Today, in most states, individual health insurance is medically underwritten. That means insurers screen applicants to find out about their health status and risk factors and, based on the results, decide whether to sell the applicant coverage and under what terms. Medical underwriting is now prohibited for children, and will be banned for everyone starting in 2014.
Brokers play an important role in the underwriting process, making sure the applicant understands and fully answers all questions about their health status and health history. The medical underwriting process can take anywhere from two weeks to two months, depending on the extent of the inquiry (e.g., in some cases, the insurance company might ask to see copies of your medical records or a letter from your doctor about your health status). In addition, almost all insurance companies require applications for individual health insurance to include a payment for the first month's premium.
What difference does medical underwriting make?
At the end of the underwriting process, an insurer might decide to reject an applicant found to be too expensive or risky. Unless a state law prohibits it, people with certain health conditions can be turned down for individual health insurance for reasons, such as:
- AIDS and HIV
- Brain or spinal cord injury
- Chemical dependency
- Eating disorders
- Heart disease
- Multiple sclerosis
- Muscular dystrophy
- Organ transplant
Some insurers keep a list of over 400 medical diagnoses that would result in the denial of an application for coverage.
Another tactic used by insurance companies, prohibited by the ACA as of January 1, 2014, is to sell coverage, but under varying terms for people with health conditions. For example, the insurer may sell coverage at a higher price to people with health conditions. Or, the insurer may sell a policy with special restrictions, such as excluding coverage for a pre-existing condition. If an applicant has no health problems or unusual risks, he or she is likely to be offered coverage at a standard premium with no special restrictions on benefits. The ACA has already addressed these exclusions on policies issued to children under the age of 19.
Individual health insurance companies use medical underwriting to prevent adverse selection. That is, they want to make sure applicants aren't waiting to buy coverage until they are sick and need it. Otherwise, health insurance would no longer be about spreading risk between healthy and sick people, and would become prohibitively expensive for both insurers and consumers. To address this issue, the ACA includes a requirement that all U.S. citizens and legal residents, with some exemptions, have health coverage.