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What does “underwriting” mean in health insurance?

“To sum it up…”

  • Underwriting is a practice that screens applicants for insurance for risks
  • The use of medical underwriting was banned by Obamacare
  • Obamacare permits consideration only of a few individual conditions
  • Obamacare requires insurers to accept applicants despite pre-existing conditions

Medical underwriting was a vital part of the health insurance business before the Affordable Care Act. Insurers used medical investigations to decide whether to offer insurance, at what price, and any needed restrictions on coverage. The individual mandate and universal acceptance were the basis of the reforms that require everyone to get health insurance.

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What is underwriting?


Insurance companies set prices for plans. Before Obamacare, they hired medical underwriters. These firms conduct evaluations and risk assessments. They help provide a basis for the medical risks for each applicant.

An underwriter does not decide whether to insure the applicant but instead offers facts and assumptions that guide the process for the insurers when deciding to accept and the price of insurance.

Restrictions in Coverage

Underwriting helps decide whether to accept an applicant. It also helps insurers set any limits or restrictions on coverage that they think necessary.

Restrictions can take the form of time periods for coverage, activities, or particular events or conditions that may be excluded from coverage. Obamacare subsidizes premiums and reduced restrictions to tobacco usage.

Obamacare Reforms


The chief reform of Obamacare was the revocation of pre-existing conditions as a basis for providing health insurance. The law required universal acceptance and universal coverage.

The Individual Mandate requires that every eligible person get and keep qualified health insurance. Obamacare permitted the use of personal status in only three ways. It allowed consideration of age, location, and tobacco usage.

Setting Prices


Insurers use risk classifications as a basis for setting rates. The underwriting evaluation is the key to acceptance. After that, it also provides a basis for setting prices that may be below or above the averages.

Restrictions, delays, and limitations on coverage are each a form of price control. The insurance company can use these devices to reduce risk. Before Obamacare, pricing was a method for allocating insurance.

Risk Classifications

A piggybank with a stethoscope

Underwriters place applicants in one of the several classes of medical risk. These classes determine whether to offer insurance and the price. Risk classification is the part of the evaluation that determined the costs of health insurance before Obamacare.

Obamacare used a type of community rating and firm ratios from the low to high prices in the community. Obamacare covered risks for insurers with guarantees. The below-listed items describe the regularly used underwriting risk classifications for applicants.

Preferred – This is the class of applicants considered to have lower than average risks. Applicants in this group get acceptance and usually at lower rates than other classes.

Standard – This class represents persons considered to have average levels of risk. There risk levels are typical of their characteristics such as age and overall health. They are insurable and often pay a standard rate for insurance. They would pay more than the preferred group but less than the rated group.

Rated – This is the classification that most applicants fit. The underwriting rates the risk of these applicants as above average. They can get insurance but must pay higher rates than the standard or preferred groups.

Postponed – This class is for persons that have some issues during underwriting, and the underwriters want more information. This is a temporary class from which the applicant may move up to the insurable classes or down to declined class.

This category sometimes depends upon the passage of time so that events can unfold. When the factors that prevent clearance have changed, or enough time has passed, the underwriter completes the evaluation. The underwriter then determines if they can classify the applicant in the preferred, standard or rated risk class.

Declined – This category consists of individuals considered too great a risk to insure. They may not get another evaluation for two years from the time of refusal of coverage.

Before the Affordable Care Act, many people were declined for reasons that were narrow and favorable to the insurer. These included women of childbearing age that had had C-sections or some complications in childbirth. It frequently included children with severe illness and end-stage illnesses.

Benefits of Underwriting


Insurance companies use underwriting to avoid large claims. This practice protects their profits and makes their stocks more attractive to investors. The benefit to consumers comes in the form of lower rates for lower risk applicants. The idea that risk assessment is the best way to decide insurance is a view from the insurance side.

The applicants have a better chance with universal acceptance policies. This approach does not punish applicants for illness and congenital conditions. In the end, many factors that insurers use to decide on coverage these factors are beyond human control.

Benefits to Clients

The insurance companies suggest that the benefits of underwriting extend to clients. Those that would pass underwriting get better rates than if the company accepted high-risk applicants.

High-risk applicants can cause losses that the company would cover by raising rates for everyone. Critics of this position point to the multi-million dollar salaries of health insurance company CEOs.

A Long Process

Underwriting is often a short process, and it is a subject of state laws. The underwriters get information, consider exposures, and make a finding on acceptance or rejection. If they accept, then they make a further determination of the risk class.

The process can take more time when the evaluation discloses issues that can be resolved by time. These include conditions and areas where underwriters feel they need more information. The process can also extend to include delays in coverage

The Underwriting Process


Underwriters gather information about applicants using all available sources. They collect information, study it, and make recommendations. In the end, they can accept the application, deny the application, or accept it with conditions or restrictions. The below-listed items describe the major steps in underwriting.

  • Gather records data and personal information
  • Analyze all available information
  • Provide options for insurance actions

Underwriting Means Figuring the Risk of Insurance


Medical underwriting was one of the industry practices that tended to limit the number of people with health insurance. By eliminating underwriting, Obamacare expanded the numbers of insured citizens by millions.

Medical underwriting is permitted in a number of circumstances including Medicare Supplement, and long-term care insurance.

Comparison shopping is an effective tool for getting the best value in health insurance. Without medical underwriting, applicants can choose a wide variety of policies to meet their needs. Enter your zip code below to compare health insurance companies and quotes now!

  1. http://obamacarefacts.com/health-insurance/how-does-health-insurance-work/
  2. http://obamacarefacts.com/obamacare-subsidies/
  3. http://obamacarefacts.com/howdoes-obamacare-work/
  4. https://www.cms.gov/CCIIO/Resources/Files/pre_existing_conditions_methodology.html
  5. http://obamacarefacts.com/2015/12/02/obamacare-risk-corridors/
  6. https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/HealthCareFinancingReview/List-of-Past-Articles-Items/CMS1191244.html
  7. https://www.cms.gov/CCIIO/Resources/Files/Downloads/app_c_state_requirements_070110.pdf
  8. https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/HealthCareFinancingReview/Downloads/CMS1191244dl.pdf
  9. http://obamacarefacts.com/medicare/medigap/