Medicare supplement insurance policies

Issued and entered December 6, 1985 by Herman W. Coleman, Commissioner of Insurance

Since 1979, five bulletins have been issued regarding medicare supplement policies. The bulletins contain various guidelines, interpretive statements, and forms with instructions for implementing legislation enacted to curb abuses in the sale of medicare supplement insurance. This bulletin combines provisions of the previous five bulletins which remain in effect and eliminates the provisions which have become obsolete. It also eliminates the use of a certification form previously adopted in Bulletin 81-5.

Unless otherwise stated, all section numbers mentioned in this bulletin refer to sections of the Michigan Insurance Code of 1956, as amended, MCLA 500.100 et seq.; MSA 24.1100 et seq.

Section 2265 of the Code requires each insurer offering "individual or group hospital, medical or surgical expense incurred policies" in this state to make a medicare supplement policy available "without restriction" to each "eligible person" who qualifies under the section.

In Bulletin 79-4 which was issued February 28, 1979 the following guidelines were adopted by the commissioner pursuant to the Administrative Procedures Act of 1969, as amended, MCLA 24.201 et seq.; MSA 3.560(101) et seq.:

1. "Hospital, medical, or surgical expense incurred policies" is defined to mean policies providing disability insurance as defined in section 606 of the Code wherein:

a. Coverage is provided for losses which result from hospital, medical or surgical expenses; and

b. Payment of a hospital, medical or surgical benefit is predicated on actual incurred expenses; and

c. The primary purpose of the policy is to provide coverage for expenses associated with sickness or for sickness and injury.

2. "Eligible persons" is defined to mean a person residing in Michigan who, effective in the month of entitlement,{Footnote 1}

{Footnote 1} The month of entitlement is used by the Social Security Administration to indicate the first month that a person is eligible for, enrolled and may receive benefits under the Federal Medicare program. may receive benefits under the Federal Medicare Program, including but not limited to:

a. Persons 65 or older;

b. Disabled persons who have been entitled to social security disability benefits or railroad disability annuities for two consecutive years or more; and

c. People insured under the social security or the railroad retirement system who need dialysis treatments or a kidney transplant because of permanent kidney failure.

3. "Without restriction" is defined to mean that upon application for a policy by an eligible person, the insurer may not deny coverage to the applicant; may not include a waiting period; may not exclude from coverage, by name or specific description, a disease or physical condition; may not specify a maximum benefit or benefit sum within the policy on a single cause or confinement or lifetime basis, other than the limitations established by the Federal Medicare Program and; may not exclude coverage for a pre-existing condition except when specifically allowed by section 2265(2).

Section 2265 is applicable to any insurer which has individual or group hospital, medical or surgical expense incurred policies available for issuance in the state of Michigan, including insurers which offer "dread disease" policies written on an expense incurred basis. Dread disease policies include, but are not limited to policies such as cancer policies, heart disease policies and stroke policies. The statute specifies that each insurer offering individual or group policies in Michigan shall provide without restriction a policy which provides a certain minimum coverage. This language precludes the option of multiple company insurance groups issuing coverage through a single affiliate.

Furthermore, in Bulletin 80-9 of May 21, 1980 the commissioner issued an interpretive statement that insurers renewing existing policies that contain hospital, medical or surgical expense incurred benefits are considered to be offering such benefits and are therefore required to comply with section 2265.

Section 2265(3) of the Code provides that persons insured by an insurer before becoming eligible for medicare and every applicant who is eligible for medicare must be notified by the insurer of the availability of a policy that meets the requirements of the section. Bulletin 82-10 of July 27, 1982 provided sample notices which meet this requirement when attached to an outline of coverage required under section 2267. The sample notice for group certificate holders and individual policyholders are incorporated correspondingly into this bulletin as Attachments A and B. In the case of persons who are insured by the insurer before becoming eligible for medicare, notice should be given no later than the beginning of the eligibility period for applying
for the coverage.

