Taking Care of Mom and Dad: Replacing Supplemental Policies

One of the most common forms of abuse that occurs in the marketing of Medigap coverage is convincing a policyholder to replace an existing -- and perfectly good -- policy with another, more expensive one. For this reason, there are strict government regulations for replacing Medicare supplement policies.

If your parents already have a policy and want better benefits, they can replace their policy with a new one. But they should proceed carefully -- and make sure that the old policy doesn't expire before the new policy takes effect.

Application forms must include questions as to whether the insurance will replace existing Medicare supplement insurance and whether the policy or contract being applied for is intended to replace any other policy or contract currently in force.

Your parents may be asked to respond to the following questions:

• Do you have another Medicare supplement insurance policy, subscriber contract or certificate in force (including health maintenance organization contract)?
• Did you have another Medicare supplement insurance policy, subscriber contract or certificate in force during the last 12 months? If so, with which company? If the policy lapsed, when did it lapse?
• Are you covered by Medicaid?
• Do you intend to replace any of your medical or health insurance coverage with this policy, subscriber contract or certificate?

These questions are designed to protect your parents by drawing attention to the question of whether they need a new policy. Some states require agents to list any other health policies or contracts they have sold to your parents, including those that are still in force and those sold during the last five years that are no longer in force.

The main risk of replacing a Medigap policy: That the new policy will have exclusions for pre-existing conditions or other coverage limits that may end up temporarily reducing the amount of insurance your parents have.

If your parents replace Medicare supplement insurance, the insurer or its agent must give them a Notice Regarding Replacement. The notice informs them that their pre-existing conditions may not be covered by the new policy -- which could result in delay or denial of a claim for benefits.

The notice must also inform them that failure to include all material medical information on the application may result in denial of claims. Your parents must receive a copy of the notice before the policy is issued or delivered, and a copy signed by both them and agent is retained by the insurer.

Insurance companies must show that they have established procedures for determining whether a replacement policy contains clearly and substantially greater benefits to the policyholder than the replaced coverage in order to trigger first-year commissions for the agent.