As monthly premiums soar and maximum out-of-pocket costs on health insurance policies continue to rise, the total cost of health insurance is getting completely out of hand. It just doesn't feel very Texan y'all. As a result, Texans everywhere are not only re-evaluating their health care costs, but also their type of health coverage as well. We've had enough of the shrinking networks and an average health insurance premium that looks like a mortgage payment on a nice house! The question becomes, where can they find health savings while the health insurance companies continue to grow their profits?
The good news is that private Health Insurance that is not an ACA Exchange Policy (Obamacare) plan can provide some significant savings to Texans. They are finding that not only is the cost of health insurance cheaper in this arena, the annual deductible is more manageable and the ability to have a Preferred Provider Organization (PPO) plan type gives you much greater flexibility. But how do they do this? How do they pass on savings on out of pocket costs? How do they keep the average cost down? How do insurancers come up with the monthly premiums they plan on charging that are so much better?
They medically underwrite you.
What Is Medical Underwriting For Health Insurance?
There are a number of factors that contribute to health insurers coming up with pricing health insurance premiums whether that be on the health insurance marketplace, group plans, or for private health insurance plans. They can range from the number of people that will be covered by a given plan, the location and/or state where the coverage will primarily occur, or the health benefits that will be offered by the plan. But as with all insurance, the "riskiness" of the coverage will determine the average cost per person.
In a nutshell, medical underwriting is the process by which an insurance company evaluates an applicant's health history and other factors to determine the riskiness of offering them health insurance coverage. And if so, at what price. The underwriting process is used to assess the applicant's risk of health problems that will require medical care during the policy coverage period. The greater the risk of the policy covering more significant medical costs of covered services, the greater the monthly cost for the policy. Or in the case of private individual plans, the companies will not even offer you a policy. This is a key difference between policies offered on the health insurance marketplace and is the primary driver of keeping the premium costs down for Texans who qualify.
Insurance companies use a variety of underwriting factors to come up with the price for private health insurance, including:
- Age: Younger people are generally healthier than older people, so they tend to pay lower premiums.
- Gender: Women tend to have higher healthcare costs than men, so they often pay higher premiums.
- Location: The cost of healthcare varies from place to place, so premiums may be higher in some areas than in others.
- Tobacco use: Smokers are more likely to develop health problems, so they often pay higher premiums.
- Health history: People with pre-existing conditions may pay higher premiums, or they may be denied coverage altogether.
- Plan type: The type of plan you choose will also affect the price of your premiums. More comprehensive plans with lower deductibles will typically have higher premiums.
- Moratorium underwriting: This is a simple process that only considers the applicant's age and gender. It is often used for short-term health insurance plans.
- Full medical underwriting: This is a more in-depth analysis that considers the applicant's entire medical history, including any current or past health conditions. It is often used for individual coverage or family health insurance plans.
In addition to medical underwriting, some health insurance companies may also use other factors to assess risk, such as:
- Occupation
- Driving history
- Credit score (rarely requested)
The Underwriting Process for Health Insurance Plans
Since the underwriting process is used to determine whether an applicant is eligible for coverage, there are a couple of different mechanisms that the companies use to get to the full medical underwriting that is listed above. Since these are the most common methodologies for underwriting the plans, we will dive into their specifics.
Process One: Pharmacy Benefit Check
The most efficient underwriting mechanism that the private health insurance companies use is a check against your pharmacy benefit records. These records are a central clearing house of all prescription activity that has been covered by previous health care plans. These records give away conditions which may be treated as a pre-existing condition, or recent hospital stays which may be a red flag for insurance companies. They do this because the medications typically have narrow, specific uses or have been prescribed and dispensed in specific locations. It makes for an excellent proxy of determining the kinds of health care services that you are typically receiving over time.
Process Two: Full Review
A more arduous task for health insurance companies is a deep dive into the entirety of the records associated with the medical services that you have received. Because of the complexity of obtaining and reviewing these records, this is not a typical way to determine health insurance rates. It would primarily be used by a health maintenance organization (HMO) that will be responsible for your entire continuum of care along with all associated medical expenses.
What Happens Next?
Once the review is complete and coverage is offered, the average premium amount will be set based on the factors described. Applicants with higher health risks can still qualify for a plan, but you will be charged higher premiums if the coverage is approved. Do keep in mind that once a private health plan approves a person for coverage, the insured cannot be turned down for approved services/coverage as long as the policy is in place and in good order.
Private Health Insurance vs Health Insurance Exchange
While Individual Private Health Insurance can underwrite your policy, the Affordable Care Act (ACA) prohibits medical underwriting for most individual and small group health insurance plans that are sold through the health insurance exchange. Bear in mind that underwriting is still allowed for short-term health insurance plans, which typically last for less than 12 months.
The purpose of medical underwriting is to protect insurance companies from financial losses. By assessing the risk of each applicant, insurers set premiums that are fair to all policyholders inside their pool of risk. This helps to ensure that the insurance company is sustainable and that everyone has access to the health care services that they need. If you want a one-size fits all plan like those found on the health insurance exchange, you will pay more in average premium. By tailor making the expected risk of a group of people, a private health insurance company can better know their own cost and pass those savings on medical expenses to their consumer.
Here are some of the benefits of medical underwriting:
- It helps to ensure that insurance companies are not taking on too much risk.
- It helps to keep average premiums affordable for healthy people that qualify and fit the target.
- Dependending on location, these plans oftentimes have better networks of doctors to provide healthcare.
However, there are also some drawbacks to medical underwriting:
- It can feel discriminatory, as it can lead to higher premiums or denial of coverage for people with certain health conditions.
- It can discourage people from seeking preventive care, as they may be worried about how it will affect their insurance premiums.
Overall, medical underwriting is a complex issue with both benefits and drawbacks. It is important to weigh the pros and cons carefully before deciding whether or not to apply for a private health plan that uses medical underwriting.
The agents at Insurance for Texans are advocates who have access to strong private health insurance carriers as well as other alternatives for non-employer based health insurance coverage. We know how to help our clients through the underwriting process by providing sound advice based on your individual situation. We strive to provide clear information that educates our valued customers so they can make informed decisions when looking for health coverage.
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