Michigan Medicare Supplement and Long-Term Care Law
Chapter 38 of the Insurance Code governs Medicare supplement policies and Chapter 39 governs long-term care insurance. Both are written around what the producer says, hands over and asks, so the rules appear here as a producer would meet them. Where a chapter refers to the “commissioner,” the Director of the Department of Insurance and Financial Services (DIFS) now holds that authority.
Which Policies Chapter 38 Covers
A Medicare supplement policy is one “advertised, marketed, or designed primarily as a supplement to reimbursements under Medicare” for hospital, medical or surgical expenses (MCL 500.3801(o)). Outside the definition are policies of employers or labor organizations for their employees or members, Medicare Advantage plans, Part D drug plans and health care prepayment plans under a Medicare agreement. The words “Medicare supplement,” “medigap” and “Medicare wrap-around” may be used only on a policy issued in compliance with the chapter (MCL 500.3841(4)).
A health policy that is not a Medicare supplement can still be sold to a person eligible for Medicare by reason of age. When it is, it must carry a notice in at least 12-point type, printed on or attached to the first page of the coverage outline or policy, that it “is not a Medicare supplement” policy, “is not designed to fit with Medicare,” and may duplicate Medicare benefits. Disability income and single premium nonrenewable policies are exempt (MCL 500.3843(1), (2)). The buyer’s guide must accompany such a policy as well, at application with an acknowledgment of receipt, or with the policy in a direct response sale. Accidental death policies for travel or other accidents are exempt from the guide (MCL 500.3813).
A policy effective on or after June 1, 2010 is a 2010 plan, and no 1990 plan may be offered on or after that date (MCL 500.3801(r), (s); MCL 500.3807a(1)). The rules below are those for 2010 plans.
What the Plans Pay
Every 2010 plan except K and L starts from the same core benefits, including a lifetime maximum of 365 additional hospital days once Medicare’s are exhausted (MCL 500.3807a(2)). Plans K and L carry those 365 days as well (MCL 500.3811a(6)(g)(iii), (h)(i)). Plan A is the core alone. The statute fixes each other plan, and no other package may be sold, apart from new or innovative benefits added with the Director’s prior approval (MCL 500.3811a(3), (6)).
Plans K and L instead pay 50% and 75%, respectively, of most Part A and Part B cost sharing until the insured reaches an annual out-of-pocket limit, indexed each year, then 100% for the rest of the calendar year (MCL 500.3811a(6)(g), (h)).
Two availability rules apply. First, an insurer must make available a policy containing only the core benefits. If it also offers any additional benefit or plan K or L, it must make available plan C or plan F as well (MCL 500.3811a(2)). Second, a person newly eligible for Medicare after December 31, 2019 cannot be sold plan C, plan F or high-deductible plan F. Their counterparts are plan D and plan G, which pay the same benefits except the Part B deductible, and for them the first rule reads plan D or plan G (MCL 500.3811b(2)(a) to (e)).
Plan N’s copayment is the lesser of $20 or the Part B coinsurance for an office visit and the lesser of $50 or the coinsurance for an emergency room visit, waived if the insured is admitted to any hospital and the visit is then covered as a Part A expense (MCL 500.3811a(6)(j)).
Who Can Buy: Open Enrollment and Guaranteed Issue
An insurer may not deny or condition a policy, or price it differently, because of “health status, claims experience, receipt of health care, or medical condition” if the application is submitted during the 6-month period beginning with the first month in which a person 65 or older is enrolled in Part B (MCL 500.3829(1)). Dana, 65, enrolls in Part B effective March 1. Her window is March through August, so it ends August 31. An application on September 3 gets no guarantee.
Preexisting conditions during open enrollment depend on creditable coverage. A continuous period of creditable coverage is one with no break longer than 63 days (MCL 500.3801(e)). If Dana had at least 6 months of it when she applied, the insurer may not exclude benefits for a preexisting condition. With less, the exclusion is reduced by the coverage she had (MCL 500.3829(2)). With 4 months of creditable coverage, 6 - 4 leaves a 2-month exclusion. Without any qualifying coverage the insurer may exclude, for the first 6 months, a condition treated or diagnosed in the 6 months before coverage began (MCL 500.3829(3)). No policy may deny a claim for losses incurred more than 6 months after the effective date because of a preexisting condition (MCL 500.3819a(3)(a)).
