NAIC Medigap Modernization

1. NAIC Medigap Modernization 13th Annual SHIP Directors Conference Doubletree Hotel - Arlington June 12, 2007

2. NAIC Medigap Modernization Effort • Alan Heumann (Louisiana SHIP Director, member of NAIC Medigap Modernization Subgroup) • Jane Sung (NAIC Staff, Senior Issues Task Force and Medigap Modernization Subgroup) • Alethia Jackson (America’s Health Insurance Plans, member of NAIC Medigap Modernization Subgroup)

3. Overview • Goal of today’s panel: Preview the NAIC’s Medigap Modernization Proposal. • 1) Review Medigap Insurance • 2) Share NAIC’s proposed changes • 3) Discuss Implementation

4. What is Medigap • Also known as Medicare Supplement Insurance, over 10.2 million Medicare beneficiaries have a Medigap policy. • Health insurance policies that cover the “gaps” in traditional Medicare. • Sold by private insurance companies. • Medigap plans are “Standardized”. • 14 standardized policies A-L, except Massachusetts, Minnesota, Wisconsin.

5. History of Medigap • Medigap standardized plans were developed by the National Association of Insurance Commissioners (NAIC) through a unique delegation by Congress under OBRA ’90. • The NAIC developed a “model” regulation through a work group process outlined in federal law. The work group included state regulators, industry representatives, consumer groups, and other interested parties. • The NAIC’s model for state law was incorporated by reference into federal law and became part of the federal minimum standards for Medicare Supplement Insurance. • States (other than WI, MA, MN) are required to adopt the NAIC model to retain regulatory authority of these plans. • WI,MA, and MN retained the standardized plans that were being sold in those states prior to OBRA-90.

6. Medigap Coverage • Currently there are 14 standardized plans. • This includes the 10 plans (A-J) created in 1990. • Plus two high deductible options (for F and J)($1,860 deductible in 2007) • Plus two new plans mandated by Congress in the Medicare Modernization Act (K and L). Medicare SELECT

7. Medigap Coverage

8. Medigap Coverage • All carriers must offer at least Plan A, which contains just the “Basic” benefits.Currently this covers: • Medicare Part A hospital coinsurance(days 61-90 and 91-150) • Medicare Part B coinsurance • Blood deductible (first 3 non-replaced pints) • 365 Additional inpatient days

9. Medigap Coverage • In addition to the “Basic” benefits, Plans B-L include additional coverage options, such as: • Medicare deductibles and coinsurance • Preventive Care not covered by Medicare • Emergency care while traveling outside U.S. • Excess charges • Limited at-home recovery • Skilled Nursing Facility (SNF) coinsurance

10. Medigap Coverage • Until 2005, Plans H, I, and J also included limited outpatient prescription drug coverage. • Plans K and L, as prescribed by the MMA: • Require coverage for Part A and B expenses at 50% and 75% respectively; • Include an annual Out-of-Pocket limit, indexed for inflation (K-$4,140 L-$2,070 in 2007); • Cover hospice cost-sharing; • Do not cover the Part B deductible or first 3 pints of blood.

11. NAIC Medigap Modernization • Why did the NAIC undertake this modernization effort?

12. NAIC Medigap Modernization The Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA) included conference report language to “encourage the National Association of Insurance Commissioners (NAIC) to modernize the Medigap market”.

13. NAIC Medigap Modernization Congressional Request The conference report stated that, in addition to creating K and L, “NAIC should consider much broader changes to the Medigap market that will effectuate reduced premiums and more rational coverage policies that create incentives for appropriate utilization of services.”

14. NAIC Medigap Modernization Statutory Authority • Social Security Act: Sec. 1882 (p)(1)(E) If benefits…under this title are changed and the Secretary determines, in consultation with the [NAIC], that changes in the 1991 NAIC Model Regulation or 1991 Federal Regulation are needed to reflect such changes, the preceding provisions of this paragraph shall apply to the modification of standards previously established in the same manner as they applied to the original establishment of such standards. • Since OBRA 1990, Congress and the Social Security Act have frequently provided the NAIC with the opportunity to use the NAIC Model Medigap Regulation as the vehicle for promulgating mandatory federal Medigap standards – most recently with the MMA.

15. NAIC Medigap Modernization • The NAIC decided to review the Medigap plans to determine if there were change s that could be made to the benefit packages in response to changes in the marketplace since standardization.

