Medicare Program; Recognition of NAIC Model Standards for Regulation of Medicare Supplemental Insurance, 18808-18883 [E9-9272]

Agencies

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

[Federal Register Volume 74, Number 78 (Friday, April 24, 2009)]
[Notices]
[Pages 18808-18883]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-9272]



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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. 74, No. 78 / Friday, April 24, 2009 / 
Notices

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-4139-N]
RIN 0938-AP62


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 announces changes made by the Genetic Information 
Nondiscrimination Act of 2008 (GINA) and the Medicare Improvements for 
Patients and Providers Act of 2008 (MIPPA) 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 24, 2008, 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 GINA apply to issuers of Medigap policies for 
policy years beginning on or after May 21, 2009. Each State shall have 
up to July 1, 2009 to conform its regulatory program to the statutory 
changes made by GINA, and the revisions to the NAIC Model Regulation 
that reflect GINA. Amendments made by MIPPA apply to Medigap policies 
with an effective date on or after June 1, 2010. Each State shall have 
up to September 24, 2009 to conform its regulatory program to the 
statutory changes made by MIPPA and the revisions to the NAIC model law 
and regulations that reflect MIPPA.

FOR FURTHER INFORMATION CONTACT: Jay Dobbs, (410) 786-1182 or Adam 
Shaw, (410) 786-1091.

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.
    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 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 B benefits through private health plans, 
such as HMOs, that contract with Medicare. Most of these contracts are 
under Part C of Medicare, the Medicare Advantage 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, beneficiaries are responsible for various deductible, 
coinsurance, and in some cases copayment amounts. In addition, there 
are medical expenses that are not covered by Medicare at all.
1. Deductibles
    Under Original Medicare, a beneficiary with Part A 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) 2008 is $1,024. For CY 2009, it is $1,068.
    A beneficiary with Part B is responsible for the Part B deductible 
for each calendar year. The deductible is indexed to the increase in 
the average cost of Part B services for aged beneficiaries. The Part B 
deductible is $135.00 for CY 2008 and CY 2009.
2. Coinsurance
    As noted above, 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. 
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, the 
beneficiaries may also be responsible for some amounts in excess of the 
Medicare approved amount (``excess charges'').
3. Noncovered 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 most prescription drugs.
    Because Original Medicare covers many health care services and 
supplies, but beneficiaries are responsible for the out-of-pocket 
expenses described above, most people choose to get 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, the most common coverage 
is Medicare supplemental insurance. 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 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 Model Act'' (NAIC Model), 
initially adopted by the NAIC on June 6, 1979, and revised to reflect 
subsequent legislative changes.
    Under current provisions of section 1882 of the Act, Medigap 
policies generally may not be sold unless they conform to one of 14 
standardized benefit packages that have been defined and designated by 
the NAIC. The ten original standardized plans were created pursuant to 
the Omnibus Budget

[[Page 18809]]

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, and the Medicare Modernization Act of 2003 (MMA) created new 
plans ``K'' and ``L'', bringing the total to 14. 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 
(``prestandardized policies'') that are still in effect.
    Effective January 1, 2006, Medigap policies can no longer be sold 
with a prescription drug benefit. Three of the 10 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 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 provides 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 GINA and MIPPA, and the changes to the NAIC Model 
Standards made to comport with the requirements of GINA and MIPPA. The 
revised NAIC Model Standards are attached to this notice. While States 
generally cannot modify the standardized benefit packages set out in 
the NAIC Model, with respect to other provisions, States 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 14 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 GINA and MIPPA.

