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



[[Page 15393]]

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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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

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

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-4080-N]
RIN 0938-AN66


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

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

ACTION: Notice.

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SUMMARY: This notice describes changes made by the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 to 
section 1882 of the Social Security Act (the Act), which governs 
Medicare supplemental insurance. This notice also recognizes that the 
Model Regulation adopted by the National Association of Insurance 
Commissioners (NAIC) on September 8, 2004, is considered to be the 
applicable NAIC Model Regulation for purposes of section 1882 of the 
Act, subject to our clarifications that are set forth in this notice. 
Finally, the full text of the revised NAIC Model Regulation is included 
as an addendum to this notice. The NAIC has granted permission for the 
NAIC Model Regulation to be published and reproduced. Under 1 CFR 2.6, 
there is no restriction on the republication of material as it appears 
in the Federal Register.

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

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

SUPPLEMENTARY INFORMATION:

I. Background

A. The Medicare Program

    The Medicare program was established by the Congress in 1965 with 
the enactment of title XVIII of the Social Security Act (the Act). The 
program provides payment for certain medical expenses for persons 65 
years of age or older, certain disabled individuals, and persons with 
end-stage renal disease.
    The Original Medicare Plan has two parts: a Part A and Part B. The 
``hospital insurance program'' (Part A) covers inpatient care furnished 
by hospitals, critical access hospitals, and skilled nursing 
facilities, and care furnished by home health agencies and hospices. 
The ``supplementary medical insurance program'' (Part B) covers a wide 
range of medical services and supplies, including physicians' services, 
outpatient hospital services, outpatient rehabilitation services, such 
as physical and occupational therapy, and some home health services. 
Part B also covers certain drugs and biologicals that cannot be self-
administered, diagnostic x-ray and laboratory tests, purchase or rental 
of durable medical equipment, ambulance services, prosthetic devices, 
and certain medical supplies.
    In addition to the Original Medicare Plan, Medicare contracts with 
private health plans, including managed care plans, under Part C of 
Medicare, the Medicare Advantage Program.
    Beginning in January 2006, Medicare will also have a Voluntary 
Prescription Drug Benefit Program, which will be referred to as Part D 
of Medicare. The new Medicare Part D program is discussed in this 
notice under Legislative Changes Affecting Medigap Policies.
    While the Original Medicare Plan provides extensive hospital 
insurance benefits and supplementary medical insurance, it was not 
designed to cover the total cost of medical care for Medicare 
beneficiaries. First, with respect to Medicare covered services, 
beneficiaries are responsible for various deductible and coinsurance 
amounts. In addition, there are medical expenses that are not covered 
by Medicare at all.
1. Deductibles
    Under Part A, a beneficiary is responsible for the Part A inpatient 
hospital deductible for each ``benefit period.'' A benefit period is 
the period beginning on the first day of hospitalization and extending 
until the beneficiary has not been an inpatient of a hospital or 
skilled nursing facility for 60 consecutive days. The inpatient 
hospital deductible is updated annually in accordance with a statutory 
formula. The inpatient hospital deductible for calendar year (CY) 2004 
is $876. For CY 2005, it is $912.
    The Part B deductible is $100 for CY 2004. Section 629 of the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 
(MMA) (Pub. L. 108-173, enacted on December 8, 2003) requires that the 
Part B deductible be raised to $110 in CY 2005, and indexed in 
subsequent years to the increase in the average cost of Part B services 
for aged beneficiaries.
2. Coinsurance
    As noted above, beneficiaries are responsible for paying certain 
coinsurance amounts for covered items and services. For example, the 
coinsurance applicable to physicians' services under Part B is 
generally 20 percent of the Medicare-approved amount for the service. 
When beneficiaries receive covered services from physicians who do not 
accept assignment of their Medicare claims, the beneficiaries may also 
be required to pay amounts in excess of the Medicare approved amount 
(``excess charges''), up to a limit established under the Act.
3. Noncovered Services
    There are a number of items and services that are not covered under 
either Part A or Part B; for example, custodial nursing home care, most 
dental care, eyeglasses, and most prescription drugs are currently not 
covered. Thus, the Original Medicare Plan covers many health care 
services and supplies, but it does not cover all expenses. Therefore, 
most people choose to get some type of additional coverage to pay some 
of the costs not covered by the Original Medicare Plan. This coverage 
most frequently includes Medicare supplemental (Medigap) insurance or 
employer group health plans. Some beneficiaries may also defray some 
expenses with hospital indemnity insurance, nursing home or long term 
care insurance, or specified disease (for example, cancer) insurance.

B. Medicare Supplemental Insurance

    A Medicare supplemental (Medigap) policy is a health insurance 
policy sold by private insurance companies to fill ``gaps'' in Original 
Medicare Plan coverage. A Medigap policy typically provides coverage 
for some or all of the deductible and coinsurance amounts applicable to 
Medicare-covered services, and sometimes covers items and services that 
are not covered by Medicare. Under current provisions of section 1882 
of the Act, Medigap policies generally may not be sold unless they 
conform to one of the 10 standardized benefit packages that have been 
defined and designated as plans ``A'' through ``J'' by the National 
Association of Insurance Commissioners (NAIC). Three States 
(Massachusetts, Minnesota, and Wisconsin) are permitted by statute to 
have different standardized Medigap plans and are sometimes referred to 
in this context as the ``waiver'' States.
    Three of the 10 standardized Medigap plans ``H'', ``I'', and ``J'' 
currently contain coverage for outpatient

[[Page 15395]]

prescription drugs. In addition, there are Medigap policies that were 
issued before the standardization requirements went into effect 
(``prestandardized'' Medigap plans) that cover drugs, as well as 
Medigap policies in the waiver States, some of which have varying 
levels of coverage for outpatient prescription drugs.
    Section 1882 of the Act incorporates by reference, as part of the 
statutory requirements, certain minimum standards established by the 
NAIC. These minimum standards, known as the ``NAIC Model Standards,'' 
are found in the ``Model Regulation to Implement the NAIC Medicare 
Supplement Insurance Minimum Standards Model Act,'' initially adopted 
by the NAIC on June 6, 1979 (see section 1882(g)(2)(A) of the Act). In 
particular, the Model Standards, as revised in 1992 according to the 
Omnibus Budget Reconciliation Act of 1990, prescribed 10 standardized 
benefit packages.
    Section 1882(b)(1) of the Act also provides that Medigap policies 
issued in a State are deemed to meet the Federal requirements if the 
State's program regulating Medicare supplemental policies provided for 
the application of standards at least as stringent as those contained 
in the NAIC Model Regulation, and if the State requirements are equal 
to or more stringent than those set forth in section 1882 of the Act.
    States must amend their regulatory programs to implement all new 
Federal statutory requirements and applicable changes to the NAIC Model 
Standards. Thus, States will now be required to implement the statutory 
changes made by MMA, and the changes to the NAIC Model Standards made 
to comport with the requirements of MMA, which we attach to this 
notice. While States generally cannot modify the standardized benefit 
packages set out in the NAIC Model, with respect to other provisions 
States do retain the authority to enact regulatory provisions that are 
more stringent than those that are incorporated in the NAIC Model 
Standards or in the statutory requirements (see section 1882(b)(1)(A) 
of the Act). States that have received a waiver under section 
1882(p)(6) of the Act may continue to authorize the sale of policies 
that contain different benefits than the 10 standardized benefit 
packages. However, those States are also required to amend their 
regulatory programs to implement the new Federal statutory requirements 
and changes to the NAIC Model Standards as a result of the MMA.

II. Legislative Changes Affecting Medigap Policies

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

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

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

B. Elimination of Duplicative Drug Coverage Upon Part D Enrollment

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

C. Guaranteed Issue Rights

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

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

D. Development of New Standards for Medigap Policies

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

E. Other Changes to the NAIC Model Regulation

1. Definition of Medicare-Eligible Expenses
    Payment of Medigap benefits is, in many cases, based on whether a 
service is one that is generally covered by Medicare. The NAIC Model 
Regulation accordingly contains a definition of ``Medicare eligible 
expenses.'' Because Medigap policies held by individuals enrolled in 
Medicare Part D can no longer contain any prescription drug benefits, 
no Medigap policy will ever supplement the Part D benefit. The 
definition of ``Medicare eligible expenses'' in the NAIC Model 
Regulation has been revised to clarify that ``Medicare eligible 
expenses'' means only those expenses of the kinds covered by Medicare 
Parts A and B, to the extent recognized as reasonable and necessary by 
Medicare. The revised definition clarifies that a Medigap policy does 
not pay cost-sharing for expenses incurred under Medicare Part D, and 
also more clearly states the position of the NAIC and CMS that Medigap 
policies do not pay cost-sharing incurred under Part C.
2. Medicare Advantage Program
    Section 201 of the MMA established the Medicare Advantage program 
under part C of title XVIII of the Act. Medicare Part C was formerly 
known as ``Medicare+Choice.'' The revised NAIC Model Regulation 
reflects the change from ``Medicare+Choice'' to ``Medicare Advantage'' 
when referring to Medicare Part C.
3. Upon Exhaustion Benefit
    Section 8.B. of the revised NAIC Model describes the standards for 
basic benefits common to plans ``A'' through ``J''. Section 8.D.(1) 
describes the standards for benefits common to plans ``K'' through 
``L''.
    Section 8.B.(3) and section 8.D.(1)(c) describe what is commonly 
referred to as the ``upon exhaustion'' benefit. Medicare provides 
inpatient hospital benefits for up to 90 days in a benefit period, plus 
any of the 60 ``lifetime reserve days'' that have not already been 
used.
    After a beneficiary exhausts this coverage, including the lifetime 
reserve days, all Medigap policies cover 100 percent of Medicare Part A 
eligible expenses for hospitalization paid at the applicable 
prospective payment system (PPS) rate or other appropriate Medicare 
standard of payment, subject to a lifetime maximum benefit of 365 days.
    We note that the last sentence of section 8.B.(3) and of section 
8.D.(1)(c) is not part of the benefit description of the ``upon 
exhaustion'' benefit. Therefore, for purposes of complying with Federal 
Medigap standards and requirements, that sentence is not required to be 
included in the text of the regulation or the drafting notes associated 
with those sections. Similarly, section 17.D(4) of the Model sets forth 
all the outlines of coverage for plans ``A'' through ``K''. Each 
outline contains, at the bottom of its first page, a ``Notice'' to 
prospective purchasers. The final sentence of this notice is not part 
of the benefit description, and for purposes of satisfying Federal 
Medigap requirements, is not required to be included.