16. NAIC Medigap Modernization • Congressional Request + Apparent Authority = NAIC began a review of Medigap packages and the NAIC Medigap Model Regulation.

17. NAIC Medigap Modernization • Who was part of the Modernization process? • NAIC (State insurance regulators) • CMS • Consumer Advocates (including AARP, Center for Medicare Advocacy, California Health Advocates) • Industry representatives (including AHIP, other individual companies) • Other interested parties

18. NAIC Medigap Modernization Notes: “Basic” for plans A-G, M, and N now include 100% Part B Coinsurance. Coverage for the Part B Deductible is not included in plans M and N. ** Note that the “Basic” package for plans K and L differ from the “Basic” package for Plans A-G, M, and N.

19. NAIC Medigap Modernization • The NAIC proposal eliminates Four Medigap Plans: • Plans H, I, and J are eliminated. (No more Rx) • Plan E is eliminated. (Became same as D once other benefit changes were made)

20. NAIC Medigap Modernization • Modernization of Benefits: • Eliminates the At-Home Recovery Benefit • Creates a new Hospice Benefit as part of Basic • Eliminates Preventive Care Benefit • Replaces the 80% Part B Excess Charges Benefit to a 100% benefit

21. NAIC Medigap Modernization • The Modernization proposal adds new plan options: • New Plan M – with increased cost-sharing (50% of the Part A Deductible, no coverage for Part B Deductible) • New Plan N – with new co-pay structure ($10 copay for physician visits, $50 copay for ER) and no coverage for Part B Deductible

22. NAIC Medigap Modernization • Overall: • Reduces offerings from 14 to 11. • Adds to “Basic Benefits” • Provides additional cost-sharing options with reduced premiums • Eliminates underutilized benefits. • Retains most popular plan and benefit choices. • Makes changes needed after the MMA prohibited sale of plans with Rx.

23. NAIC Process • Developed by the Medigap Modernization Subgroup (included insurance department regulators, industry, consumer groups, CMS, etc) • Exposed for public comment for a 30 day period ending February 5, 2007. • Adopted by the NAIC Senior Issues Task Force • Adopted by the NAIC Health and Managed Care (B) Committee • “Approved” by the NAIC Plenary / Executive Committee on March 12, 2007.

24. Implementation Where Do We Go From Here: Why are the changes to the Model Regulation the NAIC Modernization Proposal?

25. Authority Question Authority to Adopt Changes Through the Regulatory Process: CMS’s Office of General Counsel: Insufficient existing authority to implement changes -- Need additional Congressional authority.

26. Implementation • Therefore the NAIC “approved” the proposed changes to the Model Regulation, but they will not be adopted until federal legislative action is taken. • Once the federal government acts, the Model will be automatically “adopted” by the NAIC, without subsequent action by the organization. • The old NAIC model is still in force. States should NOT act to adopt the new changes.

27. Implementation Once federal action is achieved, implementation can begin: • Congress grants the authority to proceed with changes. • The Secretary of HHS determines, in consultation with the Association, that changes to the NAIC Model Regulation are needed. • The NAIC “adopts” the changes.

28. Implementation Once approved on Federal level, the new benefit packages become part of the Federal Minimum Standards to be applied in each state States will have to consider: • Promulgation of new state regulations; • Whether changes need approval of state legislature; • Consider timing of legislative sessions; • Effective dates / timeline; and • Company and Consumer Materials

29. Implementation Timeframes for State Regulators to Consider: • Timing of the regulatory process to promulgate changes • Timeframe for review and approval of new form filings by Medigap Carriers prior to the effective date of the changes • Timeframe for review and approval of new Medigap marketing materials • Possible transition period between the effective date and the date that companies have to be in compliance with new requirements in order to allow time for approval of new filings so that there is no gap in the market.

30. Implementation • Companies will have to consider: • Effective dates / timelines; • Filing of new forms and marketing materials; and • Educating agents and brokers about changes to the benefit packages

31. Implementation • Consumers / Policyholders: • Once adopted, new purchasers would choose from the modernized benefits/plans. • Existing policyholders would not be affected if they want to keep their policies. • However the proposal does include transition standards to permit companies to offer existing policyholders the opportunity to leave their current policy and purchase a new policy.

32. Implementation • Things for SHIPs to be aware of: • Plan letters: no E, H, I, J • Old plans / New plans • Old benefits / New benefits • Implementation dates • New or Innovative benefits • No changes in enrollment rules • No changes in guaranteed issue rules

33. Questions & Answers