Medical underwriting is a core process used by insurers to evaluate the health-related information of applicants before approving policies. Whether it’s life, disability, or specific types of health insurance, this assessment determines not just if someone qualifies for coverage but also how much they’ll pay and what conditions may be excluded.
Understanding where and how medical underwriting is used is essential, especially when exploring insurance options outside of employer-sponsored plans or government programs. The rules surrounding underwriting differ significantly between policy types, and understanding their implications can help in selecting the right insurance strategy.
Medical Underwriting and Its Role in Insurance
How Medical Underwriting Works
Medical underwriting involves reviewing an applicant’s medical history through health questionnaires, medical exams, or accessing medical records. Based on this review, insurers can:
- Approve or deny an application.
- Adjust premiums based on risk.
- Exclude specific pre-existing conditions.
This process helps insurers manage risk by aligning premiums with the likelihood of future claims.
Coverage Types Using Medical Underwriting
Life and Disability Insurance
Individual life insurance and disability policies are almost always medically underwritten. For more extensive coverage amounts, a medical examination may be required, which may include blood or urine testing. The healthier the applicant, the more favorable the premium. Group life and disability policies offered through employers typically skip this process or provide minimal underwriting.
Short-Term and Excepted Benefit Plans
Short-term health insurance and excepted benefits—such as dental, vision, critical illness, and fixed indemnity policies—are not regulated by the ACA. They still rely heavily on medical underwriting. These plans often exclude pre-existing conditions and may deny claims if the condition was previously diagnosed or treated.
Medical Underwriting in Health Insurance Markets
Individual and Small Group Markets
Thanks to the Affordable Care Act (ACA), medical underwriting no longer applies to new policies in the individual and small-group markets. All applicants must be accepted regardless of health status, and pre-existing condition exclusions are prohibited. However, coverage can only be purchased during designated enrollment periods.
What Counts as Small Group
A small group is defined as a business with up to 50 employees in most states but up to 100 in some states, such as California and New York. These groups cannot be charged more based on medical history, and insurers cannot deny coverage to any eligible employee.
Underwriting in Large Group Insurance
Extensive group policies, typically for employers with over 50 employees, often operate on an experience-rating basis. Here, the insurer may assess the group’s collective claims history rather than individual medical records. Though individuals cannot be charged different premiums based on their health, the group’s overall health status can influence the total cost.
Medicare and Medical Underwriting
Medigap
While most Medicare-related plans don’t use medical underwriting, Medigap is a notable exception. If applicants miss their initial six-month open enrollment period, they may be required to undergo underwriting. This can result in denial of coverage or higher premiums, particularly for individuals with significant health issues.
Medicare Advantage Plans
These plans accept all eligible beneficiaries, regardless of medical history. Since 2021, individuals with end-stage renal disease have been eligible to enroll in the program. Open enrollment periods occur annually, and underwriting is not part of the application process.
Understanding Post-Claims Underwriting
Post-claims underwriting occurs when insurers evaluate an enrollee’s medical history after a claim has been made rather than during the application process. This method is standard with short-term health insurance and specific excepted benefit plans. While initial approval may seem easy, claims can be denied if the condition is found to be pre-existing.
This process can be risky for consumers, especially if the insurer rescinds the policy or rejects claims based on undisclosed past medical conditions.
Common Plans Where Medical Underwriting Is Still Active
- Short-term health insurance
- Fixed indemnity and critical illness policies
- Medigap plans outside initial enrollment periods.
- Individual life and disability insurance
- Specific supplemental and travel policies
- Healthcare sharing ministries and direct primary care memberships.
In all these cases, understanding underwriting criteria helps prevent unpleasant surprises during the claims process.
FAQ’s
What is medical underwriting used for in insurance?
Medical underwriting is used to evaluate health risks before issuing a policy. It affects eligibility, premiums, and coverage limits.
Is medical underwriting still used under the Affordable Care Act (ACA)?
No, ACA-regulated major medical plans for individuals and small groups no longer use medical underwriting, ensuring coverage regardless of medical history.
Can I be denied life insurance due to medical underwriting?
Yes, if your health history indicates a high risk, a life insurer may deny your application or charge significantly higher premiums.
What is post-claims underwriting, and is it legal?
Post-claims underwriting occurs after a claim is filed. It’s legal for plans not governed by the ACA, though it can lead to claim denial if pre-existing conditions are uncovered.
How can I avoid medical underwriting?
Consider guaranteed issue policies and employer-sponsored plans, or apply during open enrollment periods for ACA-compliant health insurance to bypass underwriting.
Conclusion
Medical underwriting plays a crucial role in various types of insurance, especially life, disability, and supplemental policies. Though primary medical individual and small group plans no longer use it due to reforms, many other policies still rely on reviewing applicants’ health histories. Understanding this process is essential for consumers, as it affects eligibility, premiums, and policy terms. Being aware of how underwriting works empowers individuals to choose insurance coverage that better suits their health profile and financial goals.
