[Federal Register Volume 60, Number 112 (Monday, June 12, 1995)]
[Notices]
[Pages 30877-30891]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14314]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
[BPD-832-N]
Medicare Program: HHS' Approval of NAIC Statements Relating to
Duplication of Medicare Benefits
AGENCY: Health Care Financing Administration (HCFA), HHS.
ACTION: Notice.
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SUMMARY: This notice contains 10 disclosure statements that have been
developed by the National Association of Insurance Commissioners (NAIC)
and approved by the Secretary, consistent with the requirements
contained in the Social Security Act, as amended in 1994. The purpose
of these statements is to inform prospective buyers of health insurance
policies of the extent to which benefits under the policy duplicate
Medicare benefits. Each of the 10 statements applies to a different
type of health insurance policy the NAIC identified as needing a
disclosure statement. As of the effective date of this notice, issuers
of policies that duplicate Medicare benefits must display the
applicable statement in a prominent manner as part of, or together
with, the application for the policy. Issuers who fail to provide the
duplication notice could be subject to penalties relating to the sale
of duplicate health insurance coverage.
EFFECTIVE DATE: Health insurance policy issuers subject to this notice
must comply with its provisions on and after August 11, 1995.
ADDRESSES: Copies: To order copies of the Federal Register containing
this document, send your request to: New Orders, Superintendent of
Documents, [[Page 30878]] P.O. Box 371954, Pittsburgh, PA 15250-7954.
Specify the date of the issue requested and enclose a check or money
order payable to the Superintendent of Documents, or enclose your Visa
or Master Card number and expiration date. Credit card orders can also
be placed by calling the order desk at (202) 512-1800 or by faxing to
(202) 512-2250. The cost for each copy (in paper or microfiche form) is
$8. As an alternative, you may view and photocopy the Federal Register
document at most libraries designated as U.S. Government Depository
Libraries and at many other public and academic libraries throughout
the country that receive the Federal Register.
FOR FURTHER INFORMATION CONTACT: Julie Walton, (410) 966-4622.
SUPPLEMENTARY INFORMATION:
I. Background
The Medicare program covers approximately 38 million beneficiaries
who are age 65 or over, are disabled, or have permanent kidney failure.
The program consists of two separate but complementary insurance
programs, a hospital insurance program (Part A) and a supplementary
medical insurance program (Part B). Although Part A is called hospital
insurance, covered benefits also include medical services furnished in
skilled nursing facilities or by home health agencies and hospices.
Part B covers a wide range of medical services and supplies such as
those furnished by physicians or others in connection with physicians'
services, outpatient hospital services, outpatient physical and
occupational therapy services, and home health services. Part B also
covers other items including 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.
While the Medicare program provides extensive hospital insurance
benefits and supplementary medical insurance, it was not designed to
cover the total cost of providing medical care for its beneficiaries.
In particular:
Benefits under both Parts A and B are reduced by certain
deductible and coinsurance amounts, for which the beneficiary is
responsible.
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 Social Security Act (the Act).
There are a number of items generally not covered under
either of Medicare's two insurance programs, such as most outpatient
prescription drugs, custodial nursing home care, dental care, and
eyeglasses.
Beneficiaries are liable for all of the costs listed above and may
choose to purchase additional private insurance to help pay these
costs.
A. Supplements to Medicare
Because Medicare does not cover the total cost of providing medical
care, approximately 75 percent of Medicare beneficiaries purchase, or
have available through their own or a spouse's employment or former
employment, some type of private health insurance coverage to help pay
for medical expenses, services, and supplies that Medicare either does
not cover or does not pay in full. This coverage includes Medicare
supplemental (``Medigap'') insurance; employer group health plans based
on active employment or retiree coverage; hospital indemnity insurance;
nursing home or long-term care insurance; and specified disease
insurance. (Throughout this notice, the terms ``Medicare supplemental
policy'' and ``Medigap policy'' will be used interchangeably.)
An alternative to Medigap is enrollment in a managed care plan that
has a risk or cost contract with HCFA under section 1876 of the Act or
a Health Care Prepayment Plan (HCPP) agreement under section 1833 of
the Act. Beneficiaries who enroll in these plans are generally covered
for out-of-pocket costs associated with Medicare benefits and often
receive additional benefits such as prescription drugs coverage and
preventive health care services at little or no cost.