E. Application to Waiver States

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

III. Standardized Benefit Packages

    Sections 1882(p)(8) and (p)(9) prescribe certain requirements and 
penalties with respect to the issuance or sale of a Medigap policy. 
Section 1882(p)(10) qualifies the requirements by specifying that ``no 
penalty may be imposed under paragraph (8) or (9) in the [case] of a 
seller who is not the issuer of a policy'' until the Secretary ``has 
published a list of the groups of benefit packages that may be sold or 
issued consistent with paragraph [1882(p)](1)(A)(i).'' The following 
list of the standardized benefit packages constitutes the publication 
of this list as of the date this notice is published in the Federal 
Register.
    The following is a list of the standardized Medigap benefit 
packages, with a cross-reference to the sections of the attached NAIC 
Model where the packages are described in detail. The Model Regulation, 
adopted by the NAIC on September 8, 2004, is reprinted at the end of 
this notice. The NAIC has granted permission for the NAIC Model 
Regulation to be published and reproduced. Under 1 CFR 2.6, there is no 
restriction on the republication of material as it appears in the 
Federal Register.

[[Page 15397]]

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

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

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

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

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

Table of Contents

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

Section 1. Purpose

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

Section 2. Authority

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


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

Section 3. Applicability and Scope

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

Section 4. Definitions

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

[[Page 15398]]

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


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


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

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


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


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


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

Section 5. Policy Definitions and Terms

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

[[Page 15399]]

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

Section 6. Policy Provisions

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


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

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

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


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


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


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


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


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


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

[[Page 15400]]

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


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


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


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


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

B. Minimum Benefit Standards.

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

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

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


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


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


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

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

[[Page 15401]]

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

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


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

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


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

[[Page 15402]]

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


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


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

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


    C. Standards for Additional Benefits. The following additional 
benefits shall be included in Medicare Supplement Benefit Plans ``B'' 
through ``J'' only as provided by Section 9 of this regulation.
    (1) Medicare Part A Deductible: Coverage for all of the Medicare 
Part A inpatient hospital deductible amount per benefit period.
    (2) Skilled Nursing Facility Care: Coverage for the actual billed 
charges up to the coinsurance amount from the 21st day through the 
100th day in a Medicare benefit period for post-hospital skilled 
nursing facility care eligible under Medicare Part A.
    (3) Medicare Part B Deductible: Coverage for all of the Medicare 
Part B deductible amount per calendar year regardless of hospital 
confinement.
    (4) Eighty Percent (80%) of the Medicare Part B Excess Charges: 
Coverage for eighty percent (80%) of the difference between the actual 
Medicare Part B charge as billed, not to exceed any charge limitation 
established by the Medicare program or state law, and the Medicare-
approved Part B charge.
    (5) One Hundred Percent (100%) of the Medicare Part B Excess 
Charges: Coverage for all of the difference between the actual Medicare 
Part B charge as billed, not to exceed any charge limitation 
established by the Medicare program or state law, and the Medicare-
approved Part B charge.
    (6) Basic Outpatient Prescription Drug Benefit: Coverage for fifty 
percent (50%) of outpatient prescription drug charges, after a $250 
calendar year deductible, to a maximum of $1,250 in benefits received 
by the insured per calendar year, to the extent not covered by 
Medicare. The outpatient prescription drug benefit may be included for 
sale or issuance in a Medicare supplement policy until January 1, 2006.
    (7) Extended Outpatient Prescription Drug Benefit: Coverage for 
fifty percent (50%) of outpatient prescription drug charges, after a 
$250 calendar year deductible to a maximum of $3,000 in benefits 
received by the insured per calendar year, to the extent not covered by 
Medicare. The outpatient prescription drug benefit may be included for 
sale or issuance in a Medicare supplement policy until January 1, 2006.
    (8) Medically Necessary Emergency Care in a Foreign Country: 
Coverage to the extent not covered by Medicare for eighty percent (80%) 
of the billed charges for Medicare-eligible expenses for medically 
necessary emergency hospital, physician and medical care received in a 
foreign country, which care would have been covered by Medicare if 
provided in the United States and which care began during the first 
sixty (60) consecutive days of each trip outside the United States, 
subject to a calendar year deductible of $250, and a lifetime maximum 
benefit of $50,000. For purposes of this benefit, ``emergency care'' 
shall mean care needed immediately because of an injury or an illness 
of sudden and unexpected onset.
    (9) Preventive Medical Care Benefit: Coverage for the following 
preventive health services not covered by Medicare:
    (a) An annual clinical preventive medical history and physical 
examination that may include tests and services from Subparagraph (b) 
and patient education to address preventive health care measures;
    (b) Preventive screening tests or preventive services, the 
selection and frequency of which is determined to be medically 
appropriate by the attending physician.
    Reimbursement shall be for the actual charges up to one hundred 
percent (100%) of the Medicare-approved amount for each service, as if 
Medicare were to cover the service as identified in American Medical 
Association Current Procedural Terminology (AMA CPT) codes, to a 
maximum of $120 annually under this benefit. This benefit shall not 
include payment for any procedure covered by Medicare.
    (10) At-Home Recovery Benefit: Coverage for services to provide 
short term, at-home assistance with activities of daily living for 
those recovering from an illness, injury or surgery.
    (a) For purposes of this benefit, the following definitions shall 
apply:
    (i) ``Activities of daily living'' include, but are not limited to 
bathing, dressing, personal hygiene, transferring, eating, ambulating, 
assistance with drugs that are normally self-administered, and changing 
bandages or other dressings.
    (ii) ``Care provider'' means a duly qualified or licensed home 
health aide or homemaker, personal care aide or nurse provided through 
a licensed home health care agency or referred by a licensed referral 
agency or licensed nurses registry.
    (iii) ``Home'' shall mean any place used by the insured as a place 
of residence, provided that the place would qualify as a residence for 
home health care services covered by Medicare. A hospital or skilled 
nursing facility shall not be considered the insured's place of 
residence.
    (iv) ``At-home recovery visit'' means the period of a visit 
required to provide at home recovery care, without limit on the 
duration of the visit, except each consecutive four (4) hours in a 
twenty-four-hour period of services provided by a care provider is one 
visit.
    (b) Coverage Requirements and Limitations:
    (i) At-home recovery services provided must be primarily services 
which assist in activities of daily living.
    (ii) The insured's attending physician must certify that the 
specific type and frequency of at-home recovery services are necessary 
because of a condition for which a home care plan of treatment was 
approved by Medicare.
    (iii) Coverage is limited to:
    (I) No more than the number and type of at-home recovery visits 
certified as necessary by the insured's attending physician. The total 
number of at-home recovery visits shall not exceed the number of 
Medicare approved home health care visits under a Medicare approved 
home care plan of treatment;
    (II) The actual charges for each visit up to a maximum 
reimbursement of $40 per visit;
    (III) $1,600 per calendar year;
    (IV) Seven (7) visits in any one week;
    (V) Care furnished on a visiting basis in the insured's home;

[[Page 15403]]

    (VI) Services provided by a care provider as defined in this 
section;
    (VII) At-home recovery visits while the insured is covered under 
the policy or certificate and not otherwise excluded;
    (VIII) At-home recovery visits received during the period the 
insured is receiving Medicare approved home care services or no more 
than eight (8) weeks after the service date of the last Medicare 
approved home health care visit.
    (c) Coverage is excluded for:
    (i) Home care visits paid for by Medicare or other government 
programs; and
    (ii) Care provided by family members, unpaid volunteers or 
providers who are not care providers.


    Drafting Note: The Omnibus Budget Reconciliation Act 1990, 42 
U.S.C. 1395ss(p)(7), does not prohibit the issuers of Medicare 
supplement policies, through an arrangement with a vendor for 
discounts from the vendor, from making available discounts from the 
vendor to the policyholder or certificateholder for the purchase of 
items or services not covered under its Medicare supplement policies 
(for example: discounts on hearing aids or eyeglasses).


    Drafting Note: The NAIC discussed including inflation protection 
for at-home recovery benefits, and preventive care benefits. 
However, because of the lack of an appropriate mechanism for 
indexing these benefits, NAIC has not included indexing at this 
point in time. However, NAIC is committed to evaluating the 
effectiveness of these benefits without inflation protection, and 
will revisit the issue. NAIC has determined that OBRA does not 
authorize NAIC to delegate the authority for indexing these benefits 
to a federal agency without an amendment to federal law.


