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The rules say that plans must pay for a medical service or item if regular Medicare would pay for it in this case. You can find this rule at 42 Code of Federal Regulations (CFR) Section 422.101.

The rules say a lower limb prosthesis is covered when the beneficiary: 
Will reach or maintain a defined functional state within a reasonable period of time; and
Is motivated to ambulate. 

FUNCTIONAL LEVELS: 
A determination of the medical necessity for certain components/additions to the prosthesis is based on the beneficiary's potential functional abilities. Potential functional ability is based on the reasonable expectations of the prosthetist, and treating practitioner, considering factors including, but not limited to: 
The beneficiary's past history (including prior prosthetic use if applicable); and
The beneficiary's current condition including the status of the residual limb and the nature of other medical problems; and 
The beneficiary's desire to ambulate. 

Clinical assessments of beneficiary rehabilitation potential must be based on the following classification levels:
Level 0: Does not have the ability or potential to ambulate or transfer safely with or without assistance and a prosthesis does not enhance their quality of life or mobility. 
Level 1: Has the ability or potential to use a prosthesis for transfers or ambulation on level surfaces at fixed cadence. Typical of the limited and unlimited household ambulator.
Level 2: Has the ability or potential for ambulation with the ability to traverse low level environmental barriers such as curbs, stairs or uneven surfaces. Typical of the limited community ambulator. 
Level 3: Has the ability or potential for ambulation with variable cadence. Typical of the community ambulator who has the ability to traverse most environmental barriers and may have vocational, therapeutic, or exercise activity that demands prosthetic utilization beyond simple locomotion. 
Level 4: Has the ability or potential for prosthetic ambulation that exceeds basic ambulation skills, exhibiting high impact, stress, or energy levels. Typical of the prosthetic demands of the child, active adult, or athlete. 

The records must document the beneficiary's current functional capabilities and his/her expected functional potential, including an explanation for the difference, if that is the case. It is recognized, within the functional classification hierarchy, that bilateral amputees often cannot be strictly bound by functional level classifications.

A fluid, pneumatic, or electronic/microprocessor knee (L5610, L5613, L5614, L5722, L5724, L5726, L5728, L5780, L5814, L5822, L5824, L5826, L5828, L5830, L5840, L5848, L5856, L5857, L5858) is covered for beneficiaries whose functional level is 3 or above.

A microprocessor controlled ankle foot system (L5973), energy storing foot (L5976), dynamic response foot with multi-axial ankle (L5979), flex foot system (L5980), flex-walk system or equal (L5981), or shank foot system with vertical loading pylon (L5987) is covered for beneficiaries whose functional level is 3 or above. You can find this information in Medicare's Local Coverage Determination (LCD): Lower Limb Prostheses (L33787).

If you want to read these Medicare rules, you can go to this website www.medicareappeal.com.