Bulletin 2012-06 Reduced Agent Compensation for Medicare Supplement Policies Sold

South Carolina NIKKI R. HALEY Governor Department of Insurance Capitol Center 1201 Main Street, Suite 1000 Columbia, South Carolina 29201 Maning Address: P.O. Box 100105, Columbia, S.C. 29202-3105 Telephone: (803) 737-6160 BULLETIN NUMBER 2012-06 TO: All Insurers and Health Maintenance Organizations Selling Medicare Supplement Insurance within the State. FROM: Gw~ndol?'ll F. ~'i!;!J/1-KJJ1Jf,~'J.Jj "' Actmg Dlrecto/'....'....t1r----- 7'71' SUBJECT: Reduced Agent Compensation for Medicare Supplement Policies Sold during Open Enrollment and Guaranteed-Issue Periods. DATE: August 2,2012 I. PURPOSE It has come to the attention ofthe South Carolina Department ofInsurance that some insurers are reducing agent compensation for Medicare Supplement (Medigap) policies sold during open enrollment and guaranteed-issue periods. The Department considers such activities an unfair trade practice. The purpose of this bulletin is to instruct all insurers engaging in this practice to cease such activities immediately. II. OPEN ENROLLMENT AND GUARANTEED ISSUE South Carolina Regulation 69-46, Medicare Supplement Insurance, contains sections describing both Open Enrollment and Guaranteed Issue. The pertinent sections are shown below: Section 11. Open Enrollment A. An issuer shall not deny or condition the issuance or effectiveness of any Medicare Supplement policy or certificate available for sale in this state, nor discriminate in the pricing of a policy or certificate because of the health status, claims experience, receipt of health care, or medical condition of an applicant in the case of an application for a policy or certificate that is submitted prior to or during the six (6) month period beginning with the first day of the first month in which an individual is both 65 years of age or older and is enrolled for benefits under Medicare Part B. Each Medicare Supplement policy and certificate currently available from an insurer shall be made available to all applicants who qualify under this subsection without regard to age. Section 12. Guaranteed Issue for Eligible Persons A. Guaranteed Issue. (1) Eligible persons are those individuals described in Subsection B who seek to enroll under the policy during the period specified in Subsection C, and who submit evidence of the date of termination, disenrollment, or Medicare Part D enrollment with the application for a Medicare Supplement policy. (2) With respect to eligible persons, an issuer shall not deny or condition the issuance or effectiveness of a Medicare Supplement policy described in Subsection E that is offered and is available for issuance to new enrollees by the issuer, shall not discriminate in the pricing of such a Medicare Supplement policy because ofhealth status, claims experience, receipt of health care, or medical condition, and shall not impose an exclusion of benefits based on a preexisting condition under such a Medicare Supplement policy. B. Eligible Persons. An eligible person is an individual described in any of the following paragraphs: (1) The individual is enrolled under an employee welfare benefit plan that provides health benefits that Supplement the benefits under Medicare; and the plan terminates, or the plan ceases to provide all such Supplemental health benefits to the individuaL (2) The individual is enrolled with a Medicare Advantage organization under a Medicare Advantage plan under part C of Medicare, and any of the following circumstances apply, or the individual is 65 years of age or older and is enrolled with a Program of All-Inclusive Care for the Elderly (PACE) provider under Section 1894 of the Social Security Act, and there are circumstances similar to those described below that would permit discontinuance of the individual's enrollment with such provider if such individual were enrolled in a Medicare Advantage plan: (a) The certification ofthe organization or plan has been terminated; (b) The organization has terminated or otherwise discontinued providing the plan in the area in which the individual resides; (c) The individual is no longer eligible to elect the plan because of a change in the individual's place of residence or other change in circumstances specified by the Secretary, but not including termination of the individual's enrollment on the basis described in Section 1851(g)(3)(B) of the federal Social Security Act (where the individual has not paid premiums on a timely basis or has engaged in disruptive behavior as specified in standards under Section 1856), or the plan is terminated for all individuals within a residence area; (d) The individual demonstrates, in accordance with guidelines established by the Secretary, that: (i) The organization offering the plan substantially violated a material provision ofthe organization's