    D. Standards for Plans K and L.
    (1) Standardized Medicare supplement benefit plan ``K'' shall 
consist of the following:
    (a) Coverage of 100% of the Part A hospital coinsurance amount for 
each day used from the 61st through the 90th day in any Medicare 
benefit period;
    (b) Coverage of 100% of the Part A hospital coinsurance amount for 
each Medicare lifetime inpatient reserve day used from the 91st through 
the 150th day in any Medicare benefit period;
    (c) Upon exhaustion of the Medicare hospital inpatient coverage, 
including the lifetime reserve days, coverage of 100% of the Medicare 
Part A eligible expenses for hospitalization paid at the applicable 
prospective payment system (PPS) rate, or other appropriate Medicare 
standard of payment, subject to a lifetime maximum benefit of an 
additional 365 days. The provider shall accept the issuer's payment as 
payment in full and may not bill the insured for any balance;
    (d) Medicare Part A Deductible: Coverage for 50% of the Medicare 
Part A inpatient hospital deductible amount per benefit period until 
the out-of-pocket limitation is met as described in Subparagraph (j);
    (e) Skilled Nursing Facility Care: Coverage for 50% of the 
coinsurance amount for each day used from the 21st day through the 
100th day in a Medicare benefit period for post-hospital skilled 
nursing facility care eligible under Medicare Part A until the out-of-
pocket limitation is met as described in Subparagraph (j);
    (f) Hospice Care: Coverage for 50% of cost sharing for all Part A 
Medicare eligible expenses and respite care until the out-of-pocket 
limitation is met as described in Subparagraph (j);
    (g) Coverage for 50%, under Medicare Part A or B, of 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 until the out-of-pocket 
limitation is met as described in Subparagraph (j);
    (h) Except for coverage provided in subparagraph (i) below, 
coverage for 50% of the cost sharing otherwise applicable under 
Medicare Part B after the policyholder pays the Part B deductible until 
the out-of-pocket limitation is met as described in Subparagraph (j) 
below;
    (i) Coverage of 100% of the cost sharing for Medicare Part B 
preventive services after the policyholder pays the Part B deductible; 
and
    (j) Coverage of 100% of all cost sharing under Medicare Parts A and 
B for the balance of the calendar year after the individual has reached 
the out-of-pocket limitation on annual expenditures under Medicare 
Parts A and B of $4000 in 2006, indexed each year by the appropriate 
inflation adjustment specified by the Secretary of the U.S. Department 
of Health and Human Services.
    (2) Standardized Medicare supplement benefit plan ``L'' shall 
consist of the following:
    (a) The benefits described in Paragraphs (1)(a),(b),(c) and (i);
    (b) The benefit described in Paragraphs (1)(d), (e), (f), (g) and 
(h), but substituting 75% for 50%; and
    (c) The benefit described in Paragraph (1)(j), but substituting 
$2000 for $4000.

Section 9. Standard Medicare Supplement Benefit Plans

    A. An issuer shall make available to each prospective policyholder 
and certificateholder a policy form or certificate form containing only 
the basic core benefits, as defined in Section 8B of this regulation.
    B. No groups, packages or combinations of Medicare supplement 
benefits other than those listed in this section shall be offered for 
sale in this state, except as may be permitted in Section 9(G) and in 
Section 10 of this regulation.
    C. Benefit plans shall be uniform in structure, language, 
designation and format to the standard benefit plans ``A'' through 
``L'' listed in this subsection and conform to the definitions in 
Section 4 of this regulation. Each benefit shall be structured in 
accordance with the format provided in Sections 8B and 8C,or 8D and 
list the benefits in the order shown in this subsection. For purposes 
of this section, ``structure, language, and format'' means style, 
arrangement and overall content of a benefit.
    D. An issuer may use, in addition to the benefit plan designations 
required in Subsection C, other designations to the extent permitted by 
law.


    Drafting Note: It is anticipated that if a state determines that 
it will authorize the sale of only some of these benefit plans, the 
letter codes used in this regulation will be preserved. The Guide to 
Health Insurance for People with Medicare published jointly by the 
NAIC and CMS will contain a chart comparing the possible 
combinations. In order for consumers to compare specific policy 
choices, it will be important that a uniform ``naming'' system be 
used. Thus, if only plans ``A,'' ``B,'' ``D,'' ``F (including F with 
a high deductible)'' and ``H'' (for example) are authorized in a 
state, these plans should retain these alphabetical designations. 
However, an issuer may use, in addition to these alphabetical 
designations, other designations as provided in Section 9D of this 
regulation.


    E. Make-up of benefit plans:
    (1) Standardized Medicare supplement benefit plan ``A'' shall be 
limited to the basic (core) benefits common to all benefit plans, as 
defined in Section 8B of this regulation.
    (2) Standardized Medicare supplement benefit plan ``B'' shall 
include only the following: The core benefit as defined in Section 8B 
of this regulation, plus the Medicare Part A deductible as defined in 
Section 8C(1).
    (3) Standardized Medicare supplement benefit plan ``C'' shall 
include only the following: The core benefit as defined in Section 8B 
of this regulation, plus the Medicare Part A

[[Page 15404]]

deductible, skilled nursing facility care, Medicare Part B deductible 
and medically necessary emergency care in a foreign country as defined 
in Sections 8C(1), (2), (3) and (8) respectively.
    (4) Standardized Medicare supplement benefit plan ``D'' shall 
include only the following: The core benefit (as defined in Section 8B 
of this regulation), plus the Medicare Part A deductible, skilled 
nursing facility care, medically necessary emergency care in a foreign 
country and the at-home recovery benefit as defined in Sections 8C(1), 
(2), (8) and (10) respectively.
    (5) Standardized Medicare supplement benefit plan ``E'' shall 
include only the following: The core benefit as defined in Section 8B 
of this regulation, plus the Medicare Part A deductible, skilled 
nursing facility care, medically necessary emergency care in a foreign 
country and preventive medical care as defined in Sections 8C(1), (2), 
(8) and (9) respectively.
    (6) Standardized Medicare supplement benefit plan ``F'' shall 
include only the following: The core benefit as defined in Section 8B 
of this regulation, plus the Medicare Part A deductible, the skilled 
nursing facility care, the Part B deductible, one hundred percent 
(100%) of the Medicare Part B excess charges, and medically necessary 
emergency care in a foreign country as defined in Sections 8C(1), (2), 
(3), (5) and (8) respectively.
    (7) Standardized Medicare supplement benefit high deductible plan 
``F'' shall include only the following: 100% of covered expenses 
following the payment of the annual high deductible plan ``F'' 
deductible. The covered expenses include the core benefit as defined in 
Section 8B of this regulation, plus the Medicare Part A deductible, 
skilled nursing facility care, the Medicare Part B deductible, one 
hundred percent (100%) of the Medicare Part B excess charges, and 
medically necessary emergency care in a foreign country as defined in 
Sections 8C(1), (2), (3), (5) and (8) respectively. The annual high 
deductible plan ``F'' deductible shall consist of out-of-pocket 
expenses, other than premiums, for services covered by the Medicare 
supplement plan ``F'' policy, and shall be in addition to any other 
specific benefit deductibles. The annual high deductible Plan ``F'' 
deductible shall be $1500 for 1998 and 1999, and shall be based on the 
calendar year. It shall be adjusted annually thereafter by the 
Secretary to reflect the change in the Consumer Price Index for all 
urban consumers for the twelve-month period ending with August of the 
preceding year, and rounded to the nearest multiple of $10.
    (8) Standardized Medicare supplement benefit plan ``G'' shall 
include only the following: The core benefit as defined in Section 8B 
of this regulation, plus the Medicare Part A deductible, skilled 
nursing facility care, eighty percent (80%) of the Medicare Part B 
excess charges, medically necessary emergency care in a foreign 
country, and the at-home recovery benefit as defined in Sections 8C(1), 
(2), (4), (8) and (10) respectively.
    (9) Standardized Medicare supplement benefit plan ``H'' shall 
consist of only the following: The core benefit as defined in Section 
8B of this regulation, plus the Medicare Part A deductible, skilled 
nursing facility care, basic prescription drug benefit and medically 
necessary emergency care in a foreign country as defined in Sections 
8C(1), (2), (6) and (8) respectively. The outpatient prescription drug 
benefit shall not be included in a Medicare supplement policy sold 
after December 31, 2005.
    (10) Standardized Medicare supplement benefit plan ``I'' shall 
consist of only the following: The core benefit as defined in Section 
8B of this regulation, plus the Medicare Part A deductible, skilled 
nursing facility care, one hundred percent (100%) of the Medicare Part 
B excess charges, basic prescription drug benefit, medically necessary 
emergency care in a foreign country and at-home recovery benefit as 
defined in Sections 8C(1), (2), (5), (6), (8) and (10) respectively. 
The outpatient prescription drug benefit shall not be included in a 
Medicare supplement policy sold after December 31, 2005.
    (11) Standardized Medicare supplement benefit plan ``J'' shall 
consist of only the following: The core benefit as defined in Section 
8B of this regulation, plus the Medicare Part A deductible, skilled 
nursing facility care, Medicare Part B deductible, one hundred percent 
(100%) of the Medicare Part B excess charges, extended prescription 
drug benefit, medically necessary emergency care in a foreign country, 
preventive medical care and at-home recovery benefit as defined in 
Sections 8C(1), (2), (3), (5), (7), (8), (9) and (10) respectively. The 
outpatient prescription drug benefit shall not be included in a 
Medicare supplement policy sold after December 31, 2005.
    (12) Standardized Medicare supplement benefit high deductible plan 
``J'' shall consist of only the following: 100% of covered expenses 
following the payment of the annual high deductible plan ``J'' 
deductible. The covered expenses include the core benefit as defined in 
Section 8B of this regulation, plus the Medicare Part A deductible, 
skilled nursing facility care, Medicare Part B deductible, one hundred 
percent (100%) of the Medicare Part B excess charges, extended 
outpatient prescription drug benefit, medically necessary emergency 
care in a foreign country, preventive medical care benefit and at-home 
recovery benefit as defined in Sections 8C(1), (2), (3), (5), (7), (8), 
(9) and (10) respectively. The annual high deductible plan ``J'' 
deductible shall consist of out-of-pocket expenses, other than 
premiums, for services covered by the Medicare supplement plan ``J'' 
policy, and shall be in addition to any other specific benefit 
deductibles. The annual deductible shall be $1500 for 1998 and 1999, 
and shall be based on a calendar year. It shall be adjusted annually 
thereafter by the Secretary to reflect the change in the Consumer Price 
Index for all urban consumers for the twelve-month period ending with 
August of the preceding year, and rounded to the nearest multiple of 
$10. The outpatient prescription drug benefit shall not be included in 
a Medicare supplement policy sold after December 31, 2005.
    F. Make-up of two Medicare supplement plans mandated by The 
Medicare Prescription Drug, Improvement and Modernization Act of 2003 
(MMA);
    (1) Standardized Medicare supplement benefit plan ``K'' shall 
consist of only those benefits described in Section 8 D(1).
    (2) Standardized Medicare supplement benefit plan ``L'' shall 
consist of only those benefits described in Section 8 D(2).
    G. New or Innovative Benefits: An issuer may, with the prior 
approval of the commissioner, offer policies or certificates with new 
or innovative benefits in addition to the benefits provided in a policy 
or certificate that otherwise complies with the applicable standards. 
The new or innovative benefits may include benefits that are 
appropriate to Medicare supplement insurance, new or innovative, not 
otherwise available, cost-effective, and offered in a manner which is 
consistent with the goal of simplification of Medicare supplement 
policies. After December 31, 2005, the innovative benefit shall not 
include an outpatient prescription drug benefit.


