Medical Underwriting and the ACA


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If you’ve never purchased a health plan before, you’re probably not familiar with the term medical underwriting. The good news is, you don’t really have to know much about it now that the Affordable Care Act is in effect — but it’s still smart to know how the laws have changed.

 

To start, medical underwriting was the main reason why people couldn’t get insured before the health law was in place.

 

If you had a history of health problems, you would be dismissed, limited or rated up by an insurer.

 

What Was Medical Underwriting Like Before 2014?

The underwriting process used to be much, much longer. When filling out a health insurance application, an applicant would have to go write in several years worth of treatments, provider names and outcomes in order to be considered for a policy, if they had any history of illnesses.

 

If an applicant was sick before they signed up for coverage, they would have to include this information. How much information they were required to provide depended on the state’s look-back period.

 

Signing up for insurance after being diagnosed with or receiving care for an illness gave an applicant the “pre-existing condition” title. This served as a red flag to medical underwriters at the insurance company, who would adjust monthly premium rates and access to coverage according to how sick the person was.

 

Before Obamacare, a medical insurance underwriter could:

  • Increase your monthly premiums based on your health status or history of treatments
  • Decide your plan would never cover certain costly benefits you were likely to need because of your health
  • Decide not to cover condition-related services for a period of time, which was usually capped by the state anywhere from 6-24 months

 

Underwriting rules were different in each state, but they are now uniform — and basically nonexistent — under the federal healthcare law. Underwriters still have a job, though, as it’s important to figure out how much plans will cost policyholders according to their age and tobacco use.

 

These are the only variables that can increase your premiums beginning in 2014.

 

How Does the ACA Change Underwriting?

 

Under the Affordable Care Act, insurers cannot discriminate against anyone for their health. This means they aren’t allowed to ask for your medical history when you apply for coverage.

 

No more medical underwriting, or hardly any, also helps the health plan application process move more smoothly and quickly. You don’t have to wait several weeks for your insurer to contact doctors or figure out how expensive you’ll be to insure.

 

This is a bit of a loss for insurers, who depended on underwriting to balance enrollment between very healthy (inexpensive) and not-so-healthy (more expensive) policyholders. As a result of health insurance being guaranteed issue, the risk is spread through new federal taxes that compensate insurers for the amount of sick patients they take on.

 

In other words, don’t worry: your health plan will stay in business, and you’ll be covered — even if you’ve had cancer, a pregnancy or allergies that kept you from getting insured in the past.

 

What your insurer can’t do under the health law:

  • Ask for your health information on an application
  • Increase your premiums based on your risk level
  • Exclude benefits that you’ll need to care for a condition
  • Refuse to cover services with an elimination rider

 

Underwriters could also restrict people’s access to coverage if they were female or had a high-risk job or hobby before the ACA. So that everyone has a fair shot at avoiding the penalty tax for being uninsured, these limitations, too, were removed by the law.

 

Sticker Shock

One downside of the Obamacare underwriting changes is the premium rate increase experienced across the whole individual health insurance market. Often called “sticker shock”, the rise in health plan prices as a result of accepting sick people has changed rates much more substantially than typical yearly inflation.

 

Plan costs off the exchange have increased by as much as $70-100 (in a sample quote) in just a year. For this reason, some insurers urged their policyholders to renew their plans before January 2014 so they could pay the same rate for the same coverage as the previous year.

 

If you’re eligible for a subsidy on the marketplace, premium rate shock won’t be as startling.