In addition to the approximately 75 percent of Medicare
beneficiaries with private insurance coverage, nearly 12 percent of
Medicare beneficiaries are eligible for at least some Medicaid
benefits. For most of these beneficiaries, Medicaid covers their
Medicare coinsurance and deductible liabilities and may also provide
additional benefits that Medicare does not cover, such as long term
care.
B. Federal and State Regulation of Insurance
After Medicare was enacted in 1965, a number of States enacted laws
and regulations governing insurance sold to supplement Medicare.
However, the scope and enforcement of these laws varied considerably.
Although Federal law recognizes the States as the primary regulators of
insurance, in 1980 the Congress addressed certain abuses associated
with the sale of health insurance to elderly Medicare beneficiaries. On
June 9, 1980, Congress enacted section 507(a) of the Social Security
Disability Amendments of 1980 (Public Law 96-265) (the ``Baucus
Amendment''), adding section 1882 to the Act.
In adding section 1882 to the Act, Congress recognized the progress
already made by the National Association of Insurance Commissioners
(NAIC) and some States in the area of Medigap regulation and chose not
to alter the traditional role of the States in regulating insurance.
Created in 1871, the NAIC is the organization of the chief
insurance regulatory officials from all 50 States, the District of
Columbia and the four territories. It provides a forum for the
development of uniform public policy where uniformity is deemed
appropriate by its members. The NAIC's primary instruments of public
policy are model laws, regulations, and guidelines. States are free to
adopt the NAIC models in their entirety, modify them, or not adopt them
at all. Federal statutory requirements, however, require all States to
adopt at least the minimum standards reflected in the NAIC's ``Model
Regulation to Implement the Requirements of the NAIC Medicare
Supplement Minimum Standards Model Act''.
The Baucus Amendment established a voluntary program under which
the Federal government would certify that Medigap policies met minimum
standards established by section 1882 of the Act, although policies
could still be sold even if they were not certified. It also provided
that if State regulatory programs met or exceeded minimum standards,
including standards established by the NAIC, Medigap policies issued in
those States would be deemed to meet the Federal certification
requirements, and separate Federal certification would not be available
in those States. However, after hearing reports of continuing abuses in
the marketplace, as part of extensive Medigap reforms contained in the
Omnibus Budget Reconciliation Act of 1990 (Pub. L. 101-508) enacted on
November 5, 1990, the Congress made the certification program mandatory
for both States and issuers. The Congress continued to base the Federal
standards on the NAIC model regulation for Medicare supplement policies
and continued to leave enforcement to the States. The model regulation
was amended on July 30, 1991, to reflect the requirements of the new
statutory [[Page 30879]] provisions. By July 1992, all States had
adopted standards equal to or more stringent than the 1991 NAIC model
regulation for Medigap policies.
The Federal certification program applies exclusively to Medigap
policies, as defined in section 1882 of the Act. State regulation, by
contrast, includes a wider range of policies that might be sold to
Medicare beneficiaries, including limited health benefit insurance such
as indemnity, specified disease, and long term care policies. (In fact
some States prohibit the sale of some types of policies that are the
subject of this notice, such as specified disease policies). Section
1882 of the Act does, however, affect these policies, to the extent
that they duplicate other coverage a beneficiary may have.
II. Anti-Duplication Provisions
A. Medigap Legislation Before 1990
Section 1882 of the Act contains a sanctions section that
establishes criminal and civil money penalties designed to assist
States and the Federal government in dealing with abuses identified in
the various studies and investigations of Medigap insurance. Before
OBRA '90 was enacted, penalties applied if an individual sold to a
Medicare beneficiary any health insurance policy (that is, not just a
Medigap policy) that was known to substantially duplicate the
beneficiary's Medicare coverage or other health insurance. However,
benefits that were payable without regard to the individual's other
health benefit coverage were to be considered non-duplicative. Section
1882(d)(3)(C) of the Act further provided that the penalties for
selling or issuing duplicative coverage did not apply to group policies
or plans of employers or labor organizations.
