Health Insurance And The Underwriting Process
When you are buying a health insurance plan it is helpful to understand a little bit about the underwriting process which is used to determine whether or not cover should be provided and at what cost.
Underwriting is a complicated process and varies between underwriting an individual plan and a large group health insurance plan. In the case of an individual the underwriter is considering the risk to the insurance company when providing cover in the light of such things as the individual’s age, current state of health, medical history and lifestyle. In the case of a group, because the risk is being spread over a number of individuals, the group health insurance provider will not usually consider individual members of the group but will look at the historical risk to the company from insuring similar groups.
As a result, it is usually cheaper for an individual to obtain cover from a group health insurance company through a group scheme, particularly if that individual's current state of health or medical history would normally result in exclusions or a premium loading.
If however the option of joining a group scheme is not open to you, where do you stand in terms of underwriting?
The starting point for the underwriting process is your application for cover. The application form is usually fairly straightforward and you will have to provide some basic information about yourself such as you name and address, date of birth, social security number, dependent status and place of work. You could also be requested to provide some information about the nature of your work and possibly about both your earned and unearned income. The precise nature of the questions that you will be asked will vary from one company to the next.
Next, you will then be asked a number of questions about your lifestyle and your own health, as well as possibly that of your family. These questions could include such things as whether or not you are a smoker, how much alcohol you consume, how often you take exercise, whether or not your family has a history of particular medical problems and various other questions. The insurance company might also ask that certain medical questions be answered by your doctor.
The section of the application form dealing with your lifestyle and health is particularly important because it is one element of the application process over which you have a certain degree of control. For example, knowing that certain aspects of your lifestyle might affect your eligibility for cover, as well as the cost of cover, gives you with the opportunity to plan ahead and consider reducing some of your bad habits in advance of applying for health insurance.
At the same time you also need to bear in mind that it is extremely important that you complete your application form fully and truthfully. If you give up smoking the day before you apply for health insurance it is not likely to help greatly if you extend this on your application form to read one year instead of one day. Indeed, a trick such as this is likely to get you into very hot water and you could well find that, even if the company issues your policy, they could cancel it at a later date without difficulty if they find that you have lied on your application. Remember, a health insurance plan is a legally binding contract between you and the insurance company.
You should also know that, while insurance companies have a great deal of say in the cover that they provide, they also have to act within the law. This means, for example, that they cannot make underwriting decisions based on such things as an individual's marital status, sexual preference, genetics or certain physical disabilities including vision and hearing impairment.
The process of underwriting is designed to protect the insurance company but it is also designed to protect individual plan holders and to keep insurance costs as low as possible by applying standards fairly across all of the health insurance company’s customers.
Consolidation: A type of merger that occurs when previously separate providers combine to form a new organization with all the original companies being dissolved.
Demand management: The use of strategies designed to reduce the overall demand for and use of health care services, including any benefit offered by a plan that encourages preventive care, wellness, member self-care, and appropriate utilization of health services.
Peer review organizations (PROs): According to the Balanced Budget Act of 1997, organizations or groups of practicing physicians and other health care professionals paid by the federal government to review and evaluate the services provided by other practitioners and to monitor the quality of care given to Medicare patients.
Standard community rating: A type of community rating in which an MCO considers only community-wide data and establishes the same financial performance goals for all risk classes. Also known as pure community rating.
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