirements, that sentence is not required to be 
included in the text of the regulation or the drafting notes associated 
with those sections. Similarly, section 17.D(4) of the Model sets forth 
all the outlines of coverage for plans ``A'' through ``K''. Each 
outline contains, at the bottom of its first page, a ``Notice'' to 
prospective purchasers. The final sentence of this notice is not part 
of the benefit description, and for purposes of satisfying Federal 
Medigap requirements, is not required to be included.

E. Application to Waiver States

    The waiver States of Massachusetts, Minnesota, and Wisconsin are 
also subject to the rules set forth in section 104 of the MMA relating 
to Medigap policies that provide outpatient prescription drug coverage. 
The only difference in the waiver States is that section 1882(v)(3)(C) 
of the Act specifies that the statutory references to benefit packages 
in section 1882(v)(3)(A)(i) of the Act (that is, in most cases, benefit 
packages designated as ``A'', ``B'', ``C'', ``F'', ``K'', and ``L'') 
are deemed to be references to comparable benefit packages offered in 
the waiver State.

III. Standardized Benefit Packages

    Sections 1882(p)(8) and (p)(9) prescribe certain requirements and 
penalties with respect to the issuance or sale of a Medigap policy. 
Section 1882(p)(10) qualifies the requirements by specifying that ``no 
penalty may be imposed under paragraph (8) or (9) in the [case] of a 
seller who is not the issuer of a policy'' until the Secretary ``has 
published a list of the groups of benefit packages that may be sold or 
issued consistent with paragraph [1882(p)](1)(A)(i).'' The following 
list of the standardized benefit packages constitutes the publication 
of this list as of the date this notice is published in the Federal 
Register.
    The following is a list of the standardized Medigap benefit 
packages, with a cross-reference to the sections of the attached NAIC 
Model where the packages are described in detail. The Model Regulation, 
adopted by the NAIC on September 8, 2004, is reprinted at the end of 
this notice. The NAIC has granted permission for the NAIC Model 
Regulation 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.

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     Plan ``A'' (Core Benefit Plan) (NAIC Model Section 
9.E.(1))
     Plan ``B'' (NAIC Model Section 9.E.(2))
     Plan ``C'' (NAIC Model Section 9.E.(3))
     Plan ``D'' (NAIC Model Section 9.E.(4))
     Plan ``E'' (NAIC Model Section 9.E.(5))
     Plan ``F'' (NAIC Model Section 9.E.(6))
     Plan ``F'' High Deductible (NAIC Model Section 9.E.(7))
     Plan ``G'' (NAIC Model Section 9.E.(8))
     Plan ``H'' (NAIC Model Section 9.E.(9))
     Plan ``I'' (NAIC Model Section 9.E.(10))
     Plan ``J'' (NAIC Model Section 9.E.(11))
     Plan ``J'' High Deductible (NAIC Model Section 9.E.(12))
    In addition, there are two new benefit packages added according to 
section 1882(w) of the Act.
     Plan ``K'' (NAIC Model Section 9.F.(1))
     Plan ``L'' (NAIC Model Section 9.F.(2))

    Authority: Section 1882(v)(2)(B) and 1882(w) of the Social 
Security Act (42 U.S.C. 1395ss(2)(B)).

(Catalog of Federal Domestic Assistance Program No. 93.774, 
Medicare--Supplementary Medical Insurance Program)

    Dated: December 8, 2004.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
    Revisions to Model 651.
    As adopted by the NAIC, September 8, 2004.
    (copyright) 2004 National Association of Insurance 
Commissioners.

Model Regulation To Implement the NAIC Medicare Supplement Insurance 
Minimum Standards Model Act

Table of Contents

Section 1. Purpose
Section 2. Authority
Section 3. Applicability and Scope
Section 4. Definitions
Section 5. Policy Definitions and Terms
Section 6. Policy Provisions
Section 7. Minimum Benefit Standards for Policies or Certificates 
Issued for Delivery Prior to [insert effective date adopted by state]
Section 8. Benefit Standards for Policies or Certificates Issued for 
Delivery After [insert effective date adopted by state]
Section 9. Standard Medicare Supplement Benefit Plans
Section 10. Medicare Select Policies and Certificates
Section 11. Open Enrollment
Section 12. Guaranteed Issue for Eligible Persons
Section 13. Standards for Claims Payment
Section 14. Loss Ratio Standards and Refund or Credit of Premium
Section 15. Filing and Approval of Policies and Certificates and 
Premium Rates
Section 16. Permitted Compensation Arrangements
Section 17. Required Disclosure Provisions
Section 18. Requirements for Application Forms and Replacement Coverage
Section 19. Filing Requirements for Advertising
Section 20. Standards for Marketing
Section 21. Appropriateness of Recommended Purchase and Excessive 
Insurance
Section 22. Reporting of Multiple Policies
Section 23. Prohibition Against Preexisting Conditions, Waiting 
Periods, Elimination Periods and Probationary Periods in Replacement 
Policies or Certificates
Section 24. Separability
Section 25. Effective Date
Appendix A--Reporting Form for Calculation of Loss Ratios
Appendix B--Form for Reporting Duplicate Policies
Appendix C--Disclosure Statements

Section 1. Purpose

    The purpose of this regulation is to provide for the reasonable 
standardization of coverage and simplification of terms and benefits of 
Medicare supplement policies; to facilitate public understanding and 
comparison of such policies; to eliminate provisions contained in such 
policies which may be misleading or confusing in connection with the 
purchase of such policies or with the settlement of claims; and to 
provide for full disclosures in the sale of accident and sickness 
insurance coverages to persons eligible for Medicare.