B. The Omnibus Budget Reconciliation Act of 1990
Section 4354(a) of OBRA '90 amended section 1882(d)(3) of the Act
to broaden the earlier anti-duplication provisions by making several
significant changes. In section 1882(d)(3)(A) of the Act, it removed
the qualifier ``substantially'' that modified ``duplicates'' in the
earlier version of the Act. As a result, any amount of duplication
became illegal. Section 4354(a) of OBRA '90 also deleted the original
wording in section 1882(d)(3)(B) of the Act that provided that if the
policy paid benefits without respect to other coverage (that is, the
policy did not coordinate benefits with other coverage), it would be
considered non-duplicative. Section 4354(a) of OBRA '90 also broadened
the anti-duplication provisions to make it illegal to duplicate
Medicaid as well as Medicare benefits or other private coverage. As
amended by OBRA '90, section 1882(d)(3)(A) of the Act now made it:
* * * unlawful for a person to sell or issue a health insurance
policy to an individual entitled to benefits under part A or
enrolled under part B of this title, with knowledge that such policy
duplicates health benefits to which such individual is otherwise
entitled [including Medicare and Medicaid or any private coverage
the individual might have] * * *
Under section 1882(d)(3)(C) of the Act, employer group health plans
continued to be exempt from these requirements.
While the provisions of OBRA '90 were intended to protect Medicare
beneficiaries from abusive sales practices and prevent them from buying
unnecessary and expensive duplicate coverage, it became apparent soon
after enactment that a total prohibition against any amount of
duplication of benefits, including even any incidental overlap, had the
unintended effect of denying Medigap or other types of desired
coverage, such as long term care insurance policies, to people who
already had some coverage that would be at least partially duplicated
by the new policy. This was true even in cases in which the beneficiary
had good reasons for wanting to buy the additional coverage.
C. Social Security Act Amendments of 1994
The Social Security Act Amendments of 1994 (SSAA '94) (Public Law
103-432) retained, in section 1882(d)(3)(A)(i)(I) of the Act, the basic
prohibition against selling or issuing to a Medicare beneficiary a
health insurance policy with knowledge that the policy duplicates
health benefits to which the individual is entitled under Medicare or
Medicaid. However, the new law provides an exception to this basic
prohibition.
The penalties for selling a policy that duplicates Medicare or
Medicaid benefits (other than a Medigap policy to an individual
entitled to any Medicaid benefits) do not apply if two conditions are
met. First, all benefits under the policy must be fully payable
directly to, or on behalf of, the beneficiary without regard to other
health benefit coverage of the individual. Second, the issuer must
display in a prominent manner as part of (or together with) the
application a prescribed statement disclosing the extent to which
benefits payable under the policy or plan duplicate Medicare benefits.
The latter requirement only applies to policies sold or issued more
than 60 days after the date that the required statements are published
or promulgated under the provisions established in section 171(d)(3)(D)
of SSAA '94. Therefore policies issued on or after August 11, 1995 must
include these disclosure statements.
Section 171(d)(3)(D) of SSAA '94 provides that if, within 90 days
of the statute's enactment, the NAIC develops and submits to the
Secretary a statement for each type of non-Medigap health insurance
policy and the Secretary approves all the statements as meeting the
requirements of SSAA '94, the statements developed by the NAIC will be
the ones prescribed by the law. The statute instructs the NAIC to
consult with consumer and insurance industry representatives in
developing the statements. The statute also specifies that the separate
types of health insurance policies that need disclosure statements
include, but are not limited to, fixed cash indemnity policies and
specified disease policies. The statute gives the Secretary 30 days to
review and approve or disapprove all the statements submitted by the
NAIC. Upon approval of these statements the statute requires the
Secretary to publish the statements.
III. Implementation of SSAA '94
A. Development of Disclosure Statements
In an effort to assure that consumer and insurance industry
representatives had an opportunity to provide meaningful input into the
NAIC's development of the disclosure statements, the NAIC undertook the
following steps:
On November 1, 1994, a Request for Comment was mailed to
over 500 representatives of consumer organizations and insurance
industry representatives as well as to the program directors of the
Insurance Counseling and Assistance Programs established in each State.
A Request for Comment was also sent to all NAIC members
and the person responsible for health issues in each State as well as
to all members of Congress and certain congressional health staff
members.