Guaranteed issue protects people who lose coverage later. An “eligible person” includes someone whose employer plan that supplemented Medicare ends, whose Medicare Advantage plan is terminated or leaves the area where the person lives, whose Medicare supplement insurer becomes insolvent or misrepresented the policy, or who first joined a Medicare Advantage plan at 65 and leaves it within 12 months (MCL 500.3830(2)). For these people the insurer may not deny the policy, price it by health, or impose a preexisting exclusion (MCL 500.3830(1)).
After an involuntary termination of a Medicare Advantage plan, the application window ends 63 days after the coverage ends (MCL 500.3830(3)(b)). If Hector’s Medicare Advantage plan ends on September 30, he must apply by December 2 with evidence of the termination date. Where a person in one of the listed groups leaves a plan voluntarily, the window runs from 60 days before the disenrollment takes effect to 63 days after (MCL 500.3830(3)(d)). The plans he may choose include A, B, C, F, K and L from any insurer (MCL 500.3830(5)), and for a person newly eligible after 2019, D and G in place of C and F (MCL 500.3811b(4)). The party ending his coverage must tell him of these rights (MCL 500.3830a).
Michigan adds a right tied to group coverage. An insurer offering group expense-incurred hospital, medical or surgical policies must make available, to a person who loses group coverage after becoming eligible for Medicare, continuation or conversion to a guaranteed renewable or noncancelable Medicare supplement plan: the core benefits, or the plan C or F the insurer offers (D or G for the newly eligible). The person shows proof of the prior insurance and requests coverage within 180 days after the loss. A person hospitalized, or told a hospitalization will be needed within 30 days after applying, waits until the day after discharge unless asking the insurer that covered the person immediately before the loss. The group policyholder gives written notice of the right at Medicare eligibility (MCL 500.3831(1), (2), (4)).
Applications, Duplication and Replacement
A policy that duplicates Medicare benefits may not be delivered (MCL 500.3827(1)), a sale that leaves the buyer with more than one Medicare supplement policy is prohibited (MCL 500.3835(3)), and a policy for a Medicare Advantage enrollee must take effect after that coverage ends (MCL 500.3835(4)). An insurer may not issue an individual policy to a person who has not applied for or enrolled in Parts A and B (MCL 500.3821(1)).
The application carries statements and questions about Medicare supplement, Medicare Advantage, Medicaid and other health coverage in the past 63 days, and whether the new policy will replace anything (MCL 500.3827(2)). The agent must also list every other health policy the agent has sold the applicant, whether in force or sold in the past 5 years and no longer in force (MCL 500.3827(3)). In recommending a purchase or replacement the agent must make reasonable efforts to determine whether it is appropriate (MCL 500.3835(2)).
When a sale will replace Medicare supplement coverage, the insurer furnishes a replacement notice before the policy is issued or delivered. The applicant and the agent both sign it, in at least 12-point type, and the applicant keeps a copy. A direct response insurer delivers the notice with the policy (MCL 500.3827(5)). The agent checks one stated reason for the replacement, such as additional benefits or the same benefits at a lower premium, and the notice tells the buyer not to cancel the present policy until the new one arrives.
The replacing insurer must “waive any time periods applicable to preexisting conditions, waiting periods, elimination periods, and probationary periods in the new” policy “for similar benefits to the extent such time was spent under the original coverage” (MCL 500.3833). The statute has no minimum time the old policy must have been in force. Leon has held his policy for 14 months and the new policy has a 6-month preexisting limit on a similar benefit. The 14 months exceed 6, so nothing remains. If he had held it 4 months, 6 - 4 leaves 2 months.