Section 2. Authority

    This regulation is issued pursuant to the authority vested in the 
commissioner under [cite appropriate section of state law providing 
authority for minimum benefit standards regulations or the NAIC 
Medicare Supplement Insurance Minimum Standards Model Act].


    Editor's Note: Wherever the term ``commissioner'' appears, the 
title of the chief insurance regulatory official of the state should 
be inserted.

Section 3. Applicability and Scope

    A. Except as otherwise specifically provided in Sections 7, 13, 14, 
17 and 22, this regulation shall apply to:
    (1) All Medicare supplement policies delivered or issued for 
delivery in this state on or after the effective date of this 
regulation; and
    (2) All certificates issued under group Medicare supplement 
policies which certificates have been delivered or issued for delivery 
in this state.
    B. This regulation shall not apply to a policy or contract of one 
or more employers or labor organizations, or of the trustees of a fund 
established by one or more employers or labor organizations, or 
combination thereof, for employees or former employees, or a 
combination thereof, or for members or former members, or a combination 
thereof, of the labor organizations.

Section 4. Definitions

    For purposes of this regulation:
    A. ``Applicant'' means:
    (1) In the case of an individual Medicare supplement policy, the 
person who seeks to contract for insurance benefits, and
    (2) In the case of a group Medicare supplement policy, the proposed 
certificateholder.
    B. ``Bankruptcy'' means when a Medicare Advantage organization that 
is not an issuer has filed, or has had filed against it, a petition for 
declaration of bankruptcy and has ceased doing business in the state.
    C. ``Certificate'' means any certificate delivered or issued for 
delivery in this state under a group Medicare supplement policy.
    D. ``Certificate form'' means the form on which the certificate is 
delivered or issued for delivery by the issuer.
    E. ``Continuous period of creditable coverage'' means the period 
during which an individual was covered by creditable coverage, if 
during the period of the coverage the individual had no breaks in 
coverage greater than sixty-three (63) days.
    F. (1) ``Creditable coverage'' means, with respect to an 
individual, coverage of the individual provided under any of the 
following:
    (a) A group health plan;
    (b) Health insurance coverage;
    (c) Part A or Part B of Title XVIII of the Social Security Act 
(Medicare);
    (d) Title XIX of the Social Security Act (Medicaid), other than 
coverage consisting solely of benefits under section 1928;
    (e) Chapter 55 of Title 10 United States Code (CHAMPUS);

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    (f) A medical care program of the Indian Health Service or of a 
tribal organization;
    (g) A State health benefits risk pool;
    (h) A health plan offered under chapter 89 of Title 5 United States 
Code (Federal Employees Health Benefits Program);
    (i) A public health plan as defined in federal regulation; and
    (j) A health benefit plan under Section 5(e) of the Peace Corps Act 
(22 United States Code 2504(e)).
    (2) ``Creditable coverage'' shall not include one or more, or any 
combination of, the following:
    (a) Coverage only for accident or disability income insurance, or 
any combination thereof;
    (b) Coverage issued as a supplement to liability insurance;
    (c) Liability insurance, including general liability insurance and 
automobile liability insurance;
    (d) Workers' compensation or similar insurance;
    (e) Automobile medical payment insurance;
    (f) Credit-only insurance;
    (g) Coverage for on-site medical clinics; and
    (h) Other similar insurance coverage, specified in federal 
regulations, under which benefits for medical care are secondary or 
incidental to other insurance benefits.
    (3) ``Creditable coverage'' shall not include the following 
benefits if they are provided under a separate policy, certificate or 
contract of insurance or are otherwise not an integral part of the 
plan:
    (a) Limited scope dental or vision benefits;
    (b) Benefits for long-term care, nursing home care, home health 
care, community-based care, or any combination thereof; and
    (c) Such other similar, limited benefits as are specified in 
federal regulations.
    (4) ``Creditable coverage'' shall not include the following 
benefits if offered as independent, noncoordinated benefits:
    (a) Coverage only for a specified disease or illness; and
    (b) Hospital indemnity or other fixed indemnity insurance.
    (5) ``Creditable coverage'' shall not include the following if it 
is offered as a separate policy, certificate or contract of insurance:
    (a) Medicare supplemental health insurance as defined under section 
1882(g)(1) of the Social Security Act;
    (b) Coverage supplemental to the coverage provided under chapter 55 
of title 10, United States Code; and
    (c) Similar supplemental coverage provided to coverage under a 
group health plan.


