What Is a Non-Medically Underwritten Health Insurance Plan?

The insurance industry is managed and overseen by the states, resulting in slightly different rules and regulations in each state. One of the most notable differences relates to health insurance underwriting and how an applicant's medical history may or may not affect the premium of a new policy.

Medical Underwriting Explained

• Underwriting refers to the analysis and investigation conducted by an insurance company prior to approving or rejecting new applications for coverage. With respect to health insurance, medical underwriting involves an analysis of prior medical services and treatment, with focus on the overall cost of such treatment and the likelihood of ongoing expenditures. The majority of states permit insurance carriers to charge different amounts to applicants with expected future treatment needs.

Age Bands

• Some insurance carriers offer plans to the public with premiums based in part on the age of the applicant. Actuarially, carriers know that certain age groups tend to use or require more medical services than other groups. The rates for those age groups reflect the increased outlay from the carrier.

Geography

• Identically to premiums adjusted for an applicant's age, carriers offering non-medically underwritten policies often increase or decrease prices based on the location of the applicant's residence. Actuarial studies demonstrate that certain geographic areas spend more on health care and require more medical services than other areas.

Medical Questionnaire

• The medical questionnaire attached to a health insurance application is not removed for non-medically underwritten policies, and applicants must still respond to the questions. However, policy premiums remain fixed based on other external factors and the information from the questionnaire is simply added to the actuarial data pool.

Guaranteed Issue

• Applications for non-medically underwritten health insurance plans cannot be declined or rejected because of an applicant's health history. These plans provide guaranteed medical insurance coverage for people who would otherwise be declined or rejected by carriers performing standard underwriting. Many states allow insurance carriers to offer both types of policies to suit the needs of the public. However, some states, specifically Maine, Massachusetts, New Jersey, New York and Vermont, do not allow the use of medical underwriting for health insurance policies.

Pricing

• Since insurance carriers providing non-medically underwritten health insurance policies cannot increase premiums to prepare for inevitable financial outlays, they proportionately increase premiums for all non-medically underwritten policies. The additional risk brought by non-medically underwritten health insurance gets spread across the entire pool of policyholders, with healthier people potentially paying more than if underwriting had been permitted.