II. Legislative Changes Affecting Medigap Policies and Clarification

A. Genetic Information Nondiscrimination Act of 2008 (GINA)

    GINA was enacted on May 21, 2008 (Pub. L. 110-233). Title I of GINA 
amends the Employee Retirement Income Security Act of 1974 (ERISA), the 
Public Health Service Act (PHS Act), the Internal Revenue Code of 1986 
(Code), and the Social Security Act (SSA) to prohibit discrimination in 
health care coverage based on genetic information. Section 104 of GINA 
applies to Medicare supplemental (Medigap) coverage. The new 
requirements were added to section 1882 of the Act in new subsections 
(s)(2)(E), (s)(2)(F), and (x).
    In the Medigap market, GINA prohibits issuers from denying or 
conditioning the issuance or effectiveness of a policy (including the 
imposition of any exclusion of benefits based on a preexisting 
condition) or discriminating in the pricing of the policy (including 
the adjustment of premium rates) based on an individual's genetic 
information. However, if otherwise permitted under title XVIII of the 
Act, the issuer can still impose such limitations based on a manifested 
disease of an individual who is covered under the policy.
    GINA also generally prohibits Medigap issuers from requesting or 
requiring an individual or family member of an individual to undergo a 
genetic test. There are two exceptions. First, issuers are not 
precluded from obtaining and using the results of a genetic test to 
make a determination regarding payment, but they may only use the 
minimum amount of information necessary.
    Second, a health insurance issuer in the Medigap market may request 
(but not require) an individual or family member to undergo a genetic 
test solely for research purposes, if specific conditions are met.
    Medigap issuers are prohibited from requesting, requiring, or 
purchasing genetic information for underwriting purposes (as defined in 
GINA, see below) or prior to an individual's enrollment under a policy. 
Furthermore, an exception to the prohibition on requesting, requiring, 
or purchasing genetic information is included for genetic information 
which is obtained incidental to the request, requirement, or purchase 
of other information concerning an individual, provided it is not used 
for underwriting purposes.
    GINA defines genetic information with respect to any individual as 
information about that individual's genetic tests, the genetic tests of 
family members of the individual, and the manifestation of a disease or 
disorder in family members of the individual. The term genetic 
information also includes an individual's request for, or receipt of, 
genetic services, or participation in clinical research that includes 
genetic services, but does not include information about the sex or age 
of any individual.
    Genetic services are further defined as a genetic test, genetic 
counseling (which includes obtaining, interpreting, or assessing 
genetic information), or genetic education. A genetic test is defined 
as an analysis of human DNA, RNA, chromosomes, proteins, or metabolites 
that detects genotypes, mutations, or chromosomal changes. The term 
does not include an analysis of proteins or metabolites that does not 
detect genotypes, mutations, or chromosomal changes, or an analysis of 
proteins or metabolites that is directly related to a manifested 
disease, disorder, or pathological condition that a health care 
professional with appropriate training and expertise could reasonably 
detect.
    The term ``family member'' is defined to include first-degree 
through fourth-degree relatives of an individual. Underwriting purposes 
are defined to include rules for, or determination of, eligibility for 
benefits, computation of premiums, application of pre-existing 
condition exclusions, and other activities related to the creation, 
renewal, or replacement of a policy. The statute also clarifies that 
references to genetic information concerning an individual include the 
genetic information of a fetus carried by a pregnant woman and of an 
embryo legally held by an individual utilizing an assisted reproductive 
technology.
    The provisions of GINA are effective with respect to health 
insurance issuers in the Medigap market for policy years beginning on 
or after May 21, 2009. States generally must incorporate the GINA 
provisions into their regulatory programs no later than July 1, 2009. 
The GINA requirements are enumerated in Section 24 of the new September 
24, 2008 Model regulation.