    Drafting Note: Use of new or innovative benefits may be 
appropriate to add coverage or access if they offer uniquely 
different or significantly expanded coverage.



[[Page 15405]]


    Drafting Note: A state may determine by statute or regulation 
which of the above benefit plans may be sold in that state. The core 
benefit plan must be made available by all issuers. Therefore, the 
core benefit plan must be one of the authorized benefit plans 
adopted by a state. In no event, however, may a state authorize the 
sale of more than 10 standardized Medicare supplement benefit plans 
(that is, 9 plus the core policy), plus the two (2) high deductible 
plans, and the two (2) benefit plans K and L, mandated by MMA at the 
same time. Further, the modified versions of plans H, I, J as 
required by MMA after December 31, 2005 will not count as additional 
plans toward the limitations on the total number of plans discussed 
above.


    Drafting Note: The Omnibus Budget Reconciliation Act of 1990 
preempts state mandated benefits in Medicare supplement policies or 
certificates, except for those states which have been granted a 
waiver for nonstandardized plans.


    Drafting Note: After December 31, 2005 MMA prohibits Medicare 
supplement issuers from offering policies with outpatient 
prescription drug coverage, and from renewing outpatient 
prescription drug coverage for insureds enrolled in Medicare Part D. 
Consequently, plans with an outpatient prescription drug benefit 
will not be offered to new enrollees after such time.


    Drafting Note: Pursuant to the enactment of MMA, two new benefit 
packages, called K and L, were added to plans A through J. The two 
new packages have higher copayments and coinsurance contributions 
from the Medicare beneficiary.

Section 10. Medicare Select Policies and Certificates

    A. (1) This section shall apply to Medicare Select policies and 
certificates, as defined in this section.

    Drafting Note: This section should be adopted by all states 
approving Medicare Select policies.

    (2) No policy or certificate may be advertised as a Medicare Select 
policy or certificate unless it meets the requirements of this section.
    B. For the purposes of this section:
    (1) ``Complaint'' means any dissatisfaction expressed by an 
individual concerning a Medicare Select issuer or its network 
providers.
    (2) ``Grievance'' means dissatisfaction expressed in writing by an 
individual insured under a Medicare Select policy or certificate with 
the administration, claims practices, or provision of services 
concerning a Medicare Select issuer or its network providers.
    (3) ``Medicare Select issuer'' means an issuer offering, or seeking 
to offer, a Medicare Select policy or certificate.
    (4) ``Medicare Select policy'' or ``Medicare Select certificate'' 
mean respectively a Medicare supplement policy or certificate that 
contains restricted network provisions.
    (5) ``Network provider'' means a provider of health care, or a 
group of providers of health care, which has entered into a written 
agreement with the issuer to provide benefits insured under a Medicare 
Select policy.
    (6) ``Restricted network provision'' means any provision which 
conditions the payment of benefits, in whole or in part, on the use of 
network providers.
    (7) ``Service area'' means the geographic area approved by the 
commissioner within which an issuer is authorized to offer a Medicare 
Select policy.
    C. The commissioner may authorize an issuer to offer a Medicare 
Select policy or certificate, pursuant to this section and Section 4358 
of the Omnibus Budget Reconciliation Act (OBRA) of 1990 if the 
commissioner finds that the issuer has satisfied all of the 
requirements of this regulation.
    D. A Medicare Select issuer shall not issue a Medicare Select 
policy or certificate in this state until its plan of operation has 
been approved by the commissioner.
    E. A Medicare Select issuer shall file a proposed plan of operation 
with the commissioner in a format prescribed by the commissioner. The 
plan of operation shall contain at least the following information:
    (1) Evidence that all covered services that are subject to 
restricted network provisions are available and accessible through 
network providers, including a demonstration that:
    (a) Services can be provided by network providers with reasonable 
promptness with respect to geographic location, hours of operation and 
after-hour care. The hours of operation and availability of after-hour 
care shall reflect usual practice in the local area. Geographic 
availability shall reflect the usual travel times within the community.
    (b) The number of network providers in the service area is 
sufficient, with respect to current and expected policyholders, either:
    (i) To deliver adequately all services that are subject to a 
restricted network provision; or
    (ii) To make appropriate referrals.
    (c) There are written agreements with network providers describing 
specific responsibilities.
    (d) Emergency care is available twenty-four (24) hours per day and 
seven (7) days per week.
    (e) In the case of covered services that are subject to a 
restricted network provision and are provided on a prepaid basis, there 
are written agreements with network providers prohibiting the providers 
from billing or otherwise seeking reimbursement from or recourse 
against any individual insured under a Medicare Select policy or 
certificate. This paragraph shall not apply to supplemental charges or 
coinsurance amounts as stated in the Medicare Select policy or 
certificate.
    (2) A statement or map providing a clear description of the service 
area.
    (3) A description of the grievance procedure to be utilized.
    (4) A description of the quality assurance program, including:
    (a) The formal organizational structure;
    (b) The written criteria for selection, retention and removal of 
network providers; and
    (c) The procedures for evaluating quality of care provided by 
network providers, and the process to initiate corrective action when 
warranted.
    (5) A list and description, by specialty, of the network providers.
    (6) Copies of the written information proposed to be used by the 
issuer to comply with Subsection I.
    (7) Any other information requested by the commissioner.
    F. (1) A Medicare Select issuer shall file any proposed changes to 
the plan of operation, except for changes to the list of network 
providers, with the commissioner prior to implementing the changes. 
Changes shall be considered approved by the commissioner after thirty 
(30) days unless specifically disapproved.
    (2) An updated list of network providers shall be filed with the 
commissioner at least quarterly.
    G. A Medicare Select policy or certificate shall not restrict 
payment for covered services provided by non-network providers if:
    (1) The services are for symptoms requiring emergency care or are 
immediately required for an unforeseen illness, injury or a condition; 
and
    (2) It is not reasonable to obtain services through a network 
provider.
    H. A Medicare Select policy or certificate shall provide payment 
for full coverage under the policy for covered services that are not 
available through network providers.
    I. A Medicare Select issuer shall make full and fair disclosure in 
writing of the provisions, restrictions and limitations of the Medicare 
Select policy or certificate to each applicant. This disclosure shall 
include at least the following:
    (1) An outline of coverage sufficient to permit the applicant to 
compare the coverage and premiums of the Medicare Select policy or 
certificate with:

[[Page 15406]]