contract under this part in relation to the individual, including the failure to provide an enrollee on a timely basis medically necessary care for which benefits are available under the plan or the failure to provide such covered care in accordance with applicable quality standards; or (ii) The organization, or agent or other entity acting on the organization's behalf, materially misrepresented the plan's provisions in marketing the plan to the indivitlual; or (e) The individual meets such other exceptional conditions as the Secretary may provide. (3)(a) The individual is enrolled with: (i) An eligible organization under a contract under Section 1876 of the Social Security Act (Medicare cost); (ii) A similar organization operating under demonstration project authority, effective for periods before April 1, 1999; (iii) An organization under an agreement under Section 1833(a)(1)(A) of the Social Security Act (health care prepayment plan); or (iv) An organization under a Medicare Select policy; and (b) The enrollment ceases under the same circumstances that would permit discontinuance of an individual's election of coverage under Section 12B(2). (4) The individual is enrolled under a Medicare Supplement policy and the enrollment ceases because: (a)(i) Of the insolvency of the issuer or bankruptcy ofthe nonissuer organization; or (ii) Of other involuntary termination of coverage or enrollment under the policy; (b) The issuer of the policy substantially violated a material provision ofthe policy; or (c) The issuer, or an agent or other entity acting on the issuer's behalf, materially misrepresented the policy's provisions in marketing the policy to the individual. (5)(a) The individual was enrolled under a Medicare Supplement policy and terminates enrollment and subsequently enrolls, for the first time, with any Medicare Advantage organization under a Medicare Advantage plan under part C of Medicare, any eligible organization under a contract under Section 1876 of the Social Security Act (Medicare cost), any similar organization operating under demonstration project authority, any PACE provider under Section 1894 ofthe Social Security Act or a Medicare Select policy; and (b) The subsequent enrollment under subparagraph (a) is terminated by the enrollee during any period within the first twelve (12) months of such subsequent enrollment (during which the enrollee is permitted to terminate such subsequent enrollment under Section 1851(e) of the federal Social Security Act). (6) The individual, upon first becoming eligible for benefits under part A of Medicare at age 65, enrolls in a Medicare Advantage plan under part C of Medicare, or with a PACE provider under Section 1894 of the Social Security Act, and disenrolls from the plan or program by not later than twelve (12) months after the effective date of enrollment. (7) The individual enrolls in a Medicare Part D plan during the initial enrollment period and, at the time of enrollment in Part D, was enrolled under a Medicare Supplement policy that covers outpatient prescription drugs and the individual terminates enrollment in the Medicare Supplement policy and submits evidence of enrollment in Medicare Part D along with the application for a policy described in Subsection E( 4). C. Guaranteed Issue Time Periods. (1) In the case of an individual described in Subsection B(1), the guaranteed issue period begins on the later of: (i) the date the individual receives a notice of termination or cessation of all Supplemental health benefits (or, if a notice is not received, notice that a claim has been denied because of a termination or cessation); or (ii) the date that the applicable coverage terminates or ceases; and ends sixty-three (63) days thereafter; (2) In the case of an individual described in Subsection B(2), B(3), B(5) or B(6) whose enrollment is terminated involuntarily, the guaranteed issue period begins on the date that the individual receives a notice of termination and ends sixty-three (63) days after the date the applicable coverage is terminated; (3) In the case of an individual described in Subsection B(4)(a), the guaranteed issue period begins on the earlier of: (i) the date that the individual receives a notice of tennination, a notice of the issuer's bankruptcy or insolvency, or other such similar notice if any, and (ii) the date that the applicable coverage is tenninated, and ends on the date that is sixty-three (63) days after the date the coverage is tenninated; (4) In the case of an individual described in Subsection B(2), B(4)(b), B(4)(c), B(5) or B(6) who disenrolls voluntarily, the guaranteed issue period begins on the date that is sixty (60) days before the effective date of the disenrollment and ends on the date that is sixty-three (63) days after the effective date; (5) In the case of an individual described in Subsection B(7), the