[[Page 18810]]

B. Medicare Improvements for Patients and Providers Act of 2008 (MIPPA)

    MIPPA was enacted on July 15, 2008 (Pub. L. 110-275). Section 
104(a) of MIPAA requires the Secretary of HHS to provide for 
implementation of the changes in the NAIC Model 651 (Model 
Regulation to Implement the NAIC Medicare Supplement Insurance Minimum 
Standards Model Act) approved by the NAIC on March 11, 2007. The 
changes, outlined below in subsection C, are effective for Medigap 
policies with effective dates on or after June 1, 2010. The States have 
until September 24, 2009 (one year past the date the changes to the 
Model were adopted by the NAIC) to conform their regulatory programs to 
the changes to the Model made pursuant to MIPPA.
    Section 104(b) of MIPAA amended section 1882(o) of the Act to 
require issuers of Medigap policies to make available at least Medicare 
supplemental policies with benefit packages classified as ``C'' or 
``F'' if they wish to offer other Medigap plans in addition to the core 
benefit plan ``A''. Finally, section 104(c) of MIPPA provides a 
clarification that policies that cover out-of-pocket costs under 
Medicare Advantage Plans (established under Medicare Part C) must 
comply with the requirements of section 1882(o) of the Act. These two 
provisions were reflected in the Model adopted by the NAIC on September 
24, 2008.

C. Changes to the NAIC Model 651 (Model Regulation To 
Implement the NAIC Medicare Supplement Insurance Minimum Standards 
Model Act) Approved by the NAIC on March 11, 2007

    Responding to a statement in the conference report for the MMA 
regarding the benefits of modernizing the Medigap market, the NAIC 
formulated a task force consisting of State regulators, consumer 
advocates, industry representatives, and CMS staff to draft changes to 
the Medigap standardized plan structure with the intent of streamlining 
and updating the benefits in the plans. The changes drafted by the task 
force were approved by the NAIC on March 11, 2007, and were authorized 
by MIPPA as indicated above. The new Model (with the approved changes) 
was adopted by the NAIC on September 24, 2008. The changes apply to 
Medigap plans with policy years beginning on or after June 1, 2010.
    The following are the changes to the standardized Medigap plans:

     Added Hospice coverage as a Basic ``Core'' benefit to 
all plans, as similar coverage was added as a basic benefit in plans 
``K'' and ``L''.
     Deleted coverage for Preventive and At-Home Recovery. 
The NAIC concluded that Medicare Part B has changed to cover many 
more preventive benefits, and the usefulness of this benefit in a 
Medigap policy was significantly reduced, covering only part of an 
annual physical after Medicare covered the beneficiaries' initial 
physical. The NAIC also concluded that the At-Home Recovery benefit 
was confusing and difficult to understand and administer, and 
changes to Medicare had made this benefit less meaningful.
     Created a new plan D, which is identical to the current 
plan D except that the At-Home Recovery benefit was deleted.
     Created a new plan G, which is identical to the current 
plan G except that the 80% Medicare Part B Excess charge benefit 
would be replaced by a 100% Medicare Part B Excess charge benefit, 
and the At-Home Recovery benefit was deleted.
     Eliminated the current ``E'', ``H'', ``I'' and ``J'' 
plans as they duplicated existing Plans.
     Created a new plan ``M'', which duplicates plan D but 
with a 50% coinsurance on the Part A deductible.
     Created a new plan ``N'' which duplicates plan D with 
the Part B co-insurance being paid at 100%, less a $20 co-pay per 
physician visit and a co-pay of $50 per emergency room visit, unless 
the beneficiary was admitted to the hospital.

    As a result of these changes, the new Model has two sets of 
standardized plans: Sections 8 and 9 of the Model outline the current 
benefits for standardized plans with an effective date of coverage 
prior to June 1, 2010 (we will refer to these as the ``1990 
standardized plans''); and Section 8.1 and 9.1 spell out the benefits 
for the standardized plans with an effective date for coverage on or 
after June 1, 2010 (referred to as the ``2010 standardized plans'').

D. Clarification-Upon Exhaustive 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, 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 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 
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.

III. Standardized Benefit Packages

    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 24, 2008, 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.

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

 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))
     Plan ``K'' (NAIC Model Section 9.F.(1))
     Plan ``L'' (NAIC Model Section 9.F.(2))


[[Page 18811]]


2010 Standardized Plans With an Effective Date of Coverage On or After 
June 1, 2010.

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

    Authority: Sections 1882(s)(2)(E), 1882(s)(2)(F) and 1882(x) of 
the Social Security Act (42 U.S.C. 1395ss(s)(x)), Section 104 of 
Public Law 110-275.

