What Is Guaranteed Issue in Health Insurance?

In health insurance, guaranteed issue refers to an approach in which a healthcare policy is offered to any and all eligible applicants, regardless of health status. Guaranteed issue rules allow individuals with pre-existing medical issues to obtain health insurance, as their medical history is not taken into consideration.

This article will explain when guaranteed issue rules are used, and how this has changed over time as a result of new laws and regulations.

Guaranteed Issue Under the Affordable Care Act (ACA)

Under the Affordable Care Act, all individual (non-group) major medical health insurance policies with effective dates of January 2014 or later must be sold on a guaranteed issue basis. Insurers can no longer base eligibility for coverage on the applicant's medical history, and pre-existing conditions can no longer be excluded from new plans.

This was certainly not the case before the Affordable Care Act. As of 2012, six states had guaranteed issue for all products and all residents while five states had a Blue Cross Blue Shield carrier designated as an issuer of last resort (meaning that they issue coverage to all who apply). Four states had guaranteed issue for HIPAA-eligible individuals only while another 4 offered guaranteed issue to HIPAA-eligible and certain other residents with prior continuous coverage.

In the remaining 32 states, all insurers looked at each applicant's medical records to determine eligibility and pricing. Applicants with significant—or sometimes relatively minor—pre-existing conditions could be denied coverage, or offered a plan with a higher-than-standard premium or an exclusion for any care related to the pre-existing condition.

In addition to being guaranteed issue, coverage in the individual and small group market is also now issued with modified community rating as a result of the ACA. That means that premiums cannot be based on medical history; they can only vary based on age, tobacco use, and zip code. Guaranteed issue and modified community rating are certainly good news for those with pre-existing medical conditions.

However, it's still important to discuss your pre-existing conditions with a broker, enrollment assister, or the person who handles your employer's human resources department, before you pick a plan. That's because the provider networks and prescription drug formularies will vary significantly from one plan to another.

If you have a pre-existing condition, you'll want to make sure that if possible, the plan you choose includes your healthcare providers in its network and covers the medications you take. The specifics of the plan's cost-sharing (deductible, coinsurance, and copays) will also be important if you have pre-existing conditions, as you'll want to have a good understanding of how much you're likely to have to pay in out-of-pocket costs during the year.

One other point that has to be noted: Although individual/family health coverage is now guaranteed issue as a result of the ACA, coverage is only available during the annual open enrollment period (November 1 to January 15 in most states) or during a special enrollment period.

In most cases, special enrollment periods are triggered by a specific qualifying life event, although that's not always the case.

Prior to the ACA, individual/family coverage could be purchased anytime, but was subject to medical underwriting. Under modern rules, medical underwriting is no longer used, but enrollment opportunities are limited to open enrollment and special enrollment periods.

This is the way enrollment already worked for employer-sponsored health coverage, and it now works that way for individual/family coverage as well, due to the ACA.

Guaranteed Issue If You are Buying Health Insurance for a Small Company

Federal law requires that all healthcare plans marketed to companies with two to 50 employees be offered on a guaranteed issue basis. This has been the case since HIPAA became effective in 1997; ever since then, insurers have not been able to deny coverage to small employers based on their employees' health status.

However, HIPAA did not prevent insurers from basing premiums for small groups on the overall medical history of the group. That meant that unless a state disallowed it, insurers could offer discounts to healthy groups, and charge higher premiums for groups with less healthy employees and/or dependents.

They could also charge higher premiums for groups with occupations deemed hazardous, despite the fact that workers' comp (as opposed to employees' health insurance) covers on-the-job injuries.

The ACA ended the practice of basing small group health insurance premiums on the group's medical history or type of industry. In addition to being guaranteed issue, small group coverage now follows the same modified community rating rules used in the individual market. Premiums can vary only based on age, tobacco use, and zip code.

But as is the case for individual/family coverage, this only applies to plans with effective dates of January 2014 or later; grandmothered and grandfathered health plans can continue to use their pre-ACA rating rules.

