Government Criminalizes No Gap Medigap Plans


Selling too good of a plan to the wrong people at the wrong time could lead to five years in prison.

Lawyer: Selling no-gap Medigap will be a crime

Aug 28, 2015 | By Allison Bell

Selling too good of a plan to the wrong people at the wrong time could lead to five years in prison.

The Obama administration wants insurance companies to know that it really, really hates the idea of Medicare supplement plans paying the Medicare Part B plan deductible.

This year, the Medicare Part B deductible is only $147.

But a law added recently by H.R. 2 will prohibit insurers from selling new Med supp plans, which are also known as Medigap plans, that pay the Part B deductible to consumers who become newly eligible for Medicare after 2020.

Consumers who already have Medigap coverage with a low Medicare Part B deductible, or no deductible, will be able to keep their plans and trade the plans in for new Medigap plans with low out-of-pocket costs.

But, if an insurer does sell a “zero dollar” Medigap plan to an ineligible consumer after 2020, that insurer will be committing a federal crime, according to William Schiffbauer.

Schiffbauer, an insurance compliance lawyer, has analyzed the enforcement provisions in the law and other provisions in a discussion paper prepared for the Medigap Subgroup, a group of regulators at the National Association of Insurance Commissioners (NAIC).

See also: IRS is PPACA enforcer, lawyer says

The enforcement provision “imposes current Medicare anti-duplication criminal and civil penalties, or imprisonment (up to five years) or both for violations,” Schiffbauer says.

Criminal fines could be up to $15,000 per occurrence for a person other than the issuer of the policy, and up to $25,000 per occurrence for the policy issuer.

The penalties are stricter than the Medigap letter plan standardization penalties, “perhaps to emphasize the serious anti-first-dollar-coverage intent of this provision,” Schiffbauer says.

Medigap subgroup members are preparing to revise the NAIC’s existing Medigap product law, model regulation, and model consumer guides and training materials to reflect the Medigap changes included in H.R. 2, the Medicare Access and CHIP Reauthorization Act of 2015.

The best-known health-related provisions in the law are supposed to change the way the Medicare program pays doctors. To pay for part of the cost of that shift, and to act on the concerns of policymakers who believe low deductibles encourage consumers to get too much medical care, Congress included the ban on Medigap plans that pay the Part B deductible.

See also: Medigap issuers may take a hit

The traditional Medicare Part A plan pays enrollees’ hospital bills, and the Part B plan pays for physician office visits and outpatient care.

Congress tried to bring order to the Med supp market, which is also known as the Medigap market, in 1990, by requiring insurers to make apples-to-apples comparisons of products easier by basing the products on standardized “letter plan” designs.

In practice, consumers generally prefer the plans that help pay the Plan deductible. One type of plan that pays the deductible, Plan F, accounted for 58 percent of 2014 Medigap premiums, according to Gen Re.

See also: Gen Re: New Medigap enrollment rises 23%

Some Medigap market watchers have argued that the looming ban on Part F policies will have a limited effect and simply shift consumers toward buying similar plans with a modest deductible.

See also: Medigap and H.R. 2: Evolution, not revolution

Other market watchers have suggested that the biggest effect of the H.R. 2 provision on the Medigap market is that it showed that bills affecting the products can get through Congress. In the past, health insurers and their trade groups had fought off many other Medigap-related proposals.