    Drafting Note: The Health Insurance Portability and 
Accountability Act of 1996 (HIPAA) specifically addresses separate, 
noncoordinated benefits in the group market at PHSA Sec.  2721(d)(2) 
and the individual market at Sec.  2791(c)(3). HIPAA also references 
excepted benefits at PHSA Sec. Sec.  2701(c)(1), 2721(d), 2763(b) 
and 2791(c). In addition, creditable coverage has been addressed in 
an interim final rule (62 FR at 16960-16962 (April 8, 1997)) issued 
by the Secretary pursuant to HIPAA, and may be addressed in 
subsequent regulations.


    G. ``Employee welfare benefit plan'' means a plan, fund or program 
of employee benefits as defined in 29 U.S.C. 1002 (Employee Retirement 
Income Security Act).
    H. ``Insolvency'' means when an issuer, licensed to transact the 
business of insurance in this state, has had a final order of 
liquidation entered against it with a finding of insolvency by a court 
of competent jurisdiction in the issuer's state of domicile.

    Drafting Note: If the state law definition of insolvency differs 
from the above definition, please insert the state law definition.


    I. ``Issuer'' includes insurance companies, fraternal benefit 
societies, health care service plans, health maintenance organizations, 
and any other entity delivering or issuing for delivery in this state 
Medicare supplement policies or certificates.
    J. ``Medicare'' means the ``Health Insurance for the Aged Act,'' 
Title XVIII of the Social Security Amendments of 1965, as then 
constituted or later amended.
    K. ``Medicare Advantage plan'' means a plan of coverage for health 
benefits under Medicare Part C as defined in [refer to definition of 
Medicare Advantage plan in 42 U.S.C. 1395w-28(b)(1)], and includes:
    (1) Coordinated care plans which provide health care services, 
including but not limited to health maintenance organization plans 
(with or without a point-of-service option), plans offered by provider-
sponsored organizations, and preferred provider organization plans;
    (2) Medical savings account plans coupled with a contribution into 
a Medicare Advantage plan medical savings account; and
    (3) Medicare Advantage private fee-for-service plans.


    Drafting Note: The Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) redesignates ``Medicare+Choice'' as 
``Medicare Advantage'' effective January 1, 2004.


    L. ``Medicare supplement policy'' means a group or individual 
policy of [accident and sickness] insurance or a subscriber contract 
[of hospital and medical service associations or health maintenance 
organizations], other than a policy issued pursuant to a contract under 
Section 1876 of the federal Social Security Act (42 U.S.C. 1395 et 
seq.) or an issued policy under a demonstration project specified in 42 
U.S.C. 1395ss(g)(1), which is advertised, marketed or designed 
primarily as a supplement to reimbursements under Medicare for the 
hospital, medical or surgical expenses of persons eligible for 
Medicare. ``Medicare supplement policy'' does not include Medicare 
Advantage plans established under Medicare Part C, Outpatient 
Prescription Drug plans established under Medicare Part D, or any 
Health Care Prepayment Plan (HCPP) that provides benefits pursuant to 
an agreement under Sec.  1833(a)(1)(A) of the Social Security Act.
    M. ``Policy form'' means the form on which the policy is delivered 
or issued for delivery by the issuer.
    N. ``Secretary'' means the Secretary of the United States 
Department of Health and Human Services.

Section 5. Policy Definitions and Terms

    No policy or certificate may be advertised, solicited or issued for 
delivery in this state as a Medicare supplement policy or certificate 
unless the policy or certificate contains definitions or terms which 
conform to the requirements of this section.
    A. ``Accident,'' ``accidental injury,'' or ``accidental means'' 
shall be defined to employ ``result'' language and shall not include 
words which establish an accidental means test or use words such as 
``external, violent, visible wounds'' or similar words of description 
or characterization.
    (1) The definition shall not be more restrictive than the 
following: ``Injury or injuries for which benefits are provided means 
accidental bodily injury sustained by the insured person which is the 
direct result of an accident, independent of disease or bodily 
infirmity or any other cause, and occurs while insurance coverage is in 
force.''
    (2) The definition may provide that injuries shall not include 
injuries for which benefits are provided or available under any 
workers' compensation, employer's liability or similar law, or motor 
vehicle no-fault plan, unless prohibited by law.
    B. ``Benefit period'' or ``Medicare benefit period'' shall not be 
defined more restrictively than as defined in the Medicare program.