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

    Dated: March 9, 2009.
Charlene Frizzera,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: March 25, 2009.
Charles E. Johnson,
Acting Secretary.

Revisions to Model 651

    As adopted by the NAIC, September 24, 2008.

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 Pre-Standardized Medicare 
Supplement Benefit Plan Policies or Certificates Issued for Delivery 
Prior to [insert effective date adopted by state]
Section 8. Benefit Standards for 1990 Standardized Medicare 
Supplement Benefit Plan Policies or Certificates Issued for Delivery 
After [insert effective date adopted by state] and Prior to June 1, 
2010
Section 8.1 Benefit Standards for 2010 Standardized Medicare 
Supplement Benefit Plan Policies or Certificates Issued for Delivery 
on or After June 1, 2010
Section 9. Standard Medicare Supplement Benefit Plans for 1990 
Standardized Medicare Supplement Benefit Plan Policies or 
Certificates Issued for Delivery After [insert effective date 
adopted by state] and Prior to June 1, 2010
Section 9.1 Standard Medicare Supplement Benefit Plans for 2010 
Standardized Medicare Supplement Benefit Plan Policies or 
Certificates Issued for Delivery on or After June 1, 2010
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. Prohibition Against Use of Genetic Information and 
Requests for Genetic Testing
Section 25. Separability
Section 26. 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 
certificate holder.
    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);

[[Page 18812]]

    (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, non-coordinated 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, 
non-coordinated 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. Section 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 that 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. Section 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.

    Drafting Note:  Under Sec.  104(c) of the Medicare Improvements 
for Patients and Providers Act of 2008 (MIPPA), policies that are 
advertised, marketed or designed primarily to cover out-of-pocket 
costs under Medicare Advantage Plans (established under Medicare 
Part C) must comply with the Medicare supplement requirements of 
Sec.  1882(o) of the Social Security Act.

    M. ``Pre-Standardized Medicare supplement benefit plan,'' ``Pre-
Standardized benefit plan'' or ``Pre-Standardized plan'' means a group 
or individual policy of Medicare supplement insurance issued prior to 
[insert effective date on which the state made its revisions to conform 
to the Omnibus Budget Reconciliation Act of 1990].
    N. ``1990 Standardized Medicare supplement benefit plan,'' ``1990 
Standardized benefit plan'' or ``1990 plan'' means a group or 
individual policy of Medicare supplement insurance issued on or after 
[insert effective date of 1990 plan] and prior to June 1, 2010 and 
includes Medicare supplement insurance policies and certificates 
renewed on or after that date which are not replaced by the issuer at 
the request of the insured.
    O. ``2010 Standardized Medicare supplement benefit plan,'' ``2010 
Standardized benefit plan'' or ``2010 plan'' means a group or 
individual policy of Medicare supplement insurance issued on or after 
June 1, 2010.
    P. ``Policy form'' means the form on which the policy is delivered 
or issued for delivery by the issuer.

[[Page 18813]]

    Q. ``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 that 
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 that 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.
    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), Section 8A(1), and Section 8.1A(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 that duplicate benefits provided by 
Medicare.
    D. (1) Subject to Sections 7A(4), (5) and (7), and 8A(4) and (5) of 
this regulation, 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: After December 31, 2005, MMA prohibits issuers of 
Medicare supplement policies from renewing outpatient prescription 
drug benefits for both pre-standardized 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 Pre-Standardized Medicare 
Supplement Benefit Plan 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.