    (a) Other Medicare supplement policies or certificates offered by 
the issuer; and
    (b) Other Medicare Select policies or certificates.
    (2) A description (including address, phone number and hours of 
operation) of the network providers, including primary care physicians, 
specialty physicians, hospitals and other providers.
    (3) A description of the restricted network provisions, including 
payments for coinsurance and deductibles when providers other than 
network providers are utilized. Except to the extent specified in the 
policy or certificate, expenses incurred when using out-of-network 
providers do not count toward the out-of-pocket annual limit contained 
in plans K and L.
    (4) A description of coverage for emergency and urgently needed 
care and other out-of-service area coverage.
    (5) A description of limitations on referrals to restricted network 
providers and to other providers.
    (6) A description of the policyholder's rights to purchase any 
other Medicare supplement policy or certificate otherwise offered by 
the issuer.
    (7) A description of the Medicare Select issuer's quality assurance 
program and grievance procedure.
    J. Prior to the sale of a Medicare Select policy or certificate, a 
Medicare Select issuer shall obtain from the applicant a signed and 
dated form stating that the applicant has received the information 
provided pursuant to Subsection I of this section and that the 
applicant understands the restrictions of the Medicare Select policy or 
certificate.
    K. A Medicare Select issuer shall have and use procedures for 
hearing complaints and resolving written grievances from the 
subscribers. The procedures shall be aimed at mutual agreement for 
settlement and may include arbitration procedures.
    (1) The grievance procedure shall be described in the policy and 
certificates and in the outline of coverage.
    (2) At the time the policy or certificate is issued, the issuer 
shall provide detailed information to the policyholder describing how a 
grievance may be registered with the issuer.
    (3) Grievances shall be considered in a timely manner and shall be 
transmitted to appropriate decision-makers who have authority to fully 
investigate the issue and take corrective action.
    (4) If a grievance is found to be valid, corrective action shall be 
taken promptly.
    (5) All concerned parties shall be notified about the results of a 
grievance.
    (6) The issuer shall report no later than each March 31st to the 
commissioner regarding its grievance procedure. The report shall be in 
a format prescribed by the commissioner and shall contain the number of 
grievances filed in the past year and a summary of the subject, nature 
and resolution of such grievances.
    L. At the time of initial purchase, a Medicare Select issuer shall 
make available to each applicant for a Medicare Select policy or 
certificate the opportunity to purchase any Medicare supplement policy 
or certificate otherwise offered by the issuer.
    M. (1) At the request of an individual insured under a Medicare 
Select policy or certificate, a Medicare Select issuer shall make 
available to the individual insured the opportunity to purchase a 
Medicare supplement policy or certificate offered by the issuer which 
has comparable or lesser benefits and which does not contain a 
restricted network provision. The issuer shall make the policies or 
certificates available without requiring evidence of insurability after 
the Medicare Select policy or certificate has been in force for six (6) 
months.
    (2) For the purposes of this subsection, a Medicare supplement 
policy or certificate will be considered to have comparable or lesser 
benefits unless it contains one or more significant benefits not 
included in the Medicare Select policy or certificate being replaced. 
For the purposes of this paragraph, a significant benefit means 
coverage for the Medicare Part A deductible, coverage for at-home 
recovery services or coverage for Part B excess charges.
    N. Medicare Select policies and certificates shall provide for 
continuation of coverage in the event the Secretary of Health and Human 
Services determines that Medicare Select policies and certificates 
issued pursuant to this section should be discontinued due to either 
the failure of the Medicare Select Program to be reauthorized under law 
or its substantial amendment.
    (1) Each Medicare Select issuer shall make available to each 
individual insured under a Medicare Select policy or certificate the 
opportunity to purchase any Medicare supplement policy or certificate 
offered by the issuer which has comparable or lesser benefits and which 
does not contain a restricted network provision. The issuer shall make 
the policies and certificates available without requiring evidence of 
insurability.
    (2) For the purposes of this subsection, a Medicare supplement 
policy or certificate will be considered to have comparable or lesser 
benefits unless it contains one or more significant benefits not 
included in the Medicare Select policy or certificate being replaced. 
For the purposes of this paragraph, a significant benefit means 
coverage for the Medicare Part A deductible, coverage for at-home 
recovery services or coverage for Part B excess charges.
    O. A Medicare Select issuer shall comply with reasonable requests 
for data made by state or federal agencies, including the United States 
Department of Health and Human Services, for the purpose of evaluating 
the Medicare Select Program.

Section 11. Open Enrollment

    A. An issuer shall not deny or condition the issuance or 
effectiveness of any Medicare supplement policy or certificate 
available for sale in this state, nor discriminate in the pricing of a 
policy or certificate because of the health status, claims experience, 
receipt of health care, or medical condition of an applicant in the 
case of an application for a policy or certificate that is submitted 
prior to or during the six (6) month period beginning with the first 
day of the first month in which an individual is both 65 years of age 
or older and is enrolled for benefits under Medicare Part B. Each 
Medicare supplement policy and certificate currently available from an 
insurer shall be made available to all applicants who qualify under 
this subsection without regard to age.
    B. (1) If an applicant qualifies under Subsection A and submits an 
application during the time period referenced in Subsection A and, as 
of the date of application, has had a continuous period of creditable 
coverage of at least six (6) months, the issuer shall not exclude 
benefits based on a preexisting condition.
    (2) If the applicant qualifies under Subsection A and submits an 
application during the time period referenced in Subsection A and, as 
of the date of application, has had a continuous period of creditable 
coverage that is less than six (6) months, the issuer shall reduce the 
period of any preexisting condition exclusion by the aggregate of the 
period of creditable coverage applicable to the applicant as of the 
enrollment date. The Secretary shall specify the manner of the 
reduction under this subsection.

    Drafting Note: The Secretary has developed regulations pursuant 
to HIPAA regarding methods of counting creditable coverage, which 
govern the way the reduction is to be applied in Section 11B(2).


[[Page 15407]]


    C. Except as provided in Subsection B and Sections 12 and 23, 
Subsection A shall not be construed as preventing the exclusion of 
benefits under a policy, during the first six (6) months, based on a 
preexisting condition for which the policyholder or certificateholder 
received treatment or was otherwise diagnosed during the six (6) months 
before the coverage became effective.

Section 12. Guaranteed Issue for Eligible Persons

A. Guaranteed Issue

    (1) Eligible persons are those individuals described in Subsection 
B who seek to enroll under the policy during the period specified in 
Subsection C, and who submit evidence of the date of termination, 
disenrollment, or Medicare Part D enrollment with the application for a 
Medicare supplement policy.
    (2) With respect to eligible persons, an issuer shall not deny or 
condition the issuance or effectiveness of a Medicare supplement policy 
described in Subsection E that is offered and is available for issuance 
to new enrollees by the issuer, shall not discriminate in the pricing 
of such a Medicare supplement policy because of health status, claims 
experience, receipt of health care, or medical condition, and shall not 
impose an exclusion of benefits based on a preexisting condition under 
such a Medicare supplement policy.

B. Eligible Persons

    An eligible person is an individual described in any of the 
following paragraphs:
    (1) The individual is enrolled under an employee welfare benefit 
plan that provides health benefits that supplement the benefits under 
Medicare; and the plan terminates, or the plan ceases to provide all 
such supplemental health benefits to the individual;


    Drafting Note: Paragraph (1) above uses the federal legislative 
language from the Balanced Budget Act of 1997 (Pub. L. 105-33) that 
defines an eligible person as an individual with respect to whom an 
employee welfare benefit plan terminates, or ceases to provide 
``all'' health benefits that supplement Medicare. There was 
protracted discussion among the drafters about the interpretation of 
``all'' in this context: if the employer drops some supplemental 
benefits, but not all such benefits, from its welfare plan, should 
the individual be eligible for a guaranteed issue Medicare 
supplement product? This question may become crucial to certain 
individuals depending on the benefits dropped by the employer. 
Federal legislative history appears to indicate the intention that 
the word ``all'' be strictly construed so as to require termination 
or cessation of all supplemental health benefits. States, however, 
can provide greater protections to beneficiaries and may wish to 
include, as eligible persons, individuals who have lost ``some or 
all'' or ``substantially all'' of their supplemental health 
benefits, to encompass situations where a change is made in an 
employee welfare benefit plan that reduces the amount of 
supplemental health benefits available to the individual. States 
that consider alternative language are reminded to consider the 
impact of issues such as plan changes that result in adverse 
selection, duplicate coverage, triggering the requirement for plan 
administrator notice (see Section 12D) and other issues.


    (2) The individual is enrolled with a Medicare Advantage 
organization under a Medicare Advantage plan under part C of Medicare, 
and any of the following circumstances apply, or the individual is 65 
years of age or older and is enrolled with a Program of All-Inclusive 
Care for the Elderly (PACE) provider under Section 1894 of the Social 
Security Act, and there are circumstances similar to those described 
below that would permit discontinuance of the individual's enrollment 
with such provider if such individual were enrolled in a Medicare 
Advantage plan:
    (a) The certification of the organization or plan has been 
terminated;
    (b) The organization has terminated or otherwise discontinued 
providing the plan in the area in which the individual resides;
    (c) The individual is no longer eligible to elect the plan because 
of a change in the individual's place of residence or other change in 
circumstances specified by the Secretary, but not including termination 
of the individual's enrollment on the basis described in Section 
1851(g)(3)(B) of the federal Social Security Act (where the individual 
has not paid premiums on a timely basis or has engaged in disruptive 
behavior as specified in standards under Section 1856), or the plan is 
terminated for all individuals within a residence area;
    (d) The individual demonstrates, in accordance with guidelines 
established by the Secretary, that:
    (i) The organization offering the plan substantially violated a 
material provision of the organization's contract under this part in 
relation to the individual, including the failure to provide an 
enrollee on a timely basis medically necessary care for which benefits 
are available under the plan or the failure to provide such covered 
care in accordance with applicable quality standards; or
    (ii) The organization, or agent or other entity acting on the 
organization's behalf, materially misrepresented the plan's provisions 
in marketing the plan to the individual; or
    (e) The individual meets such other exceptional conditions as the 
Secretary may provide.
    (3) (a) The individual is enrolled with:
    (i) An eligible organization under a contract under Section 1876 of 
the Social Security Act (Medicare cost);
    (ii) A similar organization operating under demonstration project 
authority, effective for periods before April 1, 1999;
    (iii) An organization under an agreement under Section 
1833(a)(1)(A) of the Social Security Act (health care prepayment plan); 
or
    (iv) An organization under a Medicare Select policy; and
    (b) The enrollment ceases under the same circumstances that would 
permit discontinuance of an individual's election of coverage under 
Section 12B(2).


    Drafting Note: Paragraph (3)(a)(iv) above is not required if 
there is a provision in state law or regulation that provides for 
the continuation or conversion of Medicare Select policies or 
certificates.


    (4) The individual is enrolled under a Medicare supplement policy 
and the enrollment ceases because:
    (a) (i) Of the insolvency of the issuer or bankruptcy of the 
nonissuer organization; or
    (ii) Of other involuntary termination of coverage or enrollment 
under the policy;
    (b) The issuer of the policy substantially violated a material 
provision of the policy; or
    (c) The issuer, or an agent or other entity acting on the issuer's 
behalf, materially misrepresented the policy's provisions in marketing 
the policy to the individual.

    Drafting Note: The reference to ``insolvency of the issuer'' in 
Paragraph 4(a) above is not required if there is a provision in 
state law or regulation that provides for the continuation or 
conversion of Medicare supplement policies or certificates.