[[Page 15399]]

    C. ``Convalescent nursing home,'' ``extended care facility,'' or 
``skilled nursing facility'' shall not be defined more restrictively 
than as defined in the Medicare program.
    D. ``Health care expenses'' means, for purposes of Section 14, 
expenses of health maintenance organizations associated with the 
delivery of health care services, which expenses are analogous to 
incurred losses of insurers.
    E. ``Hospital'' may be defined in relation to its status, 
facilities and available services or to reflect its accreditation by 
the Joint Commission on Accreditation of Hospitals, but not more 
restrictively than as defined in the Medicare program.
    F. ``Medicare'' shall be defined in the policy and certificate. 
Medicare may be substantially defined as ``The Health Insurance for the 
Aged Act, Title XVIII of the Social Security Amendments of 1965 as Then 
Constituted or Later Amended,'' or ``Title I, Part I of Public Law 89-
97, as Enacted by the Eighty-Ninth Congress of the United States of 
America and popularly known as the Health Insurance for the Aged Act, 
as then constituted and any later amendments or substitutes thereof,'' 
or words of similar import.
    G. ``Medicare eligible expenses'' shall mean expenses of the kinds 
covered by Medicare Parts A and B, to the extent recognized as 
reasonable and medically necessary by Medicare.
    H. ``Physician'' shall not be defined more restrictively than as 
defined in the Medicare program.
    I. ``Sickness'' shall not be defined to be more restrictive than 
the following:
    Sickness means illness or disease of an insured person which first 
manifests itself after the effective date of insurance and while the 
insurance is in force.''
    The definition may be further modified to exclude sicknesses or 
diseases for which benefits are provided under any workers' 
compensation, occupational disease, employer's liability or similar 
law.

Section 6. Policy Provisions

    A. Except for permitted preexisting condition clauses as described 
in Section 7A(1) and Section 8A(1) of this regulation, no policy or 
certificate may be advertised, solicited or issued for delivery in this 
state as a Medicare supplement policy if the policy or certificate 
contains limitations or exclusions on coverage that are more 
restrictive than those of Medicare.
    B. No Medicare supplement policy or certificate may use waivers to 
exclude, limit or reduce coverage or benefits for specifically named or 
described preexisting diseases or physical conditions.
    C. No Medicare supplement policy or certificate in force in the 
state shall contain benefits which duplicate benefits provided by 
Medicare.
    D. (1) Subject to sections 7(A)(4), (5) and (7), and 8(A)(4) and 
(5), a Medicare supplement policy with benefits for outpatient 
prescription drugs in existence prior to January 1, 2006 shall be 
renewed for current policyholders who do not enroll in Part D at the 
option of the policyholder.
    (2) A Medicare supplement policy with benefits for outpatient 
prescription drugs shall not be issued after December 31, 2005.
    (3) After December 31, 2005, a Medicare supplement policy with 
benefits for outpatient prescription drugs may not be renewed after the 
policyholder enrolls in Medicare Part D unless:
    (a) The policy is modified to eliminate outpatient prescription 
coverage for expenses of outpatient prescription drugs incurred after 
the effective date of the individual's coverage under a Part D plan 
and;
    (b) Premiums are adjusted to reflect the elimination of outpatient 
prescription drug coverage at the time of Medicare Part D enrollment, 
accounting for any claims paid, if applicable.


    Drafting Note: December 31, 2005, MMA prohibits issuers of 
Medicare supplement policies from renewing outpatient prescription 
drug benefits for both prestandardized and standardized Medicare 
supplement policyholders who enroll in Medicare Part D. Before May 
15, 2006, these beneficiaries have two options: retain their current 
plan with outpatient prescription drug coverage removed and premiums 
adjusted appropriately; or enroll in a different policy as 
guaranteed for beneficiaries affected by these changes mandated by 
MMA and outlined in Section 12, ``Guaranteed Issue for Eligible 
Persons.'' After May 15, 2006 however, these beneficiaries will only 
retain a right to keep their original policies, stripped of 
outpatient prescription drug coverage, and lose the right to 
guaranteed issue of the plans described in Section 12.

Section 7. Minimum Benefit Standards for Policies or Certificates 
Issued for Delivery Prior to [insert effective date adopted by state]

    No policy or certificate may be advertised, solicited or issued for 
delivery in this state as a Medicare supplement policy or certificate 
unless it meets or exceeds the following minimum standards. These are 
minimum standards and do not preclude the inclusion of other provisions 
or benefits which are not inconsistent with these standards.


    Drafting Note: This section has been retained for transitional 
purposes. The purpose of this section is to govern all policies 
issued prior to the date a state makes its revisions to conform to 
the Omnibus Budget Reconciliation Act of 1990 (Pub. L. 101-508).


    A. General Standards. The following standards apply to Medicare 
supplement policies and certificates and are in addition to all other 
requirements of this regulation.
    (1) A Medicare supplement policy or certificate shall not exclude 
or limit benefits for losses incurred more than six (6) months from the 
effective date of coverage because it involved a preexisting condition. 
The policy or certificate shall not define a preexisting condition more 
restrictively than a condition for which medical advice was given or 
treatment was recommended by or received from a physician within six 
(6) months before the effective date of coverage.