Section 2266 of the Code requires an insurer who issues a policy which provides disability coverage to a person eligible for medicare by reason of age to provide the prospective policyholder with a medicare supplement buyer's guide. It is the responsibility of the insurer to determine whether the applicant is eligible for medicare by reason of age. The buyer's guide is printed by the Health Care Financing Administration of the Department of Health and Human Services and is publication HCFA-02110.

Section 2267 of the Code states that an insurer who offers a medicare supplemental coverage policy shall provide to the applicant at the time of application a coverage outline in the form specified in the section as approved by the Commissioner. Bulletin 81-5 of March 24, 1981 adopted a certification form to accompany each filing of a coverage outline to facilitate the approval process. The use of that form is no longer required. Insurers shall file the coverage outline with the Commissioner, but it need not be accompanied by a certification form. The Commissioner will not issue approvals of coverage outlines. Consistent with the standards for filing under Section 2236(1) of the Code, a coverage outline shall be deemed approved if it is not
disapproved by the Commissioner within thirty (30) days after filing. Incomplete submittals shall not be considered to constitute a proper filing and shall not be deemed approved.

Section 2272 provides for benefits in a medicare supplemental policy to change automatically to coincide with changes in medicare and that premiums may be modified to correspond with such changes. Each time an insurer proposes to modify a premium, a rate filing shall be submitted to the Commissioner with supporting data. The Commissioner will not approve any rates which adjust automatically as the medicare deductibles change since this would not allow for review of actual experience and adjustment if needed to meet the loss ratio requirements.

Pursuant to Section 2273, if an insurer wishes to file a policy which meets the requirements for a Type 2 policy, it should not be filed as a Type 1 policy with a rider which takes away coverage for the deductibles. A Type 2 policy should be filed as a new policy and submitted with an outline of coverage.

In order to comply with the requirements of Sections 2267 and 2276, an application form for a medicare supplement policy shall provide a place for the applicant to indicate whether the applicant had health insurance coverage up to the time of application and whether the applicant was covered under a group policy at age 60 or older. To comply with the replacement requirements in Section 2276, the application form for a medicare supplement policy or a supplementary form which is later attached to the application must include a question designed to elicit whether the medicare supplement policy or certificate is intended to replace any other accident and sickness policy or certificate presently in force, and if so, the name of the existing insurer and the policy number.

Section 2276(2)(b) requires that in the case of replacement policies which are not direct response solicitation policies, an insurer shall retain a copy of the "Notice to applicant regarding replacement of accident and sickness insurance," provide a copy to the applicant, and send a copy to the insurer whose coverage is being replaced. The copy provided to the applicant shall be provided no later than the time of application. The copy sent to the insurer whose coverage is being replaced should include the name of the applicant clearly typed or printed and if available, the policy number of the policy being replaced.

In Bulletin 82-10, insurers were directed to submit data on premium volume and claims to the Insurance Bureau annually on the prescribed Form 821002 for all policies which meet the requirements of a Type 1 or Type 2 policy. Form 821002 has been revised and is incorporated herein as Form INS 313. This form is due at the Insurance Bureau on April 1 of each year for the preceding calendar year. A separate Form INS 313 should be filed for each separate policy form, including separate forms for policies sold with and without a six month pre-existing conditions exclusion.

Consistent with the requirements of Chapter 20 of the Insurance Code of 1956, as amended, and rules and guidelines relating to advertising of accident and sickness insurance, insurers advertising policies in this state under groups which are not subject to Michigan regulation and do not meet the minimum requirements of a Michigan medicare supplement policy shall include in each piece of advertising, in a conspicuous place, in large print (at least 12 point type) the following statement: This policy is not subject to Michigan laws and does not meet the Michigan minimum standards for a medicare supplement policy.

This bulletin supersedes the following bulletins, which are hereby withdrawn, and shall take immediate effect:

Bulletin 79-4 issued February 28, 1979
Bulletin 80-9 issued May 21, 1980
Bulletin 80-14 issued July 18, 1980
Bulletin 81-5 issued March 24, 1981
Bulletin 82-10 issued July 27, 1982.