The Fall edition of the NAIC NEWS and the NAIC Senior
Counseling Letter included a short summary of the major components of
section 171 of the SSAA '94 (in particular, the provisions on
duplication) and solicited input from the readers. These solicitations
generated 33 written comment letters providing suggestions on how the
NAIC should proceed. [[Page 30880]]
On December 2, 1994, a public hearing was conducted during
an NAIC meeting in New Orleans, Louisiana. Sixteen representatives of
organizations provided testimony at this hearing. On December 3 and 5,
1994, additional public meetings were held to begin drafting the
statements.
On December 13, 1994, draft disclosure statements were
mailed to the same persons who received the Request for Comment. This
mailing asked for comment on the draft statements and announced another
public meeting. This mailing generated an additional 16 comment
letters.
On January 9 and 10, 1995, public meetings were held in
Washington, D.C., to solicit further input from consumer and insurance
industry representatives.
On January 12, 1995, copies of the revised disclosure
statements were faxed to the participants of the January 9 and 10
meetings requesting additional input and announcing the final public
meeting. An additional 5 comment letters were received.
On January 20, 1995, a final public meeting was held in
Washington, D.C., seeking additional public comment on the statements
before submitting them for adoption by the Commissioners in a plenary
session held on January 21.
The NAIC delivered the statements to the Secretary on January 27,
1995. The Secretary approved them on February 24, 1995.
B. Availability of Comments Received During Development of NAIC
Disclosure Statements
Comments concerning the 10 disclosure statements received during
the development and approval process will be available for public
inspection beginning with the date of the publication of this document.
They may be viewed in Room 309-G of the Department's offices at 200
Independence Avenue, SW., Washington DC, on Monday through Friday of
each week from 8:30 a.m. to 5 p.m. (phone: (202) 690-7890), and in Room
132 East High Rise building, 6325 Security Boulevard, Baltimore
Maryland, on Monday through Friday, of each week from 8:30 a.m. to 4:00
p.m. (phone: (410) 966-5633).
C. Criminal and Civil Money Penalties
Any issuer who is required to provide the appropriate statement as
part of, or together with, the application after the effective date of
this notice and fails to do so, or fails to pay benefits under the
policy without regard to other coverage, is subject to the imposition
of the Federal criminal and/or civil penalties that are identified in
section 1882(d)(3)(A) of the Act. The criminal penalties identified in
this section are fines under title 18 of the U.S. Code, which could be
as much as $25,000, or imprisonment of not more than 5 years, or both.
In addition to or in lieu of criminal penalties, an issuer who violates
these requirements could be subject to a civil money penalty of up to
$25,000 per violation. In the case of violation of these requirements
by any person other than the issuer (e.g., an agent), the civil money
penalty per violation may not exceed $15,000.
D. Policies Not Requiring Disclosure Statements
Certain policies do not have to carry a disclosure statement.
Policies that do not duplicate Medicare benefits, even
incidentally.
(An argument has been made that a policy that coordinates benefits
with Medicare (that is, does not pay otherwise covered benefits if
Medicare has already paid benefits) does not ``duplicate'' Medicare
within the meaning of section 1882(d)(3) of the Act. However, this
interpretation would make section 1882(d)(3)(C)(ii) of the Act
meaningless. The latter provision permits duplication of Medicare only
if a policy makes benefits fully payable without regard to other health
benefit coverage. Therefore, section 1882 (d)(3)(C)(ii) of the Act only
makes sense if the policy in question has a coordination of benefits
clause. In other words, the controlling factor is whether the policy
provides coverage of benefits that would duplicate Medicare benefits,
not whether or not it actually pays.
A question was also raised as to whether policies that pay fixed
dollar amounts that are not for specific services duplicate Medicare.
Section 1882(d)(3)(D)(i)(I) of the Act specifically requires the NAIC
to draft statements for policies that pay ``fixed, cash benefits.''
This represents a congressional determination that these policies
``duplicate'' Medicare.)
Life insurance policies that contain long term care riders
or accelerated death benefits.
(These types of policies are not covered under the disclosure
requirements for two reasons. First, they are advertised, marketed, and
sold as life products, not as ``health insurance.'' Second, as life
insurance policies, these products will always pay the same amount of
benefit whether the payment is made before or after death. By contrast,
if a long term care insurance policyholder dies without ever filing a
claim for long term care benefits, there is usually no return on his or
her ``investment'' in premiums.)