    Drafting Note: States that have adopted the NAIC Individual 
Accident and Sickness Insurance Minimum Standards Model Act should 
recognize a conflict between Section 6B of that Act and this 
subsection. It may be necessary to include additional language in 
the Minimum Standards Model Act that recognizes the applicability of 
this preexisting condition rule to Medicare supplement policies and 
certificates.


    (2) A Medicare supplement policy or certificate shall not indemnify 
against losses resulting from sickness on a different basis than losses 
resulting from accidents.
    (3) A Medicare supplement policy or certificate shall provide that 
benefits designed to cover cost sharing amounts under Medicare will be 
changed automatically to coincide with any changes in the applicable 
Medicare deductible amount and copayment percentage factors. Premiums 
may be modified to correspond with such changes.


    Drafting Note: This provision was prepared so that premium 
changes can be made based upon the changes in policy benefits that 
will be necessary because of changes in Medicare benefits. States 
may wish to redraft this provision so as to coincide with their 
particular authority.


    (4) A ``noncancellable,'' ``guaranteed renewable,'' or 
``noncancellable and guaranteed renewable'' Medicare supplement policy 
shall not:
    (a) Provide for termination of coverage of a spouse solely because 
of the occurrence of an event specified for termination of coverage of 
the insured,

[[Page 15400]]

other than the nonpayment of premium; or
    (b) Be cancelled or nonrenewed by the issuer solely on the grounds 
of deterioration of health.
    (5)(a) Except as authorized by the commissioner of this state, an 
issuer shall neither cancel nor nonrenew a Medicare supplement policy 
or certificate for any reason other than nonpayment of premium or 
material misrepresentation.
    (b) If a group Medicare supplement insurance policy is terminated 
by the group policyholder and not replaced as provided in Paragraph 
(5)(d), the issuer shall offer certificateholders an individual 
Medicare supplement policy. The issuer shall offer the 
certificateholder at least the following choices:
    (i) An individual Medicare supplement policy currently offered by 
the issuer having comparable benefits to those contained in the 
terminated group Medicare supplement policy; and
    (ii) An individual Medicare supplement policy which provides only 
such benefits as are required to meet the minimum standards as defined 
in Section 8B of this regulation.


    Drafting Note: Group contracts in force prior to the effective 
date of the Omnibus Budget Reconciliation Act (OBRA) of 1990 may 
have existing contractual obligations to continue benefits contained 
in the group contract. This section is not intended to impair such 
obligations.


    (c) If membership in a group is terminated, the issuer shall:
    (i) Offer the certificateholder the conversion opportunities 
described in Subparagraph (b); or
    (ii) At the option of the group policyholder, offer the 
certificateholder continuation of coverage under the group policy.
    (d) If a group Medicare supplement policy is replaced by another 
group Medicare supplement policy purchased by the same policyholder, 
the issuer of the replacement policy shall offer coverage to all 
persons covered under the old group policy on its date of termination. 
Coverage under the new group policy shall not result in any exclusion 
for preexisting conditions that would have been covered under the group 
policy being replaced.


    Drafting Note: Rate increases otherwise authorized by law are 
not prohibited by this Paragraph (5).


    (6) Termination of a Medicare supplement policy or certificate 
shall be without prejudice to any continuous loss which commenced while 
the policy was in force, but the extension of benefits beyond the 
period during which the policy was in force may be predicated upon the 
continuous total disability of the insured, limited to the duration of 
the policy benefit period, if any, or to payment of the maximum 
benefits. Receipt of Medicare Part D benefits will not be considered in 
determining a continuous loss.
    (7) If a Medicare supplement policy eliminates a outpatient 
prescription drug benefit as a result of requirements imposed by the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 
the modified policy shall be deemed to satisfy the guaranteed renewal 
requirements of this subsection.

B. Minimum Benefit Standards.

    (1) Coverage of Part A Medicare eligible expenses for 
hospitalization to the extent not covered by Medicare from the 61st day 
through the 90th day in any Medicare benefit period;
    (2) Coverage for either all or none of the Medicare Part A 
inpatient hospital deductible amount;
    (3) Coverage of Part A Medicare eligible expenses incurred as daily 
hospital charges during use of Medicare's lifetime hospital inpatient 
reserve days;
    (4) Upon exhaustion of all Medicare hospital inpatient coverage 
including the lifetime reserve days, coverage of ninety percent (90%) 
of all Medicare Part A eligible expenses for hospitalization not 
covered by Medicare subject to a lifetime maximum benefit of an 
additional 365 days;
    (5) Coverage under Medicare Part A for the reasonable cost of the 
first three (3) pints of blood (or equivalent quantities of packed red 
blood cells, as defined under federal regulations) unless replaced in 
accordance with federal regulations or already paid for under Part B;
    (6) Coverage for the coinsurance amount, or in the case of hospital 
outpatient department services paid under a prospective payment system, 
the copayment amount, of Medicare eligible expenses under Part B 
regardless of hospital confinement, subject to a maximum calendar year 
out-of-pocket amount equal to the Medicare Part B deductible [$100];
    (7) Effective January 1, 1990, coverage under Medicare Part B for 
the reasonable cost of the first three (3) pints of blood (or 
equivalent quantities of packed red blood cells, as defined under 
federal regulations), unless replaced in accordance with federal 
regulations or already paid for under Part A, subject to the Medicare 
deductible amount.

