Medical underwriting is the process by which insurances companies determine an applicant’s eligibility for a health plan. The underwriter from the insurance company will collect your medical history from what you are able to personally provide, in addition to information from your past providers and health care services received, and make an assessment based on your health status, claims paid, and other factors. The two types of medical underwriting are moratorium, which is a generalized, basic outline of eligibility; and full medical underwriting, which is a comprehensive, detailed description indicating why the underwriter has made certain decisions based on your history, health, and lifestyle.

Underwriting is executed with several intentions: to make sure you are a reliable individual, are not providing false information regarding your health history, and you are responsible about payment; as well as investigating your efforts to be in good health, and prevent the need for costly health care.

Pre-Existing Conditions

Some individuals have a condition that qualifies as a pre-existing condition to insurers, despite attempts to be healthy. Depending on the insurance company, conditions that are taken into consideration can range drastically in seriousness. Common instances of what many insurers consider to be pre-existing conditions are cancer, asthma, heart disease, high blood pressure, type 2 diabetes, mental illness, epilepsy, as well as some allergies and skin conditions. Individuals with pre-existing conditions of any kind are seen as an expensive investment to an insurance company, therefore they have turned many people away from health plans altogether. As of January 1, 2014, this will no longer be allowed, as the Affordable Care Act will prohibit insurers from excluding any individual based on a pre-existing condition.

Before this law, underwriting was a source of protection for health insurance companies, attempting to keep their costs lower by rejecting high cost and high-risk individuals, or accepting them for a plan and making them pay all expenses related to their illness. Exclusion periods will also be eliminated in 2014 under the ACA, so all insurance companies will have to stomach the cost of paying for sometimes pricey care. Currently, the federal government is paying for care for the uninsured with pre-existing conditions until the end of 2013, as insurers still have the ability to be selective.


Collecting Information

In addition to filling out paperwork personally, an applicant’s medical history, claims history, and insurance history from an external, professional source are also necessary for the underwriting process. Personal data pertaining to health insurance and medical history are stored electronically each time an individual seeks medical attention. If they have insurance, their providers are most times members of a group called the Medical Information Bureau, or MIB Group. The MIB Group collects the information of everyone who has applied for insurance in the past seven years.

MIB has about 470 member companies that provide it with information throughout the United States and Canada. The organization was founded with the intention of protecting policy-holders, insurers, and applicants in the underwriting process, through providing information that would eliminate the possibility of fraud, and withholding pertinent information. Underwriters depend on MIB for access to an applicant’s information to ensure an accurate evaluation of an individual’s health needs, risks, and expenses. Though it may seem to some that such data sharing is a violation of privacy, the member companies and providers who give MIB their information make sure that the insurers know what to expect from an applicant based on their past health experiences. They do not collect information from 100% of individuals who have applied for insurance, however, they do have a large (unknown) percentage.

Another company, Ingenix, or OptumInsight, collects information from over 600 sources to compile its National Provider Database. Their corporation creates software, data and health information for the health industry, which means they have access to the information provided through the software they sell. Their client base (which forms the information database) includes health insurance companies, pharmaceutical companies, hospitals, provider offices, as well as a variety of other businesses in the medical field. The National Provider Database gathers data about people from a collection of public, private, and proprietary sources.

The data held by these companies typically have the names and contact information of you and your providers, as well as the codes (the same ones used to make claims) for medical services and procedures you have received in the past. You can request removal of your information from the database, though it may not be worth the effort, because the next time you receive medical care your information will likely be input into the database again.


Key Considerations in Underwriting

When deciding an individual’s eligibility for health insurance, an underwriter takes several health properties into consideration. This helps them understand what degree of health treatment you will require in the future, and how much it is likely to cost. The main goal of underwriting is to inform the insurance company how much they should expect a person with one of their plans to cost, in order to facilitate the rest of their financial information. The following information is used to indicate a person’s risk of health complications and assess their need for care.

  • BMI, or Body Mass Index, is a figure reached by calculating a person’s height over their weight in order to determine healthiness. If an applicant’s weight is considered too high or low for their height, their cost of insurance will increase. However, those who fall within the range set by doctors and insurers will get better rates for being healthy.
  • Age is considered when applying for health insurance, because despite being in good health, the elderly typically require more medical care services. Most health insurance companies will accept individuals between ages 19 and 64, as those who are 65 or older have the option of Medicare enrollment.
  • Family status is also important for underwriters to take into account, in order to know how many other individuals will be using your plan. Dependents can include a spouse or domestic partner, as well as natural, adopted and stepchildren. Under the Affordable Care Act, the age limit for dependent children is 26, with the exception of Ohio, which is age 28, and Nebraska, which is 30. There is no age limit in any state for keeping mentally or physically disabled children on an insured parent’s plan.
  • Prescription drugs taken by the individual applying for insurance are crucial for underwriting, as there are many medications that can automatically disqualify someone from eligibility. If anyone has taken any of the medications on the insurer’s list to decline in the past 12 months before applying, they are to be declined. While the list of declinable medications differs from one insurance company to another, they are generally similar. However, there are certain prescriptions such as birth control pills, hormone replacements, short term antibiotics, and non-drowsy antihistamines, that will not affect premiums or the amount of benefits a person can have covered.
  • High blood pressure is another concern for medical underwriters, as it can lead to many health complications and require costly treatment and medication. The risk level of an individual with high blood pressure must be assessed in order to determine their insurability. The factors considered include when they were diagnosed with the condition, whether or not they smoke cigarettes, if they take medications, if they have suffered any serious health problems (such as stroke or heart attack), and if they are making any efforts to change eating, drinking, and exercise habits to improve their blood pressure.
  • Conditions that an individual may have can automatically disqualify them from receiving health insurance. The Affordable Care Act is changing the rules, as they are with pre-existing conditions, enabling people like pregnant women to receive insurance, who once would be denied a policy. Until 2014, when the full law is implemented, conditions such as AIDS/HIV positive, cancer, diabetes, kidney and liver failure, and stroke (and about 20 others) are not eligible for private health insurance, though are likely to be accepted for Medicaid coverage.
  • Legal residency of the state in which an applicant is seeking to purchase insurance is required. Non-citizen residents of the U.S. who apply for health insurance must provide proof of legal residency for six consecutive months preceding the date of application. Documentation needed to prove six months of legal residency includes proof of employment, rental or mortgage payments, utility bills, or medical bills for the six months leading up to application.


Risk Assessment

Once the qualities of an applicant (and their dependents if applicable) as listed above have been researched and evaluated, the underwriter will assess their risk level to determine how expensive this person will be to insure. Many insurance companies use the same guidelines in deciding how much to charge for premiums based on risk.

Individuals deemed Minimal Risk will pay a standard premium, whereas Minor Risk will pay 10% more than the standard premium, Moderate Risk will see a 25% increase, and Significant Risk pays 50% over the standard premium. There are four stages of Severe Risk, all of which pay increasingly more with the level of severity, 1 being 75% above the standard premium, 2 costs twice that of a standard premium, 3 is a 125% increase, and 4 is a 150% increase. There is also a Maximum Risk category, which applies to individuals under 19, which would be 150% over standard premium, but the ACA has made changes to legislation for children with health conditions.

If an individual over age 19 exceeds the acceptable capacity for risk according to insurance, they can be declined coverage by a private insurer. If the applicant who uses tobacco products, or has done so in the 12 months prior to application, they will see a 25% increase in their premiums. Other risks associated with tobacco use and cigarette smoking are considered heavily, and can at times result in rejection.