guaranteed issue period begins on the date the individual receives notice pursuant to Section 1882(v)(2)(B) of the Social Security Act from the Medicare Supplement issuer during the sixty-day period immediately preceding the initial Part D enrollment period and ends on the date that is sixty-three (63) days after the effective date ofthe individual's coverage under Medicare Part D; and (6) In the case of an individual described in Subsection B but not described in the preceding provisions of this Subsection, the guaranteed issue period begins on the effective date of disenrollment and ends on the date that is sixty-three (63) days after the effective date. D. Extended Medigap Access for Interrupted Trial Periods. (1) In the case of an individual described in Subsection B(5) (or deemed to be so described, pursuant to this paragraph) whose enrollment with an organization or provider described in Subsection B(5)(a) is involuntarily tenninated within the first twelve (12) months of enrollment, and who, without an intervening enrollment, enrolls with another such organization or provider, the subsequent enrollment shall be deemed to be an initial enrollment described in Section 12B(5); (2) In the case of an individual described in Subsection B(6) (or deemed to be so described, pursuant to this paragraph) whose enrollment with a plan or in a program described in Subsection B(6) is involuntarily tenninated within the first twelve (12) months of enrollment, and who, without an intervening enrollment, enrolls in another such plan or program, the subsequent enrollment shall be deemed to be an initial enrollment described in Section 12B(6); and (3) For purposes of Subsections B(5) and B(6), no enrollment of an individual with an organization or provider described in Subsection B(5)(a), or with a plan or in a program described in Subsection B(6), may be deemed to be an initial enrollment under this paragraph after the two-year period beginning on the date on which the individual first enrolled with such an organization, provider, plan or program. III. REDUCING AGENT COMPENSATION On the issue of varying compensation to agents during open enrollment, the NAIC Medicare Supplement Insurance Model Regulation Compliance Manual states: Issuers are required by federal law and Section 11 of the model regulation to issue all currently available policies to eligible individuals during the Medigap open enrollment period. In addition to other federal and state penalties, many states have made it an unfair trade practice if an issuer did not market to individuals who are in their Medigap open enrollment period. This means that an issuer cannot: • Reduce commissions at age 65. • Reduce commissions from a policy issue during the Medigap open emollment period where the insured is in poorer health. • Eliminate individuals age 65 from mass marketing efforts • Engage in other activities that treat insured applicants who are in their Medigap open enrollment period more restrictively than other applicants of like characteristics. Since any activity to reduce agent compensation during open emollment and guaranteed-issue periods reduces the incentive of agents to sell business during these periods, the effect of a company engaging in these activities is to reduce the number of insureds in poor health that the company insures. This places a disproportionate share of sicker individuals on companies that do not reduce agent compensation. If all carriers engaged in this practice, it may result in reduced availability ofcoverage during open emollment and guaranteed-issue periods. This is viewed by the Department as an unfair method ofcompetition and therefore subject to § 38-57-30. IV. EFFECTIVE DATE All insurers and Health Maintenance Organizations must cease such activities immediately. If the Department determines that insurers are engaging in such activities, they will be subject to regulatory actions including but not limited to withdrawal of approval of rate filings and the imposition ofpenalties as set forth in § 38-2-10. V. QUESTIONS Any questions or concerns about this Bulletin should be submitted in writing to the attention of: Andrew Dvorine, ASA, MAAA Life Actuary South Carolina Department ofInsurance 145 King Street, Suite 228 Charleston, South Carolina 29401 Facsimile: (843) 722-6105 E-mail: advorine@doi.sc.gov Bulletins are the method by which the Director of Insurance fonnally communicates with persons and entities regulated by the Department. Bulletins are Departmental interpretations of South Carolina insurance laws and regulations and provide guidance on the Department's enforcement approach. Bulletins do not provide legal advice. Readers should consult applicable statutes and regulations or contact an attorney for legal advice or for additional information on the impact of that legislation on their specific situation.