Understanding California’s Unique Medigap Rules & Extra Consumer Rights

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It’s often the case that insurers, and sometimes agents or brokers, are unaware of many Medigap guaranteed issue rights in California. As a result, applicants are sometimes erroneously refused coverage.  Guaranteed issue means that an insurer cannot underwrite coverage, and must issue coverage at the best price for a particular Medigap plan in the pricing area for that plan. What follows is an overview of the guaranteed issue rights unique to California law.  Some of these rights are an expansion of federal law. 

Regulating Medigaps

In California, Medigaps are regulated by two state agencies. The California Department of Insurance (CDI) regulates most Medigap policies, and the Department of Managed Health Care (DMC) regulates Medigap plans sold under the trademark of Blue Cross or Blue Shield.

Statutory requirements in state and federal law are the same under both agencies; the bulk of Medigap requirements are in federal law. In 1990, the National Association of Insurance Commissioners (NAIC) was tasked with incorporating the new federal standardization requirements into the NAIC Model Law and Regulation for Medicare Supplement Insurance, including the 10 standard benefit packages which cannot be changed by state law.  The NAIC updates their Model Law and Regulation whenever changes in federal law occurs; for instance, when previous Medigaps were retired and new Medigaps such as K and L and M and N were added.  States can have stricter requirements and more generous rights so long as those don’t change or conflict with federal requirements.  Over the years, California has enacted many more generous guaranteed issue rights than exist in federal law.

The Birthday Rule

This right is available to anyone with a Medigap who wants to switch coverage. It’s triggered on their birthday and a policyholder can choose the same lettered plan for a lower premium from a different company, or replace their current plan with another Medigap plan with the same or fewer benefits. Insurers are required to notify their policyholders of this right no more than 60 days before their birthday. The policyholder has 60 days from their birthday to switch their coverage.  Insurers are not allowed to include any additional benefits they’ve added to a Medigap policy, such as vision or dental coverage, to determine whether a Medigap plan has more benefits than an existing Medigap.  For instance, a plain Medigap plan G without additional benefits has the same benefits for the purposes of the birthday rule as a Plan G that includes additional benefits.  

The legislation that created the birthday rule took effect in 1997 and didn’t include Medigap plans with cost sharing that were added later.  The federal Balanced Budget Act of 1997 (BBA) added high deductible options to Medigap plans F and J, but those options took effect after the birthday rule.  

In 2010, another round of federal changes became effective, retiring several Medigap plans and adding new cost-sharing Medigaps.  The birthday rule was amended to clarify which Medigaps issued prior to the federal changes could be replaced by Medigap’s issued after that date.  That left two high deductible plans, F and J, that could only be replaced with the remaining high deductible plan Medigap plan F. 

It’s unclear whether Medigap plans K and L, or M and N can only be replaced with another plan of the same letter since there are no other Medigaps with the same benefit and cost sharing design.  A high deductible plan, though, can only qualify to be replaced with another high deductible plan.  Insurers can, of course, allow replacement of any Medigap plan with a plan of their own choice, but they are not required to do so by the law as it is currently written. 

Medicare Beneficiaries Younger than 65

While Federal law does not require insurers to issue Medigaps to younger beneficiaries on Medicare when they first take out Medicare Part B, California law does. Younger  beneficiaries with kidney failure, also known as End State Renal Disease (ESRD), are excluded from this right. In California, younger beneficiaries without ESRD have the right to purchase Medigap plans A, B, D, and G, or K or L, or M or N if an insurer sells those plans. Insurers, however, can charge higher premiums for this population, which means they can charge higher premiums for younger beneficiaries than for those 65 or older.  California law does not unfortunately ensure that Medigaps are affordable, and younger beneficiaries with ESRD continue to be excluded from these rights. Approximately 35 states now require companies to issue Medigaps to these younger beneficiaries with a disability, although each state may limit the lettered plans a person can buy or place other restrictions or limitations on that right.  