What the Policy Must Contain
Every policy must be guaranteed renewable. Termination may be only for nonpayment of premium or material misrepresentation (MCL 500.3819a(3)(d)). It may not end a spouse’s coverage solely because of an event that ends the insured’s, other than nonpayment of premium (MCL 500.3819a(3)(f)). It may not cut off benefits for a continuous loss that began while the policy was in force, though the extension may depend on continuous total disability and stop at the benefit period or maximum benefits (MCL 500.3819a(3)(e)). Cost-sharing benefits change automatically when Medicare’s deductibles and coinsurance change, and premiums may change to match (MCL 500.3819a(3)(c)). The renewal provision, including automatic age-based increases, appears on the first page (MCL 500.3839(1)), as does the statement “Notice to buyer: This policy may not cover all of your medical expenses” (MCL 500.3835(5)). Benefits cannot be paid on a “usual and customary” or similar standard (MCL 500.3841(2)). Any preexisting limit sits in a separate paragraph labeled “preexisting condition limitations” (MCL 500.3841(3)), and waivers may not exclude named conditions (MCL 500.3825).
A policyholder who becomes entitled to Medicaid may ask the insurer, within 90 days, to suspend benefits and premiums for up to 24 months, and the insurer returns the premium for that period, adjusted for claims paid. If Medicaid ends, the policy is reinstated when the policyholder gives notice within 90 days and pays the premium from the date Medicaid ended, with no new preexisting waiting period. A policyholder entitled to Medicare because of disability who is covered by a group health plan may also suspend benefits and premiums, and the policy is reinstated on notice within 90 days after that coverage ends (MCL 500.3819a(4)).
Alongside the buyer’s guide, the outline of coverage comes at application, with an acknowledgment of receipt unless the sale is by direct response. It has four parts: a cover page, premium information, disclosure pages, and charts of each plan the insurer offers, in at least 12-point type. If the policy is issued on terms that change the outline, a substitute with a warning notice goes out with the policy (MCL 500.3815(1), (3), (4)). Its disclosures include a 30-day right to return the policy for a refund of all payments.
The Insurer’s Side
Insurers file rates and forms for approval (MCL 500.3849(1), (3)), file each advertisement with the Director at least 30 days before use (MCL 500.3847), and notify policyholders at least 30 days before the annual effective date of Medicare changes (MCL 500.3841(7)).
A form must be expected to return, as aggregate benefits, at least 65% of earned premium for individual policies and 75% for group policies (MCL 500.3851(1)). If an insurer expects $2,000,000 of earned individual premium over the period for which rates are computed, it must expect at least 0.65 x $2,000,000 = $1,300,000 in benefits. A group block of the same size needs $1,500,000. If experience falls below the benchmark ratio, a refund or credit may be owed (MCL 500.3853).
Medicare SELECT
A Medicare SELECT policy is a Medicare supplement policy with a restricted network provision, one that conditions payment “in whole or in part” on using network providers (MCL 500.3817(2)(d), (f)). It may not restrict payment for out-of-network care for emergencies or for an unforeseen illness when a network provider is not reasonable to use, and it must pay in full for covered services the network cannot provide (MCL 500.3817(8), (9)). The applicant signs a form acknowledging the restrictions before the sale (MCL 500.3817(11)), and after 6 months may buy from the same insurer a policy with comparable or lesser benefits, no network restriction and no evidence of insurability (MCL 500.3817(14)).
Long-Term Care Insurance Under Chapter 39
Chapter 39 defines long-term care insurance as an individual or group policy, certificate or rider designed to cover at least 12 consecutive months of necessary care services in a setting other than an acute care unit of a hospital. That includes annuities and life policies or riders that provide or supplement long-term care coverage. It does not include a life policy that accelerates the death benefit for terminal illness, a condition requiring extraordinary medical intervention, or permanent institutional confinement, with a lump-sum option, when neither the benefit nor eligibility depends on receiving long-term care (MCL 500.3901(h)).
What the Policy Must Provide
An individual policy must be guaranteed renewable, and the insurer cannot cancel because of age or a decline in mental or physical health (MCL 500.3907(1)). A group certificate must carry a conversion provision (MCL 500.3907(2)). Intermediate or basic care coverage cannot be significantly less than skilled nursing coverage (MCL 500.3905(1)(a)). Coverage may be limited by type of illness, type of provider, territory, treatment, medical condition or accident only for a motor vehicle accident or the causes the statute lists: preexisting conditions, mental or nervous disorders, alcoholism or drug addiction, war, a felony, riot or insurrection, service in the armed forces, and suicide or self-inflicted injury. The mental disorder limit cannot reach Alzheimer’s disease or related disorders (MCL 500.3905(1)(b)). Benefits cannot depend on prior institutionalization or prior care at a higher level (MCL 500.3915).