[[Page 18814]]


    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, co-payment, or coinsurance amounts. 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 ``non-cancellable,'' ``guaranteed renewable,'' or ``non-
cancellable 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, other than the nonpayment of premium; or
    (b) Be cancelled or non-renewed 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 non-renew 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 certificate holders an individual 
Medicare supplement policy. The issuer shall offer the certificate 
holder 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 8.1B 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 certificate holder the conversion opportunities 
described in Subparagraph (b); or
    (ii) At the option of the group policyholder, offer the certificate 
holder 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 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 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 co-payment 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 1990 Standardized Medicare Supplement 
Benefit Plan Policies or Certificates Issued or Delivered on or After 
[insert effective date adopted by state] and Prior to June 1, 2010

    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] and prior to June 1, 2010. 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.

    Drafting Note: This Section has been retained for transitional 
purposes. The purpose of this section is to govern policies issued 
subsequent to the adoption of 1990 Standardized benefit plans and 
prior to June 1, 2010. Standards for 2010 Standardized benefit plans 
issued for effective dates on or after June 1, 2010 are included in 
Section 8.1 of this regulation.

    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

[[Page 18815]]

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, co-payment, or coinsurance amounts. 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 to 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 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 non-renew the policy solely on 
the ground of health status of the individual.
    (b) The issuer shall not cancel or non-renew 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 certificate holders an individual Medicare 
supplement policy which (at the option of the certificate holder)
    (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 certificate holder in a group Medicare 
supplement policy and the individual terminates membership in the 
group, the issuer shall
    (i) Offer the certificate holder the conversion opportunity 
described in Section 8A(5)(c), or
    (ii) At the option of the group policyholder, offer the certificate 
holder 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 certificate holder for 
the period (not to exceed twenty-four (24) months) in which the 
policyholder or certificate holder 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 certificate holder 
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 certificate 
holder 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 certificate holder 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

[[Page 18816]]

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 certificate holder as the 
premium classification terms that would have applied to the 
policyholder or certificate holder had the coverage not been suspended.
    (8) If an issuer makes a written offer to the Medicare Supplement 
policyholders or certificate holders of one or more of its plans, to 
exchange during a specified period from his or her [1990 Standardized 
plan] (as described in Section 9 of this regulation) to a [2010 
Standardized plan] (as described in Section 9.1 of this regulation), 
the offer and subsequent exchange shall comply with the following 
requirements:
    (a) An issuer need not provide justification to the [commissioner] 
if the insured replaces a [1990 Standardized] policy or certificate 
with an issue age rated [2010 Standardized] policy or certificate at 
the insured's original issue age [and duration]. If an insured's policy 
or certificate to be replaced is priced on an issue age rate schedule 
at the time of such offer, the rate charged to the insured for the new 
exchanged policy shall recognize the policy reserve buildup, due to the 
pre-funding inherent in the use of an issue age rate basis, for the 
benefit of the insured. The method proposed to be used by an issuer 
must be filed with the commissioner [--according to the state's rate 
filing procedure --].
    (b) The rating class of the new policy or certificate shall be the 
class closest to the insured's class of the replaced coverage.
    (c) An issuer may not apply new pre-existing condition limitations 
or a new incontestability period to the new policy for those benefits 
contained in the exchanged [1990 Standardized] policy or certificate of 
the insured, but may apply pre-existing condition limitations of no 
more than six (6) months to any added benefits contained in the new 
[2010 Standardized] policy or certificate not contained in the 
exchanged policy.
    (d) The new policy or certificate shall be offered to all 
policyholders or certificate holders within a given plan, except where 
the offer or issue would be in violation of state or federal law.

    Drafting Note:  The options an issuer may offer its 
policyholders or certificate holders may be (a) to only selected 
existing Plans or (b) to only certain new Plans for a particular 
existing Plan. For example, an exchange of a new Plan F for an old 
Plan F is an acceptable option. An offer to only policyholders with 
existing Plans with no reduction in benefits is also acceptable.

    B. Standards for Basic (Core) Benefits Common to Benefit Plans A to 
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 one hundred percent 
(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 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 co-payment 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 co-payment amount established by CMS, 
which will be either the amount established for the Ambulatory 
Payment Classification (APC) group, or a provider-elected reduced 
co-payment 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