Medigap Coverage: Background

Omnibus Budget Reconciliation Act (OBRA) of 1990

Balanced Budget Act (BBA) of 1997

Medicare Modernization Act (MMA) of 2003

Omnibus Budget Reconciliation Act (OBRA) of 1990

The Medigap market changed dramatically with the passage of the Omnibus Budget Reconciliation Act (OBRA) of 1990. The legislation, most of whose provisions went into effect in 1992, required that all Medigap policies conform to 1 of 10 standardized benefits packages, labeled Plans A through J.

Standardization included:

severe penalties on insurance agents who knowingly sold duplicate policies;
limitations on agent commissions;
a requirement that insurers hold a 6-month open enrollment period for beneficiaries age 65 and older who are enrolling in Medicare Part B for the first time;
a maximum limitation of 6 months on pre-existing condition exclusions; and
specific guaranteed issue rights requiring the sale of Medigap plans to beneficiaries regardless of their pre-existing conditions.

As a result of the original legislation, consumers were better able to compare policies across insurance carriers, and thus make informed decisions. There was less competition in the marketplace, and marketing abuses also declined.

Balanced Budget Act (BBA) of 1997

The 1997 Balanced Budget Act (BBA) expanded guaranteed issue for Medigap policies in three ways:

Beneficiaries who enroll in a Medicare Advantage (MA) plan at age 65 and then disenroll within one year of enrollment, can enroll in any Medigap plan within 63 days of disenrollment.
Beneficiaries who switch from a Medigap policy to an MA plan and then disenroll from the MA plan within one year of enrollment, can re-enroll in that same Medigap policy type within 63 days of disenrollment.
Beneficiaries can enroll in Medigap Plans A, B, C, or F within 63 days of any of the following qualifying events:
1. their employer terminates its Medicare supplemental plan
2. their Medicare HMO terminates coverage
3. they move outside of the HMO's service area
4. their Medigap plan becomes insolvent or violates the terms of contract

The BBA of 1997 also expanded preventive services offered under Original Medicare. As a result, some of the preventive services that were previously seen as “benefits” in Medigap policies were no longer viewed as such because Original Medicare now covered these services.

Medicare Modernization Act (MMA) of 2003

The Medicare Modernization Act (MMA) of 2003 created two new standardized policies, K and L. These policies provide an annual cap on out-of-pocket expenditures for Medicare Parts A and B deductibles, co-payments, and co-insurance amounts.

In addition, the MMA prohibited issuing new Medigap H, I, or J policies with prescription drug coverage. Individuals were able to renew their H, I, or J policy under certain conditions. However, the addition of a prescription drug benefit under Medicare Part D has impacted the availability and premiums for these policies and has made H, I, and J (without drug coverage) duplicative of other Medigap offerings. However, if an individual retains H, I, or J coverage with prescription benefits, it is not considered creditable coverage and Part D penalties will apply upon enrollment.

For more information on the options that beneficiaries have when making a decision about their prescription drug coverage, please see HAP’s tool, Medicare Part D and Medigap: Medigap Policies with Prescription Drug Coverage (H, I, J).

Note: If you live in Massachusetts, Minnesota, or Wisconsin, these standardized plans do not apply to you. For more information, please refer to your SHIP or State Department of Insurance.

Other Resources

2008 Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare by the Center for Medicare & Medicaid Services (CMS)

National Association of Insurance Commissioners (NAIC)

If you have a question that is not covered in these resources, please email HAP at SHIPHelp@hapnetwork.org and we will respond to your request within two business days.