In December, 2002, the Centers for Medicare and Medicaid Services (CMS) issued a bulletin clarifying Medigap insurers’ coinsurance obligations with respect to Medicare Part B outpatient mental health services.

According to the Omnibus Budget Reconciliations Act of 1990 (OBRA ‘90) and 1991 revised Model Regulations of the National Association of Insurance Commissioners (NAIC), all Medigap policies issued after July 30, 1992 must cover mental health services. In states that implemented the July 30, 1992 NAIC standards prior to July 30, 1992, all Medigap policies issued on or after the state implemented the NAIC standards must comply with the requirements.

For Medigap policies issued prior to the implementation of the 1991 NAIC Model Regulations, if the policy does not expressly exclude coverage for services for mental health and emotional disorders, the insurer is responsible for the Part B coinsurance amount, as interpreted under state law.

Group health plans, employer supplements, and labor organization supplement plans are not true Medigap plans and are not subject to federal Medigap standards. Policies under these plans may exclude coverage for outpatient mental health services if state in the terms of their contracts.

According to (OBRA ‘90) and the revised 1991 NAIC Model Regulations, Medigap plans are required to cover a beneficiary’s coinsurance for all Part B Medicare eligible expenses.

• Coinsurance is equal to the beneficiary’s liability, or the portion of Medicare eligible expenses that is not paid by Medicare.

• Medicare eligible expenses are determined based on three considerations: 1) whether the service is one that is included under Medicare coverage rules; 2) whether the service is medically necessary for the individual; and 3) what the Medicare "allowed amount" is for the service (determined by a "reasonable" charge or based on a fee schedule). The "allowed amount" is the amount Medicare would pay to a provider who accepts assignment.

For outpatient mental health services, calculation of Medicare payment is based on "allowed amounts" and statutorily mandated payment reductions (62.5% of allowed amount). Therefore, the general Medicare 80% payment rule is applied to the reduced allowable amount. The result is that in general Medicare pays 50% of the allowed amount for outpatient mental health services. Medigap insurers are generally responsible for the other 50% of the allowed amount (the amount for which the beneficiary would be liable).

A copy of this CMS bulletin can be obtained at www.cms.hhs.gov/medigap, Transmittal No. 02-02, issued December 2002.

© Center for Medicare Advocacy, Inc. 05/05/08