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STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

David A. Paterson
Governor

Eric R. Dinallo
Superintendent

OGC Op. No. 08-09-10

The Office of General Counsel issued the following opinion on September 24, 2008, representing the position of the New York State Insurance Department.

Re: Rider to Medicare supplement prescription drug benefit plan

Question Presented:

May an insurer issue a rider to a Medicare supplement policy prohibiting the refill of prescription drugs before at least 75% of the current supply has been exhausted, without running afoul of 11 NYCRR § 52.22(b)(1)(i), which prohibits any changes to a Medicare supplement policy without the policyholder’s consent?

Conclusion:

No. The rider, as set forth below, constitutes a unilateral change to the Medicare supplement policy that violates Regulation 62.

Facts:

The inquirer represents an accident and health insurer that provides Medicare supplement coverage. The inquirer states that pursuant to the insurer’s prescription drug refill policy, at least 75% of a policyholder’s current prescription drug supply must be exhausted prior to being able to obtain a refill. The inquirer asserts that a policyholder habitually has been refilling his prescriptions at frequent intervals, contrary to the insurer’s prescription drug refill policy. After the insurer denied claims for refills that were submitted prematurely, the policyholder in July 2007, commenced legal action against the insurer, alleging that the Medicare supplement policy contains no such limitation on prescription drug refills, and that it is his “inalienable right” under the terms of the policy to refill his prescriptions when he so desires.

Further, the inquirer reports that in response to the legal action brought against the insurer, the insurer drafted a rider to the policy, which was submitted to the Insurance Department’s Health Bureau for review and approval. That rider advises the policyholder of the insurer’s right to limit quantities, supply, early refills and duration of therapy for certain medications based upon “acceptable medical standards or FDA recommended guidelines.” The rider also states that no benefit will be provided for refills submitted before at least “[75%] [85%] of your current drug supply has been exhausted,” unless the policyholder can demonstrate a need for a premature refill, such as upcoming overseas travel.

The Health Bureau advised the inquirer’s client that the proposed rider constitutes a unilateral modification of the existing policy, and, if approved, will require the signed consent of each policyholder before the rider may be made effective.

The inquirer concedes that the prescription drug benefit provision of the client’s “Medicare Supplement Policy Plan H,” which the inquirer also submitted to the Department’s Office of General Counsel (“OGC”), only specifies the deductible and calendar year maximum, and that it does not include the insurer’s guidelines with respect to the administration of drug benefits. However, the inquirer asserts that these guidelines and many others deliberately have been omitted from the policy because of “drafting constraints resulting from federal standardization of Medicare supplement policies as set forth in 11 NYCRR § 52.22.” The inquirer also asserts that administrative guidelines customarily are not included in the policy itself, but are provided in a handbook or letter to the policyholder.

Further, the inquirer contends that limitations on refills are “common industry practice” aimed at minimizing the potential for drug abuse or misuse when taken contrary to the prescribed dosage, and the inquirer notes that the guidelines for the Centers for Medicare & Medicaid Services (“CMS”) set forth a refill limitation procedure with respect to its Medicare Part D prescription drug program.

The inquirer disagrees with the Health Bureau’s determination that the rider constitutes an unlawful unilateral modification of the Medicare supplement policy. The inquirer asserts that although Regulation 62 prescribes that any rider or endorsement that reduces or eliminates coverage after the issuance of the policy requires “signed acceptance of the policyholder,” the proposed rider does not reduce or eliminate coverage, but merely advises policyholders of the insurer’s current refill policy, which has been established since the introduction of Medicare supplement policies to the market, and which is consistent with how the insurer has been administering its prescription drug benefit program. Additionally, the inquirer reports that signed acceptance of the rider from each insured only would serve to “confuse” the insureds and result in a lack of response by the insureds, and consequently, the insurer would be precluded from effectively implementing its prescription refill guidelines.

Finally, the inquirer reports that if the Health Bureau approves the proposed rider, the insurer will include with the rider a letter to the insureds informing them that the rider does not alter existing coverage, but only provides an explanation as to how the prescription drug benefit is administered.

The inquirer asks whether the proposed rider regarding limitations on prescription refills runs afoul of the Regulation 62.

Analysis:

Regulation 62 sets forth the minimum standards for the form, content and sale of health insurance, including Medicare supplemental insurance. 11 NYCRR § 52.22 prescribes the rules relating to the content and form of Medicare supplemental insurance, and reads in part as follows:

(b) Policy practices and provisions

(1) (i) Each Medicare supplement insurance policy must be “guaranteed renewable.” Subject to a group policyholder’s right to terminate coverage, the term guaranteed renewable as used in this section means that the insured has the right to continue the Medicare supplement insurance in force by the timely payment of premiums and the issuer has no unilateral right to make any change in any provision of the policy or certificate while the insurance is in force except to:

(a) change benefits designed to cover cost-sharing amounts under Medicare to coincide with any changes in the applicable Medicare deductible amount and copayment percentage factors;

(b) amend the policy to meet minimum standards for Medicare supplement insurance;

or

(c) revise premium rates on a class basis.