    (5) (a) The individual was enrolled under a Medicare supplement 
policy and terminates enrollment and subsequently enrolls, for the 
first time, with any Medicare Advantage organization under a Medicare 
Advantage plan under part C of Medicare, any eligible organization 
under a contract under Section 1876 of the Social Security Act 
(Medicare cost), any similar organization operating under demonstration 
project authority, any PACE provider under Section 1894

[[Page 15408]]

of the Social Security Act or a Medicare Select policy; and
    (b) The subsequent enrollment under subparagraph (a) is terminated 
by the enrollee during any period within the first twelve (12) months 
of such subsequent enrollment (during which the enrollee is permitted 
to terminate such subsequent enrollment under Section 1851(e) of the 
federal Social Security Act); or
    (6) The individual, upon first becoming eligible for benefits under 
part A of Medicare at age 65, enrolls in a Medicare Advantage plan 
under part C of Medicare, or with a PACE provider under Section 1894 of 
the Social Security Act, and disenrolls from the plan or program by not 
later than twelve (12) months after the effective date of enrollment.
    (7) The individual enrolls in a Medicare Part D plan during the 
initial enrollment period and, at the time of enrollment in Part D, was 
enrolled under a Medicare supplement policy that covers outpatient 
prescription drugs and the individual terminates enrollment in the 
Medicare supplement policy and submits evidence of enrollment in 
Medicare Part D along with the application for a policy described in 
Subsection E(4).


    Drafting Note: Federal law provides a guaranteed issue right to 
a Medicare supplement insurance product to individuals who enroll in 
Medicare Part B at age 65. States may wish to consider extending 
this right to other classes of individuals, such as those who 
postpone enrollment in Medicare Part B until after age 65 because 
they are working and are enrolled in a group health insurance plan.


    Drafting Note: Paragraph 7 does not preclude an individual from 
applying for a new Medigap policy without drug coverage while still 
enrolled in the policy with drug coverage. The issuer will terminate 
the drug policy when it issues the new policy without drug coverage.


C. Guaranteed Issue Time Periods

    (1) In the case of an individual described in Subsection B(1), the 
guaranteed issue period begins on the later of: (i) the date the 
individual receives a notice of termination or cessation of all 
supplemental health benefits (or, if a notice is not received, notice 
that a claim has been denied because of a termination or cessation); or 
(ii) The date that the applicable coverage terminates or ceases; and 
ends sixty-three (63) days thereafter;
    (2) In the case of an individual described in Subsection B(2), 
B(3), B(5) or B(6) whose enrollment is terminated involuntarily, the 
guaranteed issue period begins on the date that the individual receives 
a notice of termination and ends sixty-three (63) days after the date 
the applicable coverage is terminated;
    (3) In the case of an individual described in Subsection B(4)(a), 
the guaranteed issue period begins on the earlier of: (i) the date that 
the individual receives a notice of termination, a notice of the 
issuer's bankruptcy or insolvency, or other such similar notice if any, 
and (ii) the date that the applicable coverage is terminated, and ends 
on the date that is sixty-three (63) days after the date the coverage 
is terminated;
    (4) In the case of an individual described in Subsection B(2), 
B(4)(b), B(4)(c), B(5) or B(6) who disenrolls voluntarily, the 
guaranteed issue period begins on the date that is sixty (60) days 
before the effective date of the disenrollment and ends on the date 
that is sixty-three (63) days after the effective date;
    (5) In the case of an individual described in Subsection B(7), the 
guaranteed issue period begins on the date the individual receives 
notice pursuant to Section 1882(v)(2)(B) of the Social Security Act 
from the Medicare supplement issuer during the sixty-day period 
immediately preceding the initial Part D enrollment period and ends on 
the date that is sixty-three (63) days after the effective date of the 
individual's coverage under Medicare Part D; and
    (6) In the case of an individual described in Subsection B but not 
described in the preceding provisions of this Subsection, the 
guaranteed issue period begins on the effective date of disenrollment 
and ends on the date that is sixty-three (63) days after the effective 
date.

D. Extended Medigap Access for Interrupted Trial Periods

    (1) In the case of an individual described in Subsection B(5) (or 
deemed to be so described, pursuant to this paragraph) whose enrollment 
with an organization or provider described in Subsection B(5)(a) is 
involuntarily terminated within the first twelve (12) months of 
enrollment, and who, without an intervening enrollment, enrolls with 
another such organization or provider, the subsequent enrollment shall 
be deemed to be an initial enrollment described in Section 12B(5);
    (2) In the case of an individual described in Subsection B(6) (or 
deemed to be so described, pursuant to this paragraph) whose enrollment 
with a plan or in a program described in Subsection B(6) is 
involuntarily terminated within the first twelve (12) months of 
enrollment, and who, without an intervening enrollment, enrolls in 
another such plan or program, the subsequent enrollment shall be deemed 
to be an initial enrollment described in Section 12B(6); and
    (3) For purposes of Subsections B(5) and B(6), no enrollment of an 
individual with an organization or provider described in Subsection 
B(5)(a), or with a plan or in a program described in Subsection B(6), 
may be deemed to be an initial enrollment under this paragraph after 
the two-year period beginning on the date on which the individual first 
enrolled with such an organization, provider, plan or program.

E. Products To Which Eligible Persons Are Entitled

    The Medicare supplement policy to which eligible persons are 
entitled under:
    (1) Section 12B(1), (2), (3) and (4) is a Medicare supplement 
policy which has a benefit package classified as Plan A, B, C, F 
(including F with a high deductible), K or L offered by any issuer.
    (2) (a) Subject to subparagraph (b), Section 12B(5) is the same 
Medicare supplement policy in which the individual was most recently 
previously enrolled, if available from the same issuer, or, if not so 
available, a policy described in Paragraph (1);
    (b) After December 31, 2005, if the individual was most recently 
enrolled in a Medicare supplement policy with a outpatient prescription 
drug benefit, a Medicare supplement policy described in this 
subparagraph is:
    (i) The policy available from the same issuer but modified to 
remove outpatient prescription drug coverage; or
    (ii) At the election of the policyholder, an A, B, C, F (including 
F with a high deductible), K or L policy that is offered by any issuer;
    (3) Section 12B(6) shall include any Medicare supplement policy 
offered by any issuer;
    (4) Section 12B(7) is a Medicare supplement policy that has a 
benefit package classified as Plan A, B, C, F (including F with a high 
deductible), K or L, and that is offered and is available for issuance 
to new enrollees by the same issuer that issued the individual's 
Medicare supplement policy with outpatient prescription drug coverage.


    Drafting Note: Under federal law, for states that have an 
alternative form of standardization under a federal waiver and offer 
benefit packages other than Plans A through L, the references to 
benefit packages above are deemed references to comparable benefit 
packages offered in that state. Those

[[Page 15409]]

states should amend the language accordingly.


F. Notification Provisions

    (1) At the time of an event described in Subsection B of this 
section because of which an individual loses coverage or benefits due 
to the termination of a contract or agreement, policy, or plan, the 
organization that terminates the contract or agreement, the issuer 
terminating the policy, or the administrator of the plan being 
terminated, respectively, shall notify the individual of his or her 
rights under this section, and of the obligations of issuers of 
Medicare supplement policies under Subsection A. Such notice shall be 
communicated contemporaneously with the notification of termination.
    (2) At the time of an event described in Subsection B of this 
section because of which an individual ceases enrollment under a 
contract or agreement, policy, or plan, the organization that offers 
the contract or agreement, regardless of the basis for the cessation of 
enrollment, the issuer offering the policy, or the administrator of the 
plan, respectively, shall notify the individual of his or her rights 
under this section, and of the obligations of issuers of Medicare 
supplement policies under Section 12A. Such notice shall be 
communicated within ten working days of the issuer receiving 
notification of disenrollment.


    Drafting Note: States should ensure that educational and public 
information materials it develops related to Medicare includes a 
thorough description of the rights outlined in Section 12F.


Section 13. Standards for Claims Payment

    A. An issuer shall comply with section 1882(c)(3) of the Social 
Security Act (as enacted by section 4081(b)(2)(C) of the Omnibus Budget 
Reconciliation Act of 1987 (OBRA) 1987, Pub. L. 100-203) by:
    (1) Accepting a notice from a Medicare carrier on dually assigned 
claims submitted by participating physicians and suppliers as a claim 
for benefits in place of any other claim form otherwise required and 
making a payment determination on the basis of the information 
contained in that notice;
    (2) Notifying the participating physician or supplier and the 
beneficiary of the payment determination;
    (3) Paying the participating physician or supplier directly;
    (4) Furnishing, at the time of enrollment, each enrollee with a 
card listing the policy name, number and a central mailing address to 
which notices from a Medicare carrier may be sent;
    (5) Paying user fees for claim notices that are transmitted 
electronically or otherwise; and
    (6) Providing to the Secretary of Health and Human Services, at 
least annually, a central mailing address to which all claims may be 
sent by Medicare carriers.
    B. Compliance with the requirements set forth in Subsection A above 
shall be certified on the Medicare supplement insurance experience 
reporting form.

