Health Insurance today is a bit easier to understand thanks to the enactment of the Affordable Care Act (ACA) by the 111th Congress and President Barack Obama, who signed the legislation in March 2010.
It used to be that health insurance was individually underwritten. That means, insurance companies evaluated the health risks, health status, health history, and other risk factors to determine whether an applicant could be accepted for insurance. In many instances, those with pre-existing health conditions were excluded from coverage or protection was limited in some way or another. When accepted, premiums for those with pre-existing health conditions, were typically higher than for others.
With the ACA, insurance companies were required to change their underwriting process in a significant way. Those with pre-existing health conditions are no longer rejected or priced out of getting health insurance. Insurers are prohibited from denying individual or small group health insurance coverage to those with a history cancer, heart disease, and pregnancy, among multiple health conditions. In addition, many insurers previously maintained lists of declinable medications that could trigger a denial of coverage.
The Kaiser Family Foundation (KFF) estimates that more than one-quarter of adult Americans younger than 65 would be uninsurable if they applied for health insurance in the individual health marketplace (as it used to function). Millions of these folks can now get coverage through employer-sponsored or public health programs like Medicare, Medicaid (Medi-Cal in California), or CHIP (the Children’s Health Insurance Program). Millions more can get the health insurance benefits they need through the ACA Marketplace (including the Covered California program in the Golden State).
Former Adverse Health Underwriting Actions
Previously, health insurance underwriters also reviewed medical records for information concerning other health conditions that could, potentially, pose a claims risk for an insurer in the future. That could include conditions like acne, allergies, anxiety, asthma, basal cell skin cancer, depression, ear infections, fractures, high cholesterol, hypertension, incontinence, joint injuries, kidney stones, menstrual irregularities, migraines, being overweight, restless leg syndrome, tonsilitis, urinary tract infections, varicose veins, and vertigo.
Having one or more of these conditions could result in one or more of the following:
- Rate increase: Pre-ACA, applicants could be offered health coverage with a premium surcharge (such as a 50% bump in the premium as compared to someone with perfect health).
- Exclusion: In some cases, treatment for a specific health condition could be excluded – often for a specified period.
- Higher deductible: An applicant could be offered a higher deductible for all covered benefits or a deductible specific to some types of treatment.
- Benefit modification: A policy could be issued with some benefits limited or excluded, including no coverage for prescription drugs.
Coverage adjustments, surcharges, deductibles, and exclusions formerly varied by insurer. A 2000 study by KFF found significant variances in how different companies managed applications from those with varying health conditions. The same applicant could be accepted without adjustment, accepted with a surcharge or exclusion, or declined. Potentially, even someone accepted could be rescinded later when claims were submitted and processed.
Post-ACA Underwriting
KFF says that roughly half of Americans get their health insurance through an employer. In California, based on 2022 data, 47% of Californians and 46.6% of Nevadans have employer-sponsored coverage. About a quarter of Californians (26.8%) have Medi-Cal, while one-fifth (20.7%) of Nevadans have Medicaid.
Small Group health insurance plans implemented guaranteed issue provisions under the Health Insurance Portability and Accountability Act (HIPAA) in the 1990s. That means insurance companies cannot decline an employer’s application for coverage, regardless of their business type or group members’ medical history. However, prior to the ACA, insurers could adjust premiums based on employees’ medical history and the employer industry.
Small Group health insurance premiums today can vary based only on an applicant’s age, family size, geographic location, and tobacco use. (Tobacco use in not considered in California or six other states – not including Nevada.) A plan can have a maximum 3:1 ratio for older participants vs. younger ones.
Coverage in Small Group plans must include what the ACA says are 10 Essential Health Benefits. Plans must fit into one of four ACA metal tiers: Bronze, Silver, Gold, and Platinum. Each tier offers a different percentage of shared health care costs for the insured, ranging from 10% to 40% (with the health plan paying the other 90% to 60%) of covered health care costs. There is also an out-of-pocket limit for in-network care for individual coverage and family coverage.
California defines “Small Group” as employers with up to 100 employees. Nevada’s Small Group limit is 50 employees. Groups exceeding these limits are considered “Large Group,” which have other underwriting guidelines. Large Group plan rates are based on a review of the group’s composition and demographics as well as past health insurance utilization.
Want More Information?
If you want to learn more about Small Group or Large Group underwriting, talk with your Word & Brown representative about the guidelines for your preferred insurer. Your representative can also share information about the valuable Underwriting Quick Reference materials. There are nearly two dozen pieces available from Word & Brown that address a wide range of topics – groups with common ownership, DE 9C filing dates, husband and wife groups, owner-only groups, PEOs, start-ups, waiting periods, and more.
If you are not already working with us, it is easy to get started. Call us at 800-869-6989 or complete our online form.