Section 8. Benefit Standards for Policies or Certificates Issued or 
Delivered on or After [insert effective date adopted by state]

    The following standards are applicable to all Medicare supplement 
policies or certificates delivered or issued for delivery in this state 
on or after [insert effective date]. No policy or certificate may be 
advertised, solicited, delivered or issued for delivery in this state 
as a Medicare supplement policy or certificate unless it complies with 
these benefit standards.
    A. General Standards. The following standards apply to Medicare 
supplement policies and certificates and are in addition to all other 
requirements of this regulation.
    (1) A Medicare supplement policy or certificate shall not exclude 
or limit benefits for losses incurred more than six (6) months from the 
effective date of coverage because it involved a preexisting condition. 
The policy or certificate may not define a preexisting condition more 
restrictively than a condition for which medical advice was given or 
treatment was recommended by or received from a physician within six 
(6) months before the effective date of coverage.


    Drafting Note: States that have adopted the NAIC Individual 
Accident and Sickness Insurance Minimum Standards Model Act should 
recognize a conflict between Section 6B of that Act and this 
subsection. It may be necessary to include additional language in 
the Minimum Standards Model Act that recognizes the applicability of 
this preexisting condition rule to Medicare supplement policies and 
certificates.


    (2) A Medicare supplement policy or certificate shall not indemnify 
against losses resulting from sickness on a different basis than losses 
resulting from accidents.
    (3) A Medicare supplement policy or certificate shall provide that 
benefits designed to cover cost sharing amounts under Medicare will be 
changed automatically to coincide with any changes in the applicable 
Medicare deductible amount and copayment percentage factors. Premiums 
may be modified to correspond with such changes.


    Drafting Note: This provision was prepared so that premium 
changes can be made based on the changes in policy benefits that 
will be necessary because of changes in Medicare benefits. States 
may wish to redraft this provision to conform with their particular 
authority.

    (4) No Medicare supplement policy or certificate shall provide for 
termination of coverage of a spouse solely because of the occurrence of 
an event specified

[[Page 15401]]

for termination of coverage of the insured, other than the nonpayment 
of premium.
    (5) Each Medicare supplement policy shall be guaranteed renewable.
    (a) The issuer shall not cancel or nonrenew the policy solely on 
the ground of health status of the individual.
    (b) The issuer shall not cancel or nonrenew the policy for any 
reason other than nonpayment of premium or material misrepresentation.
    (c) If the Medicare supplement policy is terminated by the group 
policyholder and is not replaced as provided under Section 8A(5)(e), 
the issuer shall offer certificateholders an individual Medicare 
supplement policy which (at the option of the certificateholder)
    (i) Provides for continuation of the benefits contained in the 
group policy, or
    (ii) Provides for benefits that otherwise meet the requirements of 
this subsection.
    (d) If an individual is a certificateholder in a group Medicare 
supplement policy and the individual terminates membership in the 
group, the issuer shall
    (i) Offer the certificateholder the conversion opportunity 
described in Section 8A(5)(c), or
    (ii) At the option of the group policyholder, offer the 
certificateholder continuation of coverage under the group policy.
    (e) If a group Medicare supplement policy is replaced by another 
group Medicare supplement policy purchased by the same policyholder, 
the issuer of the replacement policy shall offer coverage to all 
persons covered under the old group policy on its date of termination. 
Coverage under the new policy shall not result in any exclusion for 
preexisting conditions that would have been covered under the group 
policy being replaced.
    (f) If a Medicare supplement policy eliminates an outpatient 
prescription drug benefit as a result of requirements imposed by the 
Medicare Prescription Drug, Improvement and Modernization Act of 2003, 
the modified policy shall be deemed to satisfy the guaranteed renewal 
requirements of this paragraph.

    Drafting Note: Rate increases otherwise authorized by law are 
not prohibited by this Paragraph (5).