Section 14. Loss Ratio Standards and Refund or Credit of Premium

    A. Loss Ratio Standards.
    (1) (a) A Medicare Supplement policy form or certificate form shall 
not be delivered or issued for delivery unless the policy form or 
certificate form can be expected, as estimated for the entire period 
for which rates are computed to provide coverage, to return to 
policyholders and certificate holders in the form of aggregate benefits 
(not including anticipated refunds or credits) provided under the 
policy form or certificate form:
    (i) At least seventy-five percent (75%) of the aggregate amount of 
premiums earned in the case of group policies; or
    (ii) At least sixty-five percent (65%) of the aggregate amount of 
premiums earned in the case of individual policies;
    (b) Calculated on the basis of incurred claims experience or 
incurred health care expenses where coverage is provided by a health 
maintenance organization on a service rather than reimbursement basis 
and earned premiums for the period and in accordance with accepted 
actuarial principles and practices. Incurred health care expenses where 
coverage is provided by a health maintenance organization shall not 
include:
    (i) Home office and overhead costs;
    (ii) Advertising costs;
    (iii) Commissions and other acquisition costs;
    (iv) Taxes;
    (v) Capital costs;
    (vi) Administrative costs; and
    (vii) Claims processing costs.
    (2) All filings of rates and rating schedules shall demonstrate 
that expected claims in relation to premiums comply with the 
requirements of this section when combined with actual experience to 
date. Filings of rate revisions shall also demonstrate that the 
anticipated loss ratio over the entire future period for which the 
revised rates are computed to provide coverage can be expected to meet 
the appropriate loss ratio standards.
    (3) For purposes of applying Subsection A(1) of this section and 
Subsection C(3) of Section 15 only, policies issued as a result of 
solicitations of individuals through the mails or by mass media 
advertising (including both print and broadcast advertising) shall be 
deemed to be individual policies.


    Drafting Note: Subsection A(3) replicates language contained in 
the Omnibus Budget Reconciliation Act of 1990 (Pub. L. 101-508). It 
allows direct mail group policies sold on an individual basis to 
meet the minimum loss ratio required of individual business (65%) 
rather than that required of group business (75%). The NAIC 
eliminated this concept from this regulation in 1987 (I Proceedings 
of the NAIC, pp. 651, 673 (1988)). At that time, NAIC required 
direct mail group business to meet the same loss ratio requirement 
as other group business, regardless of whether the business was sold 
on an individual basis. The NAIC encourages states to apply the 75% 
loss ratio to all group business. Although NAIC is restricted from 
making revisions to its models that are not in conformance with OBRA 
1990, states are free to impose more stringent requirements than 
OBRA.


    (4) For policies issued prior to [insert effective date from 
Section 24 of this model, the effective date of the states regulation 
implementing the requirements of OBRA 1990], expected claims in 
relation to premiums shall meet:
    (a) The originally filed anticipated loss ratio when combined with 
the actual experience since inception;
    (b) The appropriate loss ratio requirement from Subsection 
A(1)(a)(i) and (ii) when combined with actual experience beginning with 
[insert effective date of this revision] to date; and
    (c) The appropriate loss ratio requirement from Subsection 
A(1)(a)(i) and (ii) over the entire future period for which the rates 
are computed to provide coverage.


    Drafting Note: The appropriate loss ratio requirement from 
Subsection A(1)(a)(i) and (ii) for all group policies subject to an 
individual loss ratio standard when issued is 65 percent. States may 
amend Section 13A(4) to permit or require aggregation of closed 
blocks of business upon approval of CMS.


    B. Refund or Credit Calculation.
    (1) An issuer shall collect and file with the commissioner by May 
31 of each year the data contained in the applicable reporting form 
contained in Appendix A for each type in a standard Medicare supplement 
benefit plan.
    (2) If on the basis of the experience as reported the benchmark 
ratio since inception (ratio 1) exceeds the adjusted experience ratio 
since inception (ratio

[[Page 15410]]

3), then a refund or credit calculation is required. The refund 
calculation shall be done on a statewide basis for each type in a 
standard Medicare supplement benefit plan. For purposes of the refund 
or credit calculation, experience on policies issued within the 
reporting year shall be excluded.
    (3) For the purposes of this section, policies or certificates 
issued prior to [insert effective date from Section 24 of this model, 
the effective date of the states regulation implementing the 
requirements of OBRA 1990], the issuer shall make the refund or credit 
calculation separately for all individual policies (including all group 
policies subject to an individual loss ratio standard when issued) 
combined and all other group policies combined for experience after the 
[insert effective date of this amendment]. The first report shall be 
due by May 31, [insert (effective year + 2) of this amendment].


    Drafting Note: Subsection B(3) implements the requirements of 
Section 171 of the Social Security Act Amendments of 1994 that 
require a refund or credit calculation for prestandardized Medicare 
supplement policies, but only for experience subsequent to the date 
the state amends its regulation.


    (4) A refund or credit shall be made only when the benchmark loss 
ratio exceeds the adjusted experience loss ratio and the amount to be 
refunded or credited exceeds a de minimis level. The refund shall 
include interest from the end of the calendar year to the date of the 
refund or credit at a rate specified by the Secretary of Health and 
Human Services, but in no event shall it be less than the average rate 
of interest for thirteen-week Treasury notes. A refund or credit 
against premiums due shall be made by September 30 following the 
experience year upon which the refund or credit is based.
    C. Annual filing of Premium Rates.
    An issuer of Medicare supplement policies and certificates issued 
before or after the effective date of [insert citation to state's 
regulation] in this state shall file annually its rates, rating 
schedule and supporting documentation including ratios of incurred 
losses to earned premiums by policy duration for approval by the 
commissioner in accordance with the filing requirements and procedures 
prescribed by the commissioner. The supporting documentation shall also 
demonstrate in accordance with actuarial standards of practice using 
reasonable assumptions that the appropriate loss ratio standards can be 
expected to be met over the entire period for which rates are computed. 
The demonstration shall exclude active life reserves. An expected 
third-year loss ratio which is greater than or equal to the applicable 
percentage shall be demonstrated for policies or certificates in force 
less than three (3) years.
    As soon as practicable, but prior to the effective date of 
enhancements in Medicare benefits, every issuer of Medicare supplement 
policies or certificates in this state shall file with the 
commissioner, in accordance with the applicable filing procedures of 
this state:
    (1) (a) Appropriate premium adjustments necessary to produce loss 
ratios as anticipated for the current premium for the applicable 
policies or certificates. The supporting documents necessary to justify 
the adjustment shall accompany the filing.
    (b) An issuer shall make premium adjustments necessary to produce 
an expected loss ratio under the policy or certificate to conform to 
minimum loss ratio standards for Medicare supplement policies and which 
are expected to result in a loss ratio at least as great as that 
originally anticipated in the rates used to produce current premiums by 
the issuer for the Medicare supplement policies or certificates. No 
premium adjustment which would modify the loss ratio experience under 
the policy other than the adjustments described herein shall be made 
with respect to a policy at any time other than upon its renewal date 
or anniversary date.
    (c) If an issuer fails to make premium adjustments acceptable to 
the commissioner, the commissioner may order premium adjustments, 
refunds or premium credits deemed necessary to achieve the loss ratio 
required by this section.
    (2) Any appropriate riders, endorsements or policy forms needed to 
accomplish the Medicare supplement policy or certificate modifications 
necessary to eliminate benefit duplications with Medicare. The riders, 
endorsements or policy forms shall provide a clear description of the 
Medicare supplement benefits provided by the policy or certificate.
    D. Public Hearings.
    The commissioner may conduct a public hearing to gather information 
concerning a request by an issuer for an increase in a rate for a 
policy form or certificate form issued before or after the effective 
date of [insert citation to state's regulation] if the experience of 
the form for the previous reporting period is not in compliance with 
the applicable loss ratio standard. The determination of compliance is 
made without consideration of any refund or credit for the reporting 
period. Public notice of the hearing shall be furnished in a manner 
deemed appropriate by the commissioner.


    Drafting Note: This section does not in any way restrict a 
commissioner's statutory authority, elsewhere granted, to approve or 
disapprove rates.


Section 15. Filing and Approval of Policies and Certificates and 
Premium Rates

    A. An issuer shall not deliver or issue for delivery a policy or 
certificate to a resident of this state unless the policy form or 
certificate form has been filed with and approved by the commissioner 
in accordance with filing requirements and procedures prescribed by the 
commissioner.
    B. An issuer shall file any riders or amendments to policy or 
certificate forms to delete outpatient prescription drug benefits as 
required by the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 only with the commissioner in the state in 
which the policy or certificate was issued.
    C. An issuer shall not use or change premium rates for a Medicare 
supplement policy or certificate unless the rates, rating schedule and 
supporting documentation have been filed with and approved by the 
commissioner in accordance with the filing requirements and procedures 
prescribed by the commissioner.
    D. (1) Except as provided in Paragraph (2) of this subsection, an 
issuer shall not file for approval more than one form of a policy or 
certificate of each type for each standard Medicare supplement benefit 
plan.
    (2) An issuer may offer, with the approval of the commissioner, up 
to four (4) additional policy forms or certificate forms of the same 
type for the same standard Medicare supplement benefit plan, one for 
each of the following cases:
    (a) The inclusion of new or innovative benefits;
    (b) The addition of either direct response or agent marketing 
methods;
    (c) The addition of either guaranteed issue or underwritten 
coverage;
    (d) The offering of coverage to individuals eligible for Medicare 
by reason of disability.
    (3) For the purposes of this section, a ``type'' means an 
individual policy, a group policy, an individual Medicare Select 
policy, or a group Medicare Select policy.


    Drafting Note: As a result of MMA, issuers now may have H, I, 
and J (including J with a high deductible) both with and without 
outpatient prescription drug coverage. The language in Subsection D 
is flexible enough

[[Page 15411]]

to allow the issuer and regulator to incorporate this factor to 
allow for additional policy forms.