Disability insurance policies.
(Although in some contexts these types of policies may be
considered to be a form of health insurance, we believe that they are
not the type of insurance policies Congress intended to come within the
scope of this legislation. They have traditionally been considered to
be a separate type of insurance, and the Internal Revenue Code treats
them differently from health insurance.)
Property and casualty policies, including personal
liability and automobile insurance.
(These types of policies may pay certain health benefits, but State
laws do not consider property and casualty coverage to be ``health
insurance.'')
Employer and union group health plans.
(These types of policies are exempt from the anti-duplication
prohibition under section 1882(d)(3)(C)(i) of the Act and therefore do
not have to meet the requirements of section 1882 (d)(3)(C)(ii) of the
Act. Such plans do not need to carry disclosure statements even though
they may fit one of the above categories.)
Managed care organizations with Medicare contracts under
section 1876 of the Social Security Act.
(These plans do not ``duplicate'' Medicare benefits; rather their
purpose is to actually provide all covered Medicare benefits directly
to enrolled beneficiaries.)
HCPPs that provide some or all Part B benefits under an
agreement with HCFA under section 1833(a) of the Act.
(As with section 1876 managed care plans, under these agreements,
HCPPs provide the actual Medicare benefits; they do not duplicate
Medicare.)
E. Policies Requiring Disclosure Statements
The NAIC has identified 10 separate types of health insurance
policies that each need an individualized statement of the extent to
which the policy duplicates Medicare. These types of policies are--
(1) policies that provide benefits for expenses incurred for an
accidental injury only;
(2) policies that provide benefits for specified limited services;
(3) policies that reimburse expenses incurred for specified disease
or other specified impairments (including cancer policies, specified
disease policies and other policies that limit reimbursement to named
medical conditions);
(4) policies that pay fixed dollar amounts for specified disease or
other [[Page 30881]] specified impairments (including cancer, specified
disease policies and other policies that pay a scheduled benefit or
specified payment based on diagnosis of the conditions named in the
policy);
(5) indemnity policies and other policies that pay a fixed dollar
amount per day, excluding long term care policies;
(6) policies that provide benefits for both expenses incurred and
fixed indemnity;
(7) long-term care policies providing both nursing home and non-
institutional coverage;
(8) long-term care policies primarily providing nursing home
benefits only;
(9) home care policies; and
(10) other health insurance policies not specifically identified
above.
IV. Policy Disclosure Statements
We have reviewed and approved the statements developed by the NAIC
along with the instructions for their use and they are set forth as an
addendum to this notice.
V. Other
This notice was reviewed by the Office of Management and Budget.
(Section 1882(d)(3) of the Social Security Act (42 U.S.C.
1395ss(d)(3)))
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)
Dated: April 17, 1995.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
Addendum
Adopted by the NAIC on 1/21/95
Instructions for Use of the Disclosure Statements for Health Insurance
Policies Sold to Medicare Beneficiaries That Duplicate Medicare
1. Federal law, P.L. 103-432, prohibits the sale of a health
insurance policy (the term policy includes certificate) to Medicare
beneficiaries that duplicates Medicare benefits unless it will pay
benefits without regard to a beneficiary's other health coverage and
it includes the prescribed disclosure statement on or together with
the application for the policy.
2. All types of health insurance policies that duplicate
Medicare shall include one of the attached disclosure statements,
according to the particular policy type involved, on the application
or together with the application. The disclosure statement may not
vary from the attached statements in terms of language or format
(type size, type proportional spacing, bold character, line spacing,
and usage of boxes around text).
3. State and Federal law prohibits insurers from selling a
Medicare supplement policy to a person that already has a Medicare
supplement policy except as a replacement policy.
4. Property/Casualty and Life insurance policies are not
considered health insurance.
5. Disability income policies are not considered to provide
benefits that duplicate Medicare.
6. The federal law does not pre-empt state laws that are more
stringent than the federal requirements.
7. The federal law does not pre-empt existing state form filing
requirements.
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[FR Doc. 95-14314 Filed 6-9-95; 8:45 am]
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