    (6) Termination of a Medicare supplement policy or certificate 
shall be without prejudice to any continuous loss which commenced while 
the policy was in force, but the extension of benefits beyond the 
period during which the policy was in force may be conditioned upon the 
continuous total disability of the insured, limited to the duration of 
the policy benefit period, if any, or payment of the maximum benefits. 
Receipt of Medicare Part D benefits will not be considered in 
determining a continuous loss.
    (7) (a) A Medicare supplement policy or certificate shall provide 
that benefits and premiums under the policy or certificate shall be 
suspended at the request of the policyholder or certificateholder for 
the period (not to exceed twenty-four (24) months) in which the 
policyholder or certificateholder has applied for and is determined to 
be entitled to medical assistance under Title XIX of the Social 
Security Act, but only if the policyholder or certificateholder 
notifies the issuer of the policy or certificate within ninety (90) 
days after the date the individual becomes entitled to assistance.
    (b) If suspension occurs and if the policyholder or 
certificateholder loses entitlement to medical assistance, the policy 
or certificate shall be automatically reinstituted (effective as of the 
date of termination of entitlement) as of the termination of 
entitlement if the policyholder or certificateholder provides notice of 
loss of entitlement within ninety (90) days after the date of loss and 
pays the premium attributable to the period, effective as of the date 
of termination of entitlement.
    (c) Each Medicare supplement policy shall provide that benefits and 
premiums under the policy shall be suspended (for any period that may 
be provided by federal regulation) at the request of the policyholder 
if the policyholder is entitled to benefits under Section 226 (b) of 
the Social Security Act and is covered under a group health plan (as 
defined in Section 1862 (b)(1)(A)(v) of the Social Security Act). If 
suspension occurs and if the policyholder or certificate holder loses 
coverage under the group health plan, the policy shall be automatically 
reinstituted (effective as of the date of loss of coverage) if the 
policyholder provides notice of loss of coverage within ninety (90) 
days after the date of the loss.

    Drafting Note: The Ticket to Work and Work Incentives 
Improvement Act failed to provide for payment of the policy premiums 
in order to reinstitute coverage retroactively. States should 
consider adding the following language at the end of the last 
sentence in Subparagraph (c): ``and pays the premium attributable to 
the period, effective as of the date of termination of enrollment in 
the group health plan.'' This addition will clarify that issuers are 
entitled to collect the premium in this situation, as they are under 
Subparagraph (b). Also, the Ticket to Work and Work Incentives 
Improvement Act of 1999 does not specify the period of time that a 
policy may be suspended under Section 8A(7)(c). In the event that 
the Centers for Medicare & Medicaid Services (CMS) provides states 
with guidance on this issue, the phrase ``for any period that may be 
provided by federal law'' has been inserted into this provision in 
parentheses so that any time period prescribed is incorporated by 
reference.


    (d) Reinstitution of coverages as described in Subparagraphs (b) 
and (c):
    (i) Shall not provide for any waiting period with respect to 
treatment of preexisting conditions;
    (ii) Shall provide for resumption of coverage that is substantially 
equivalent to coverage in effect before the date of suspension. If the 
suspended Medicare supplement policy provided coverage for outpatient 
prescription drugs, reinstitution of the policy for Medicare Part D 
enrollees shall be without coverage for outpatient prescription drugs 
and shall otherwise provide substantially equivalent coverage to the 
coverage in effect before the date of suspension; and
    (iii) Shall provide for classification of premiums on terms at 
least as favorable to the policyholder or certificateholder as the 
premium classification terms that would have applied to the 
policyholder or certificateholder had the coverage not been suspended.
    B. Standards for Basic (Core) Benefits Common to Benefit Plans A-J.
    Every issuer shall make available a policy or certificate including 
only the following basic ``core'' package of benefits to each 
prospective insured. An issuer may make available to prospective 
insureds any of the other Medicare Supplement Insurance Benefit Plans 
in addition to the basic core package, but not in lieu of it.
    (1) Coverage of Part A Medicare eligible expenses for 
hospitalization to the extent not covered by Medicare from the 61st day 
through the 90th day in any Medicare benefit period;
    (2) Coverage of Part A Medicare eligible expenses incurred for 
hospitalization to the extent not covered by Medicare for each Medicare 
lifetime inpatient reserve day used;
    (3) Upon exhaustion of the Medicare hospital inpatient coverage, 
including the lifetime reserve days, coverage of 100% of the 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 an 
additional 365 days. The provider shall

[[Page 15402]]

accept the issuer's payment as payment in full and may not bill the 
insured for any balance;


    Drafting Note: The issuer is required to pay whatever amount 
Medicare would have paid as if Medicare was covering the 
hospitalization. The ``or other appropriate Medicare standard of 
payment'' provision means the manner in which Medicare would have 
paid. The issuer stands in the place of Medicare, and so the 
provider must accept the issuer's payment as payment in full. The 
Outline of Coverage specifies that the beneficiary will pay ``$0'', 
and the provider cannot balance bill the insured.


    (4) Coverage under Medicare Parts A and B for the reasonable cost 
of the first three (3) pints of blood (or equivalent quantities of 
packed red blood cells, as defined under federal regulations) unless 
replaced in accordance with federal regulations;
    (5) Coverage for the coinsurance amount, or in the case of hospital 
outpatient department services paid under a prospective payment system, 
the copayment amount, of Medicare eligible expenses under Part B 
regardless of hospital confinement, subject to the Medicare Part B 
deductible;

    Drafting Note: In all cases involving hospital outpatient 
department services paid under a prospective payment system, the 
issuer is required to pay the copayment amount established by CMS, 
which will be either the amount established for the Ambulatory 
Payment Classification (APC) group, or a provider-elected reduced 
copayment amount.