11 NYCRR § 52.22(d)(3) and (9) also are relevant to the inquiry. Those provisions state in relevant part as follows:

(3) Benefit plans shall be uniform in structure, language, designation and format to the standard benefit plans “A” through “L” listed in subdivision (e) of this section and conform to the definitions in subdivision (a) of this section. Each benefit plan shall be structured in accordance with the format provided in paragraphs (5) and (6) of this subdivision and list the benefits in the order shown in subdivision (e) of this section. For purposes of this section, structure, language, and format means style, arrangement and overall content of a benefit.

* * *

(9) Standardized Medicare supplement benefit plan “H” shall consist of only the following: The core benefit as defined in paragraph (d)(5) of this section, plus the Medicare Part A deductible, skilled nursing facility care, basic prescription drug benefit and medically necessary emergency care in a foreign country as defined in subparagraphs (d)(6)(i), (ii), (vi) and (viii) of this section. The outpatient prescription drug benefit shall not be included in a Medicare supplement policy sold after December 31, 2005.

The prescription drug benefit, as set forth in 11 NYCRR 52.22(d)(6)(vi) states as follows:

(6) The following additional benefits shall be included in Medicare supplement benefit plans “B” through “J” only as provided by subdivision (e) of this section.

* * *

(vi) Basic outpatient prescription drug benefit: Coverage for 50 percent of outpatient prescription drug charges, after a $250 calendar year deductible, to a maximum of $1,250 in benefits received by the insured per calendar year, to the extent not covered by Medicare. The outpatient prescription drug benefit may be included for sale or issuance in a Medicare supplement policy until January 1, 2006.

OGC concurs with the Health Bureau’s assessment that the proposed rider constitutes an unlawful unilateral modification of the existing policy. Indeed, the first paragraph of the rider states that “this Rider amends the provision in your Medicare Supplement. . . . All of the terms, conditions and limitations of the contract to which this Rider is attached also apply to this Rider except where they are specifically changed by this Rider.” (Emphasis added.) Moreover, nothing in the rider indicates or even suggests that the document is an explanation of the existing limitations on the prescription drug benefit provided by the contract.

Further, even accepting the inquirer’s narrow interpretation of 11 NYCRR § 52.22(d)(3) (which prescribes the style, arrangement and overall content of the benefits to be provided in the policy) that “drafting constraints” limits the insurer’s ability to include in the contract a complete explanation of its prescription drug refill guidelines, OGC’s conclusion would be unchanged based on policy language presented. Section 9 of the insurer’s Medicare supplement policy provides that “this policy together with Your application, endorsements, benefit agreements and riders, if any, is the entire contract of insurance. No change in the policy shall be valid until approved in writing by Our secretary and president. Any change must be noted on or attached hereto. No agent may change this policy or waive any of its provisions.” (Emphasis added.) The only rider that was attached to the policy relates to a rider for a fitness program. That provision clearly suggests that the policy contains all the pertinent terms and conditions of the contract, and that any additional terms would be considered a change or modification of the contract, which, without the consent of the insured, is unlawful under Regulation 62.

However, N.Y. Education Law § 6810(2) (McKinney 2001 and 2008 Supplement) and Public Health Law § 3339(3) set forth restrictions to refilling prescriptions that may be pertinent to the inquiry. Education Law § 6810(2) states that:

A prescription may not be refilled unless it bears a contrary instruction and indicates on its face the number of times it may be refilled. A prescription may not be refilled more times than allowed on the prescription. The date of each refilling must be indicated on the original prescription. Prescriptions for controlled substances shall be refilled only pursuant to article thirty-three of the public health law.

Public Health Law § 3339(3) reads as follows:

Unless an earlier refilling is authorized by the prescriber, no written prescription may be refilled earlier than seven days prior to the date the previously dispensed supply would be exhausted if used in conformity with the directions for use.

The inquirer may wish to contact the Departments of Education and Health to obtain clarification about the provisions of the Education Law and Public Health Law, respectively.

In sum, Regulation 62 unequivocally prohibits any unilateral changes to the policy, with the exception of changes to the Medicare deductible or co-payment that would affect the cost-sharing benefits of the policy, amendments to meet the minimum requirements for Medicare supplemental insurance, and revisions to premium rates. Because the proposed rider unilaterally changes the policy and does not come within one of the specified exceptions, it fails to conform to Regulation 62.

For further information you may contact Senior Attorney Camielle A. Campbell at the New York City office.