A policy cannot require skilled care in a facility as a condition of home care, require nursing or therapy first or at the same time in a home or community setting, limit eligible services to nurses, require an acute condition, or limit benefits to Medicare-certified agencies (MCL 500.3913(1)). A policy that covers nursing facility care must also cover home care in a dollar amount equal to at least half of one year’s nursing home benefit (MCL 500.3907(4)). With a daily nursing home benefit of $180 (an example), a year of facility benefits is $180 x 365 = $65,700, and the home care floor is $32,850.
Outside employer and labor group certificates, the preexisting condition limitation period cannot exceed 6 months after the effective date, unless the Director sets a longer one for a group specially limited by age or category. A preexisting condition is one for which advice or treatment was recommended or received in the 6 months before the effective date (MCL 500.3901(k); MCL 500.3911(1)). Waivers or riders may not exclude named conditions beyond that period (MCL 500.3911(4)). A replacing insurer must waive preexisting and probationary periods already satisfied under the old policy (MCL 500.3917).
The policy itself carries required disclosures. A rider added after issue that reduces benefits needs the insured’s signed acceptance unless it carries out the insured’s written request under an individual policy, and one that raises benefits and premium needs signed agreement unless the law requires the increase. A policy paying on a “usual and customary” or similar standard must define and explain the term in the summary of coverage. Preexisting limits go in a separate paragraph labeled “preexisting condition limitations,” and limits on eligibility, including any required days of confinement, go in one labeled “limitations or conditions on eligibility for benefits” (MCL 500.3923).
Inflation, Nonforfeiture and Premiums
The insurer must offer inflation protection at purchase: benefits compounded annually at not less than 5%, a guaranteed right to buy increases periodically without evidence of insurability, or coverage of a percentage of actual charges with no maximum (MCL 500.3909(1)). The summary of coverage shows a graphic comparison over at least 20 years (MCL 500.3909(3)(a)).
The insurer must also offer a nonforfeiture benefit. If the buyer declines it, the policy carries a contingent benefit upon lapse (MCL 500.3910(2)). That benefit is triggered when the cumulative increase in annual premium reaches a percentage of the initial annual premium that depends on the issue age, and the policy lapses within 120 days of the due date of the increased premium. For issue age 65 the percentage is 50% (MCL 500.3910a(6)). If Marta, issued at 65, started at $2,400 a year, the trigger is an increase of $1,200, a premium of $3,600.
The nonforfeiture credit equals 100% of all premiums paid and never less than 30 times the daily nursing home benefit at lapse, and total benefits cannot exceed what the policy would have paid had it stayed in force (MCL 500.3910a(8)(c), (9)). Premiums may not rise because of age beyond 65 or length of time insured (MCL 500.3929), and any increase needs 45 days’ notice (MCL 500.3925(6)).
Protection Against Unintended Lapse
Before issuing an individual policy, the insurer needs the applicant’s written designation of at least one person other than the applicant to get lapse notices, or a signed waiver with the statutory wording, except while premium is paid by payroll or pension deduction (MCL 500.3906(1), (2)). Suppose a premium due March 1 is unpaid. Notice cannot go out until 30 days after the due date, March 31, by first-class mail. Notice is considered given 5 days after mailing, April 5, and the lapse cannot take effect sooner than 30 days after that, May 5 (MCL 500.3906(3)). Coverage must be reinstated if the insured requests it within 5 months after termination and shows cognitive impairment or loss of functional capacity before the grace period ended. Past due premium may be collected (MCL 500.3906(4)).