A small group can purchase health coverage at any time of the year. Eligible employees will have a chance to enroll when the policy begins, and will then also have an annual opportunity to sign up, disenroll, or change plans (if multiple plans are offered). The specific enrollment window varies from one employer to the next, and can happen at any time of the year, since employer-sponsored coverage does not have to follow the plan year.

A note about participation and contribution requirements for small group coverage: In most states, insurers can set rules that require at least a certain percentage of employees to enroll in a small group plan, and can also require employers to cover at least a certain percentage of the total premiums on behalf of employees.

However, from November 15 to December 15 each year, small groups that don't meet the participation and/or contribution requirements can still enroll in small group health coverage on a guaranteed issue basis.

Guaranteed Issue for Large Employer Groups

Large employers are required to offer coverage to their employees under the ACA. To facilitate this, insurers are no longer allowed to impose minimum participation requirements when large employers seek coverage for their employees. Most very large groups self-insure, however, making this a moot point. 

Although insurers must offer large group coverage on a guaranteed issue basis (ie, the group cannot be rejected altogether), large group coverage does not have to follow the modified community rating rules that apply to small group and individual plans.

So premiums for large groups can still be based on the overall claims experience of the group, with discounted rates for healthier groups, and higher rates for less healthy groups.

For reference, "large group" typically means more than 50 employees, although there are four states (California, Colorado, New York, and Vermont) where it applies to groups with more than 100 employees. In those states, groups with up to 100 employees are considered small groups, and the ACA's small group rules apply to them unless they choose to self-insure. 

Coverage That's Exempt From ACA Rules

There are still a variety of types of coverage that aren't regulated by the ACA and don't have to be sold on a guaranteed-issue basis. This includes things like short-term health insurance, critical illness plans, healthcare sharing ministry coverage, and individual life insurance policies.

Applicants for these types of coverage typically have to prove that they're healthy in order to be accepted and can be declined or charged higher premiums if they have pre-existing medical conditions.

Medicare, Medicaid, and CHIP

Government-issued health insurance, including Medicare, Medicaid, and the Children's Health Insurance Program (CHIP), is guaranteed issue. Applicants have to otherwise be eligible for the coverage, but their medical history is not a factor. The same is true for most of the private supplemental coverage offered to Medicare beneficiaries.

But Medigap plans sold outside of the initial enrollment period are an exception. When a person turns 65 and enrolls in Medicare Parts A and B, there's a six-month window during which any Medigap plan sold in that area is guaranteed issue. But after that window closes, Medigap plans in most states can use medical underwriting (i.e., look at the person's medical history) to determine whether an applicant is eligible for coverage and what price they should be charged.

There are some limited special enrollment periods when Medigap plans are guaranteed issue, and some states have set up annual guaranteed issue windows for Medigap plans. But in most states, there's no annual enrollment period for Medigap like the one that exists for Medicare Advantage and Medicare Part D plans.

Guaranteed Issue Outside of the United States

While the Affordable Care Act has made getting health insurance in the United States a whole lot easier for people with pre-existing conditions, it has its limitations. The Affordable Care Act only impacts health insurance in the United States. Countries outside of the United States have different rules governing the selling of health insurance.

Summary

HIPAA laid the groundwork for guaranteed issue health coverage, by ensuring that individual employees could not be singled out for higher employer-sponsored health insurance premiums or declined coverage based on their medical history. But federal rules still allowed small groups to have overall premiums that could vary based on the group's medical history, and there were no federal guaranteed-issue protections for people who purchased their own health insurance.

The Affordable Care Act closed these gaps. Under the ACA, small group coverage and individual health coverage are guaranteed-issue, and premiums cannot vary based on a person's medical history.

However, enrollment in individual/family health plans is now limited to open enrollment or a special enrollment period, the same way enrollment opportunities were already limited for employer-sponsored coverage.

A Word From Verywell

If you have a pre-existing medical condition, you no longer need to worry that a health insurance company will reject you or charge you a higher premium. But it's still important to carefully consider how each available health plan will cover your medical needs. The coverage is guaranteed-issue, but that doesn't mean that all plans will provide equally good coverage for your specific medical needs.