Holidays for Underwriting & Other Requirements

Insurers can always be more generous in waiving requirements in the law, as long as any waiver is not discriminatory.  For instance, an insurer can waive underwriting for all applicants during a period of competition with Medicare Advantage plans, such as during the Annual Enrollment Period each fall.  An insurer can also restrict an underwriting waiver to certain applicants, such as those who already have a Medigap and want to replace it. In each case, an insurer can designate the lettered Medigap(s) that is available to all applicants during an underwriting waiver.  Insurers can accept any applicant at any time for the Medigap of their choice; but they can also exclude those with certain medical conditions, those who have recently been hospitalized, or who have had a nursing home stay within the last year.  An insurer cannot apply a waiting period for preexisting conditions if an applicant is switching from a previous Medigap plan.

Employer Coverage

Federal law requires a guaranteed issue right to a Medigap when an individual loses coverage under an employer plan that  is secondary to Medicare.  California law applies a guaranteed issue right regardless of whether the employer coverage is primary or secondary to Medicare.  Additionally, both federal and state law require Medigap guaranteed issue when an employer plan doesn’t cover, or cuts the benefits for the Medicare Part B copayments, or doesn’t pay any benefits after Medicare pays.  Beneficiaries need to consider whether they are giving up any additional benefits under an employer plan if they decide to replace their employer benefits with a guaranteed issue Medigap.

Medigap & Medi-Cal

When a person has full Medi-Cal benefits, it’s illegal to sell them a Medigap policy.  However, when a person who has Medi-Cal is dropped from Medi-Cal or assigned a Share Of Cost (SOC), they have the right to a guaranteed issue Medigap.  A SOC functions like a monthly deductible. It’s an amount that must be spent for medical costs before Medi-Cal will begin paying benefits.  The amount of the SOC is the difference between the income threshold for Medi-Cal and an individual’s monthly income.  A Medigap premium can offset part of the SOC, and having a Medigap will sometimes allow a Medi-Cal recipient to see providers that don’t usually take Medi-Cal.  

If a person already has a Medigap when they become eligible for Medi-Cal, they can ask the insurer to suspend their Medigap for up to 24 months in case they lose their eligibility for Medi-Cal in the future.  During that 24-month period, they can reinstate their Medigap, or if it isn’t available, choose another Medigap.  A person who has a Medigap when they become eligible for Medi-Cal can keep it, and use it to access providers who don’t ordinarily treat people with Medi-Cal.

COBRA & Medicare

While this issue was covered in a previous article, the federal American Rescue Plan includes 100% payment of COBRA premiums for six months. This may cause some former employees who are eligible for Medicare, but not enrolled, to mistakenly choose COBRA coverage over Medicare. Unfortunately, anyone eligible for Medicare is not eligible for the free COBRA benefit, and can incur federal penalties for failure to advise their employer of their Medicare eligibility.  In addition, COBRA coverage can conflict with their Medicare eligibility, trigger later recovery actions of mistakenly paid primary COBRA benefits, and incur Medicare late premium penalties and delayed benefits. It’s important to understand that COBRA is secondary to Medicare, regardless of whether an individual has actually enrolled in Medicare. The only exception is when a covered individual has ESRD, is covered by Medicare, and is still in Medicare’s 30-month coordination period. 

Where to Get Help

The law regarding Medicare Supplement insurance (Medigap) open enrollment and guaranteed issue events in California is in the California Insurance Code (CIC) at 10192.11 and 10192.12.  These rules are duplicated in the Health and Safety Code for those companies regulated by the DMHC.  The Health Insurance Counseling and Advocacy Program (HICAP) has trained counselors who help Medicare beneficiaries and their families with questions about supplementing Medicare.  There is a HICAP in every county in California; you can contact them online, or by calling 1-800-434-0222.

This article was written by Bonnie Burns, our Policy & Training Specialist.

Karen Joy Fletcher

Our blogger Karen Joy Fletcher is CHA’s Communications Director. With a Masters in Public Health from UC Berkeley, she is the online “public face” of the organization, provides technical expertise, writing and research on Medicare and other health care issues. She is responsible for digital content creation, management of CHA’s editorial calendar, and managing all aspects of CHA’s social media presence. She loves being a “communicator” and enjoys networking and collaborating with the passionate people and agencies in the health advocacy field. See her current articles.