    E. (1) Except as provided in Paragraph (1)(a), an issuer shall 
continue to make available for purchase any policy form or certificate 
form issued after the effective date of this regulation that has been 
approved by the commissioner. A policy form or certificate form shall 
not be considered to be available for purchase unless the issuer has 
actively offered it for sale in the previous twelve (12) months.
    (a) An issuer may discontinue the availability of a policy form or 
certificate form if the issuer provides to the commissioner in writing 
its decision at least thirty (30) days prior to discontinuing the 
availability of the form of the policy or certificate. After receipt of 
the notice by the commissioner, the issuer shall no longer offer for 
sale the policy form or certificate form in this state.
    (b) An issuer that discontinues the availability of a policy form 
or certificate form pursuant to Subparagraph (a) shall not file for 
approval a new policy form or certificate form of the same type for the 
same standard Medicare supplement benefit plan as the discontinued form 
for a period of five (5) years after the issuer provides notice to the 
commissioner of the discontinuance. The period of discontinuance may be 
reduced if the commissioner determines that a shorter period is 
appropriate.
    (2) The sale or other transfer of Medicare supplement business to 
another issuer shall be considered a discontinuance for the purposes of 
this subsection.
    (3) A change in the rating structure or methodology shall be 
considered a discontinuance under Paragraph (1) unless the issuer 
complies with the following requirements:
    (a) The issuer provides an actuarial memorandum, in a form and 
manner prescribed by the commissioner, describing the manner in which 
the revised rating methodology and resultant rates differ from the 
existing rating methodology and existing rates.
    (b) The issuer does not subsequently put into effect a change of 
rates or rating factors that would cause the percentage differential 
between the discontinued and subsequent rates as described in the 
actuarial memorandum to change. The commissioner may approve a change 
to the differential which is in the public interest.
    F. (1) Except as provided in Paragraph (2), the experience of all 
policy forms or certificate forms of the same type in a standard 
Medicare supplement benefit plan shall be combined for purposes of the 
refund or credit calculation prescribed in [insert citation to Section 
14 of NAIC Medicare Supplement Insurance Model Regulation].
    (2) Forms assumed under an assumption reinsurance agreement shall 
not be combined with the experience of other forms for purposes of the 
refund or credit calculation.


    Drafting Note: It has come to the attention of the NAIC that the 
use of attained age rating in the determination of rates in Medicare 
supplement policies may result in situations to which a regulatory 
response is desirable. States should assess their Medicare 
supplement marketplace to determine whether a regulatory response is 
needed. The following provisions may be included as a new subsection 
to Section 15. The first option prohibits insurers from attained age 
rating as a methodology for setting rates. The second option does 
not prohibit the use of attained age rating but requires Medicare 
supplement insurers who do use attained age rating as a rate setting 
methodology to apply the age component to its rates annually. The 
effective date of the regulation should provide sufficient time for 
insurers to re-rate approved policy forms in accordance with Section 
15A and for the insurance department to approve (according to its 
rate filing practices and procedures), such re-ratings prior to the 
effective date of the regulation.


    Option 1.
    G. An issuer shall not present for filing or approval a rate 
structure for its Medicare supplement policies or certificates issued 
after the effective date of the amendment of this regulation based upon 
attained age rating as a structure or methodology.
    Option 2.
    G. An issuer shall not present for filing or approval a rate 
structure for its Medicare supplement policies or certificates issued 
after the effective date of the amendment of this regulation based upon 
a structure or methodology with any groupings of attained ages greater 
than one year. The ratio between rates for successive ages shall 
increase smoothly as age increases.


    Drafting Note: State insurance regulators are encouraged to 
consider whether it is necessary to require issuers to file new 
forms where the only changes in the forms reflect year-to-year 
modifications in Medicare deductible and coinsurance amounts.


Section 16. Permitted Compensation Arrangements

    A. An issuer or other entity may provide commission or other 
compensation to an agent or other representative for the sale of a 
Medicare supplement policy or certificate only if the first year 
commission or other first year compensation is no more than 200 percent 
of the commission or other compensation paid for selling or servicing 
the policy or certificate in the second year or period.
    B. The commission or other compensation provided in subsequent 
(renewal) years must be the same as that provided in the second year or 
period and must be provided for no fewer than five (5) renewal years.
    C. No issuer or other entity shall provide compensation to its 
agents or other producers and no agent or producer shall receive 
compensation greater than the renewal compensation payable by the 
replacing issuer on renewal policies or certificates if an existing 
policy or certificate is replaced.
    D. For purposes of this section, ``compensation'' includes 
pecuniary or non-pecuniary remuneration of any kind relating to the 
sale or renewal of the policy or certificate including but not limited 
to bonuses, gifts, prizes, awards and finders fees.

Section 17. Required Disclosure Provisions

A. General Rules

    (1) Medicare supplement policies and certificates shall include a 
renewal or continuation provision. The language or specifications of 
the provision shall be consistent with the type of contract issued. The 
provision shall be appropriately captioned and shall appear on the 
first page of the policy, and shall include any reservation by the 
issuer of the right to change premiums and any automatic renewal 
premium increases based on the policyholder's age.
    (2) Except for riders or endorsements by which the issuer 
effectuates a request made in writing by the insured, exercises a 
specifically reserved right under a Medicare supplement policy, or is 
required to reduce or eliminate benefits to avoid duplication of 
Medicare benefits, all riders or endorsements added to a Medicare 
supplement policy after date of issue or at reinstatement or renewal 
which reduce or eliminate benefits or coverage in the policy shall 
require a signed acceptance by the insured. After the date of policy or 
certificate issue, any rider or endorsement which increases benefits or 
coverage with a concomitant increase in premium during the policy term 
shall be agreed to in writing and signed by the insured, unless the 
benefits are required by the minimum standards for Medicare supplement 
policies, or if the increased benefits or coverage is required by law. 
Where a

[[Page 15412]]

separate additional premium is charged for benefits provided in 
connection with riders or endorsements, the premium charge shall be set 
forth in the policy.
    (3) Medicare supplement policies or certificates shall not provide 
for the payment of benefits based on standards described as ``usual and 
customary,'' ``reasonable and customary'' or words of similar import.
    (4) If a Medicare supplement policy or certificate contains any 
limitations with respect to preexisting conditions, such limitations 
shall appear as a separate paragraph of the policy and be labeled as 
``Preexisting Condition Limitations.''
    (5) Medicare supplement policies and certificates shall have a 
notice prominently printed on the first page of the policy or 
certificate or attached thereto stating in substance that the 
policyholder or certificateholder shall have the right to return the 
policy or certificate within thirty (30) days of its delivery and to 
have the premium refunded if, after examination of the policy or 
certificate, the insured person is not satisfied for any reason.
    (6)(a) Issuers of accident and sickness policies or certificates 
which provide hospital or medical expense coverage on an expense 
incurred or indemnity basis to persons eligible for Medicare shall 
provide to those applicants a Guide to Health Insurance for People with 
Medicare in the form developed jointly by the National Association of 
Insurance Commissioners and CMS and in a type size no smaller than 12 
point type. Delivery of the Guide shall be made whether or not the 
policies or certificates are advertised, solicited or issued as 
Medicare supplement policies or certificates as defined in this 
regulation. Except in the case of direct response issuers, delivery of 
the Guide shall be made to the applicant at the time of application and 
acknowledgement of receipt of the Guide shall be obtained by the 
issuer. Direct response issuers shall deliver the Guide to the 
applicant upon request but not later than at the time the policy is 
delivered.
    (b) For the purposes of this section, ``form'' means the language, 
format, type size, type proportional spacing, bold character, and line 
spacing.

B. Notice Requirements

    (1) As soon as practicable, but no later than thirty (30) days 
prior to the annual effective date of any Medicare benefit changes, an 
issuer shall notify its policyholders and certificateholders of 
modifications it has made to Medicare supplement insurance policies or 
certificates in a format acceptable to the commissioner. The notice 
shall:
    (a) Include a description of revisions to the Medicare program and 
a description of each modification made to the coverage provided under 
the Medicare supplement policy or certificate, and
    (b) Inform each policyholder or certificateholder as to when any 
premium adjustment is to be made due to changes in Medicare.
    (2) The notice of benefit modifications and any premium adjustments 
shall be in outline form and in clear and simple terms so as to 
facilitate comprehension.
    (3) The notices shall not contain or be accompanied by any 
solicitation.

C. MMA Notice Requirements

    Issuers shall comply with any notice requirements of the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003.

D. Outline of Coverage Requirements for Medicare Supplement Policies

    (1) Issuers shall provide an outline of coverage to all applicants 
at the time application is presented to the prospective applicant and, 
except for direct response policies, shall obtain an acknowledgement of 
receipt of the outline from the applicant; and
    (2) If an outline of coverage is provided at the time of 
application and the Medicare supplement policy or certificate is issued 
on a basis which would require revision of the outline, a substitute 
outline of coverage properly describing the policy or certificate shall 
accompany the policy or certificate when it is delivered and contain 
the following statement, in no less than twelve (12) point type, 
immediately above the company name:
    Notice: Read this outline of coverage carefully. It is not 
identical to the outline of coverage provided upon application and the 
coverage originally applied for has not been issued.''
    (3) The outline of coverage provided to applicants pursuant to this 
section consists of four parts: a cover page, premium information, 
disclosure pages, and charts displaying the features of each benefit 
plan offered by the issuer. The outline of coverage shall be in the 
language and format prescribed below in no less than twelve (12) point 
type. All plans A-L shall be shown on the cover page, and the plans 
that are offered by the issuer shall be prominently identified. Premium 
information for plans that are offered shall be shown on the cover page 
or immediately following the cover page and shall be prominently 
displayed. The premium and mode shall be stated for all plans that are 
offered to the prospective applicant. All possible premiums for the 
prospective applicant shall be illustrated.
    (4) The following items shall be included in the outline of 
coverage in the order prescribed below.
BILLING CODE 4120-01-P

[[Page 15413]]

[GRAPHIC] [TIFF OMITTED] TN25MR05.000


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[FR Doc. 05-5816 Filed 3-24-05; 8:45 am]
BILLING CODE 4120-01-C