    C. Standards for Additional Benefits. The following additional 
benefits shall be included in Medicare Supplement Benefit Plans ``B'' 
through ``J'' only as provided by Section 9 of this regulation.
    (1) Medicare Part A Deductible: Coverage for all of the Medicare 
Part A inpatient hospital deductible amount per benefit period.
    (2) Skilled Nursing Facility Care: Coverage for the actual billed 
charges up to the coinsurance amount from the 21st day through the 
100th day in a Medicare benefit period for post-hospital skilled 
nursing facility care eligible under Medicare Part A.
    (3) Medicare Part B Deductible: Coverage for all of the Medicare 
Part B deductible amount per calendar year regardless of hospital 
confinement.
    (4) Eighty Percent (80%) of the Medicare Part B Excess Charges: 
Coverage for eighty percent (80%) of the difference between the actual 
Medicare Part B charge as billed, not to exceed any charge limitation 
established by the Medicare program or state law, and the Medicare-
approved Part B charge.
    (5) One Hundred Percent (100%) of the Medicare Part B Excess 
Charges: Coverage for all of the difference between the actual Medicare 
Part B charge as billed, not to exceed any charge limitation 
established by the Medicare program or state law, and the Medicare-
approved Part B charge.
    (6) Basic Outpatient Prescription Drug Benefit: Coverage for fifty 
percent (50%) of outpatient prescription drug charges, after a $250 
calendar year deductible, to a maximum of $1,250 in benefits received 
by the insured per calendar year, to the extent not covered by 
Medicare. The outpatient prescription drug benefit may be included for 
sale or issuance in a Medicare supplement policy until January 1, 2006.
    (7) Extended Outpatient Prescription Drug Benefit: Coverage for 
fifty percent (50%) of outpatient prescription drug charges, after a 
$250 calendar year deductible to a maximum of $3,000 in benefits 
received by the insured per calendar year, to the extent not covered by 
Medicare. The outpatient prescription drug benefit may be included for 
sale or issuance in a Medicare supplement policy until January 1, 2006.
    (8) Medically Necessary Emergency Care in a Foreign Country: 
Coverage to the extent not covered by Medicare for eighty percent (80%) 
of the billed charges for Medicare-eligible expenses for medically 
necessary emergency hospital, physician and medical care received in a 
foreign country, which care would have been covered by Medicare if 
provided in the United States and which care began during the first 
sixty (60) consecutive days of each trip outside the United States, 
subject to a calendar year deductible of $250, and a lifetime maximum 
benefit of $50,000. For purposes of this benefit, ``emergency care'' 
shall mean care needed immediately because of an injury or an illness 
of sudden and unexpected onset.
    (9) Preventive Medical Care Benefit: Coverage for the following 
preventive health services not covered by Medicare:
    (a) An annual clinical preventive medical history and physical 
examination that may include tests and services from Subparagraph (b) 
and patient education to address preventive health care measures;
    (b) Preventive screening tests or preventive services, the 
selection and frequency of which is determined to be medically 
appropriate by the attending physician.
    Reimbursement shall be for the actual charges up to one hundred 
percent (100%) of the Medicare-approved amount for each service, as if 
Medicare were to cover the service as identified in American Medical 
Association Current Procedural Terminology (AMA CPT) codes, to a 
maximum of $120 annually under this benefit. This benefit shall not 
include payment for any procedure covered by Medicare.
    (10) At-Home Recovery Benefit: Coverage for services to provide 
short term, at-home assistance with activities of daily living for 
those recovering from an illness, injury or surgery.
    (a) For purposes of this benefit, the following definitions shall 
apply:
    (i) ``Activities of daily living'' include, but are not limited to 
bathing, dressing, personal hygiene, transferring, eating, ambulating, 
assistance with drugs that are normally self-administered, and changing 
bandages or other dressings.
    (ii) ``Care provider'' means a duly qualified or licensed home 
health aide or homemaker, personal care aide or nurse provided through 
a licensed home health care agency or referred by a licensed referral 
agency or licensed nurses registry.
    (iii) ``Home'' shall mean any place used by the insured as a place 
of residence, provided that the place would qualify as a residence for 
home health care services covered by Medicare. A hospital or skilled 
nursing facility shall not be considered the insured's place of 
residence.
    (iv) ``At-home recovery visit'' means the period of a visit 
required to provide at home recovery care, without limit on the 
duration of the visit, except each consecutive four (4) hours in a 
twenty-four-hour period of services provided by a care provider is one 
visit.
    (b) Coverage Requirements and Limitations:
    (i) At-home recovery services provided must be primarily services 
which assist in activities of daily living.
    (ii) The insured's attending physician must certify that the 
specific type and frequency of at-home recovery services are necessary 
because of a condition for which a home care plan of tr