We all generally want life to be simple. But life usually has other ideas. Case in point: Getting health insurance isn’t always as straightforward as picking the policy you like and signing up for it.
Some types of insurance policies have their own way of determining what type of coverage you qualify for. This process, known as insurance underwriting, affects how much you pay for health care coverage.
That might sound a little intimidating — so let’s break down exactly how it works.
What Is Insurance Underwriting?
At one time, insurance companies could use your health history (including whether you had a preexisting condition) to determine if you qualified for coverage and how much you’d pay for it, but the Affordable Care Act (ACA) changed this in 2014. Now, you can’t be denied coverage or charged more for preexisting conditions.
Instead, insurance companies use what’s called a modified community rating that factors in age, geography and smoking habits to inform decisions about the rate for your monthly premium. So if you smoke, are older or live in certain areas of the country, your premiums will be higher.
In theory, underwriting keeps premium prices in balance by controlling the overall risk pool, but it can also keep some people from getting the care they need. According to one estimate, more than a quarter of Americans under the age of 65 have conditions that, if not protected by the ACA, would likely make them uninsurable.
How Does It Affect Me?
Keep in mind that ACA regulations don’t apply to all health insurance plans. Short-term insurance, for example, isn’t subject to the same rules that most health plans have to follow under the ACA. They don’t have to provide the 10 essential benefits or cover people with preexisting conditions — and short-term plans still involve medical underwriting.
So, while these plans are often cheaper than full-scale ones, your health history or a preexisting condition could convince insurers it’s too risky to cover you, either at all or at a price you can afford to pay. In some cases, if you have a short-term policy and get sick, the insurance company may want to determine if your illness is tied to a preexisting condition that would prevent them from continuing to offer you coverage.
Does this mean that you should write off short-term plans? No. Especially with the repeal of the individual mandate penalty and the introduction of new rules extending short-term insurance plans to up to 364 days in some states, it means that it’s more important than ever to know your options, as well as the factors that go into making them viable or not.
In the right circumstances, a non-ACA plan could give you just the protection you need at a lower cost or join up with a traditional health plan to help you fill a pesky coverage gap. In the wrong circumstances, you could end up with a plan that does more harm than good. The key is to understand the difference — before it really matters.