People applying for health insurance plans use a tool called medical underwriting to keep claims and premiums low by avoiding to pay for pre-existing conditions. Thanks to the Affordable Care Act, it protects people with pre-existing conditions. Medical underwriting is not much of importance today than it used to be before this act. However, it still holds significance if people are looking to purchase short-term plans, or looking to buy Medigap plans after their initial enrollment period because then they are subjected to medical underwriting. Before enrolling in a health plan, people need to ensure that they understand how medical underwriting is used to determine their premiums and eligibility. People need to know that if they are issued a plan with a standard price and no specific exclusions, then their insurance companies may be able to use medical underwriting when they have a claim to determine if any sort of pre-existing condition is involved.
Medical underwriting is a process through which health insurance companies use applicant’s medical history to decide whether they should issue health plans to the applicants or not, and whether the plan will include pre-existing condition exclusion, or charged a premium that is higher than the standard rate. In case, when health insurance companies consider pre-existing conditions, they make use of the medical underwriting process to find pre-existing conditions and factor them into eligibility, pricing, and coverage.
Over the years, some state and federal regulations have been implemented to restrict medical underwriting for a major medical health insurance plan. It is vital to understand that different rules apply for different types of coverages in health insurance such as individual market plans that people buy on their own, employer-sponsored large group plans, and government-funded programs like Medicare and Medicaid. Medical underwriting is applied to an entire group when employers apply for coverage for their employees.
Major Medical Coverage
Due to the Affordable Care Act, medical underwriting is no longer required for new enrollees for major medical coverage in the individual or small group market.
Individual Market Coverage
Health insurance companies cannot consider the applicant’s medical history when offering health plans to individuals during the open enrollment or a special enrollment period. Though it is commonly observed that health insurance carriers charge individuals more for a health plan if they use tobacco. However, this was a significant change brought by the ACA because, before 2014, health insurance companies in most of the states used to consider an applicant’s medical history to determine their eligibility for the coverage. In such cases, the health insurance carrier can include pre-existing condition exclusion or can increase the price of the premium based on the medical history.
Small groups organizations having up to 50 employees in most states, and up to 100 employees in New York, California, Colorado, and Vermont can purchase coverage at any time during the year. Although, employees can join their employer’s plan only during open enrollment or a special enrollment period. The health insurance companies cannot take into account the group’s overall medical history when setting the premiums, or while determining eligibility for the coverage. The insurer cannot even consider an individual employee’s medical history at the time of enrollment.
Before the ACA’s reforms, health insurance companies in 38 states along with DC used to estimate a small group’s premium on the overall health status of the group, and every employee could be charged different premiums depending upon their health status, or they can even be denied coverage. However, the employees who do not have continuous creditable coverage i.e. without a gap of 63 days or more may have pre-existing condition exclusion periods. Both the pre-existing condition exclusion periods and the practice of basing a small group’s total premiums on the group’s health history were no more considered after the Affordable Care Act.
Large Group Coverage
There are different rules for large groups even after the implementation of the ACA. Most of the large and medium-sized groups opt for self-insurance instead of purchasing coverage from an insurer. However, if they still obtain coverage from an insurance company, then premiums can be based on the overall claim history of the group. This means that a less healthy group will pay higher total premiums compared to a healthier group. However, the same is not the case for an individual employee, as an employee within the group are covered on a guaranteed issue basis, and are not charged different premium rates based on their individual medical history.
Present Use of the Medical Underwriting
Though medical underwriting is currently no more use for new enrollees in the individual market and small group plans, still some plans utilize medical underwriting. Such plans include excepted benefits under the ACA, as these plans are not regulated by the ACA, and are not considered major medical plans, along with some plans that are sold to Medicare beneficiaries. Even some individual life insurance policies also used medical underwriting.
Excepted benefits or the health plans not regulated by the ACA include short-term health plans, and supplemental insurance plans like dental plans, vision plans, accident supplement plans, critical illness plans, and fixed indemnity plans. These benefits are designed to supplement major medical coverage, and not replacing it. Though, some people solely rely on fixed indemnity plans as their only coverage, which is not considered wise at all because these plans leave enrollees with great out-of-pocket expenses in case of serious illness or injury. Critical illness plans and fixed indemnity plans along with accident supplements provide cash benefits when an enrollee has a covered claim, and the benefits can be used to pay out-of-pocket costs under the person’s major medical plan or to help offset other expenses. Short-term plans are used as stand-alone coverage for a limited period, and the application process is also short and simple. However, most of the short-term plans include blanket exclusions for any pre-existing conditions.
Medicare plan does not include medical underwriting, however, there are a few vital exceptions. In most of the states, Medigap plans are medically underwritten, if individuals apply after their initial enrollment period ends. In most of the cases, if Medigap enrollees wish to switch to a different Medigap plan, then they have to go through medical underwriting. The health insurance companies determine the applicant’s eligibility to enroll based on their medical history and decide their premium cost. Medicare beneficiaries who are not in good health will not be allowed to switch to a different Medigap plan simply because of the medical underwriting process.
Health insurance companies may do their medical underwriting when the insured applies for coverage or after the insured received a claim. Though there are states that prohibit post-claims underwriting and if an insured live in such a state then cannot proceed with medical underwriting. Before the ACA, health insurance carriers of the individual market regularly used both pre-claim and post-claim underwriting. Some of the insurance carriers were strict with the initial underwriting process and used to obtain the applicant’s medical records and study them in detail before issuing the policy. Some insurers though use the honor system if the insured applied for claims. They accepted the information provided by the insured in the application without requiring any medical records to back it up. However, such plans have much stricter post-claims underwriting. It further means that if the insured had significant medical claims within the initial years of having the plan, then insurance carrier would pull their medical records from before the insured enrolled in the plan to have a detailed view on it. It any issue was found then they could deny the claim or even rescind the policy.