Selling Long-Term Care
Before application the insurer gives a free-standing summary of coverage in at least 10-point type with no advertising, and the applicant signs for it (MCL 500.3933). The agent delivers the shopper’s guide before presenting the application (MCL 500.3937(1)(a)). The applicant receives a personal worksheet and 10 years of rate-increase history, and signs an acknowledgment of the rate disclosure (MCL 500.3925(3), (5), (7)). An applicant 60 or older, or disabled, also receives a brochure about free insurance counseling (MCL 500.3925(8)).
The insurer must adopt suitability standards that look at ability to pay, goals and existing coverage, and must train its producers in them and require their use (MCL 500.3941a(2)). Its marketing procedures must keep policy comparisons fair and accurate, keep excessive insurance from being sold, identify coverage the applicant already has and be auditable, and the first page of the policy carries a notice to buyer that it may not cover all long-term care costs (MCL 500.3942(1)). Advertising is filed with the Director at least 45 days before use and kept for at least 3 years (MCL 500.3941).
The agent makes reasonable efforts to determine whether a recommended purchase or replacement is appropriate, and lists other health policies sold to the applicant in the past 5 years, in force or not. When a policy will replace another, the replacement notice goes out before issuance, and the new insurer notifies the existing insurer in writing within 5 working days after it receives the application or issues the policy, whichever is sooner (MCL 500.3939(4), (5), (7), (8)). The buyer has 30 days after delivery to return the policy for a full refund if no benefits have been incurred (MCL 500.3943(1)). An insurer may use “level premium” or “noncancelable” only if it cannot change the premium (MCL 500.3942(2)).
A violation can bring a fine on an insurer or an agent of up to 3 times the commissions paid on each policy involved or $10,000, whichever is greater (MCL 500.3945). On a policy with $1,800 of commission, 3 x $1,800 = $5,400, so the ceiling is $10,000. On one with $4,000, 3 x $4,000 = $12,000 is greater, so the ceiling is $12,000.
Case: Replacing a Policy for an 82-Year-Old
Ruth is 82 and wants to replace an older long-term care policy whose premium rose. Handling it step by step:
- Deliver the shopper’s guide and the summary of coverage before she applies, and get her signature for the summary.
- Complete the application’s questions on other coverage, Medicaid and replacement, and list every other health policy you sold her in the past 5 years.
- Because she is 80 or older, the insurer must, unless the policy is guaranteed issue, obtain an exam, functional assessment, attending physician’s statement or medical records before issuing (MCL 500.3921(4)(c)).
- Give her the replacement notice before issuance. If a medication listed on the application was known, or should have been known, to be directly related to a condition for which coverage would otherwise be denied, the insurer cannot later rescind for that condition (MCL 500.3921(3)). The new policy must waive preexisting and probationary periods she already served.
- Make sure the insurer sends its 5-working-day notice to her present insurer, and tell her she has 30 days after delivery to return the new policy.
Lesson summary
- A Medicare supplement policy is one marketed primarily to supplement Medicare; employer plans, Medicare Advantage and Part D are outside Chapter 38, and the words “Medicare supplement” and “medigap” are reserved for compliant policies.
- A 2010 plan follows the standard letters, and an insurer that offers any extra benefit or plan K or L must also make plan C or F available (D or G for the newly eligible).
- Open enrollment lasts 6 months from the first month of Part B at 65 or older, creditable coverage shortens any preexisting exclusion, guaranteed issue gives people who lose coverage 63 days to apply, and a person who loses group coverage after Medicare eligibility has 180 days to request continuation or conversion.
- Replacement requires the application questions, the agent’s list of policies sold over 5 years, a signed notice, and a waiver of time already served; knowingly selling duplicate coverage is a misdemeanor.
- Medicare supplement policies are guaranteed renewable, may be suspended for up to 24 months during Medicaid entitlement, and carry a 65% individual and 75% group loss ratio floor.
- Individual long-term care policies must be guaranteed renewable, and long-term care policies limit exclusions to the statutory causes, protect home care, carry labeled disclosures and offer inflation protection and nonforfeiture benefits.
- Lapse protections require a second notice designee or signed waiver, notice no sooner than 30 days after the premium is due, and reinstatement within 5 months for cognitive impairment.
- The long-term care sale requires a summary of coverage, shopper’s guide, suitability standards, medical evidence at age 80 or older, and a 30-day free look.