Understanding Health Insurance Exclusions & Creditable Coverage

Many Americans have health-related problems that insurance companies can define as pre-existing conditions. A pre-existing condition is a health problem that exists before you apply for a health insurance policy or enroll in a new health plan.

This article will explain how current rules protect most Americans with pre-existing conditions, how those rules have changed over time, and when pre-existing condition exclusions and waiting periods are still used.

At the end of the day, private insurance companies and health plans are businesses that are focused on their financial bottom line. It’s in their best interest, therefore, to exclude people with pre-existing conditions (or make the coverage unappealing to them), impose a waiting period before coverage starts, or charge higher premiums and out-of-pocket expenses to cover people with pre-existing conditions since those people are likely to cost the insurer more in claims expenses.

(As we'll discuss in a moment, the Affordable Care Act includes a risk adjustment protocol that requires individual/family health plans with healthier enrollees to pay into a pool of money and then payments are made to health plans with sicker members. This helps to mitigate or eliminate insurers' preference for healthier enrollees.)

But such provisions are unpopular and make it harder for people to obtain health coverage, which is why various state and federal regulations have regulated this issue in most insurance markets.

Prior to 2014, in most states, an individual market health plan (the kind you buy yourself, as opposed to obtaining from an employer) could deny coverage for anything related to your pre-existing condition, charge you higher premiums based on your medical history, or even reject your application altogether.

If you were enrolling in an employer's plan, you faced potential waiting periods for pre-existing condition coverage if you hadn't maintained continuous coverage prior to enrolling in the new plan.

The Affordable Care Act and Pre-Existing Conditions

One of the hallmarks of the Patient Protection and Affordable Care Act signed into law in March 2010, was the elimination of pre-existing condition requirements imposed by health plans. This was phased in first for children, and then for adults.

Effective as of September 2010, pre-existing conditions could not be excluded from coverage for children under the age of 19.

Premiums for individual/family health plans and small group plans can only vary based on age, zip code, tobacco use, and family size; medical underwriting is no longer allowed. So a person in the middle of cancer treatment will pay the same premium as their same-age neighbor who is perfectly healthy, and the cancer treatment will be covered by the new health plan.

Later in this article, we'll take a look at how the rules work for plans that aren't regulated by the ACA, such as short-term health insurance. But first, let's take a look at how pre-existing conditions were treated before the ACA's reforms took effect:

The Pre-ACA Pre-Existing Condition Exclusion

Pre-ACA, a pre-existing condition could affect your health insurance coverage. If you were applying for insurance in the individual/family market, some health insurance companies would accept you conditionally by providing a pre-existing condition exclusion period, or a full exclusion on the pre-existing condition.

Although the health plan had accepted you and you were paying your monthly premiums, you would not have had coverage for any care or services related to your pre-existing condition.

Individual market plans

For example, Lori was a 48-year-old freelance writer, obtaining health coverage in the pre-ACA individual market. She has high blood pressure that was well controlled on two medications. She decided to purchase her own health insurance that included drug coverage.

The only affordable health plan she could find had a 12-month exclusion period for her high blood pressure. For the first 12 months of her policy, all of her claims (including doctor visits and medications) related to her high blood pressure were denied. However, within that first year of coverage, she also got the flu and a urinary tract infection, both of which were completely covered because they were not pre-existing conditions. 

Although temporary pre-existing condition exclusion periods were used, it was also common to see permanent pre-existing condition exclusions in the individual health insurance market. Under those exclusions, the pre-existing condition would never be covered by the plan.

A person who broke an arm in a snowboarding accident in his teens and ended up with a titanium rod in his arm might have been offered a plan in the individual market later on, but with a permanent exclusion on anything related to the "internal fixation" (ie, the rod and any additional hardware) in his arm.

By the time the ACA was enacted, pre-existing condition exclusions were becoming less common, and underwriting rate increases were taking their place more frequently. So in the example of Lori, above, a health insurance company might have agreed to cover Lori in full (including her hypertension), but with a premium that was 25% or 50% (or more) higher than the standard rate for someone her age.

It's important to understand that individual market plans that are grandfathered or grandmothered can continue to exclude pre-existing conditions or charge higher premiums based on enrollees' medical histories.

Grandfathered and grandmothered plans have not been available for purchase since 2010 or 2013, respectively. But some are still in effect, and they are not required to cover pre-existing conditions that were originally excluded on the plan. If they initially included a higher premium due to an enrollee's medical history, that person's premium can continue to be higher than the standard rates.

The ACA includes an important risk adjustment program for the individual/family health insurance market. Under this program, money is essentially transferred from health plans with healthier enrollees to health plans with sicker enrollees. So although a health plan with healthier enrollees will save money on claims expenses, they will have to pay into the risk adjustment program, which is intended to offset the benefit they would otherwise get from having healthier enrollees.

The risk adjustment program is not perfect, and the government continues to adjust it to make it work better. But in general, it does help to avoid scenarios in which insurers might design their plans to appeal to healthy enrollees and not to people with health conditions.

Employer-sponsored plans

If you were getting insurance at your job before you enrolled in the health plan (these enhanced protections under employer-sponsored health plans were due to HIPAA, discussed below).

For example, 34-year-old Mike got a new job after being unemployed and uninsured for almost a year. His new company allowed employees to participate in its health plan at the end of the first pay period. Mike had mild asthma and sustained a knee injury playing basketball when he was in his 20s.

In the six months prior to the time he enrolled in his employer’s health plan, he had no doctor visits and did not take any medication. He was not subject, therefore, to any exclusion period for his pre-existing conditions.

Shortly after he started working, his asthma worsened, but he was fully covered for all of his asthma-related care because it wasn't considered a pre-existing condition since he hadn't received treatment for it in the six months prior to enrolling in his employer's plan.

Now that the ACA has been implemented, it no longer matters whether Mike had coverage prior to joining his new employer's plan, or whether he sought treatment for any medical conditions in the months before joining the plan—his pre-existing conditions are covered either way.

HIPAA and Creditable Coverage

In 1996, Congress passed the Health Insurance Portability and Accountability Act (HIPAA). Although HIPAA's rules have been enhanced and expanded by the ACA, HIPAA was designed to provide significant protections for people with pre-existing conditions, particularly when they were enrolling in a plan offered by an employer. These protections include:

• Limits on the use of pre-existing condition exclusions in employer-sponsored health plans.
• Prevents employer-sponsored health plans from discriminating against you by denying you coverage or charging you more for coverage based on your or a family member's health problems.
• Usually guarantees that if you purchase health insurance, you can renew your coverage regardless of any health conditions in your family.

And although HIPAA protections did not extend to private individual market coverage, some states had adopted regulations that allowed HIPAA-eligible individuals to purchase guaranteed issue coverage in the individual market.

(HIPAA-eligible means that the person had at least 18 months of creditable coverage without a gap of more than 63 days, and the most recent creditable coverage was under an employer-sponsored plan, a government plan, or a church plan; also, the individual must have exhausted COBRA if it was available, and can't have been eligible for Medicare or Medicaid).

But in most states, prior to 2014, if HIPAA-eligible individuals needed to buy their own health insurance and had pre-existing conditions, their only guaranteed-issue option was the state-run high-risk pool. High-risk pool coverage was not universally available, tended to be expensive, and had benefit caps that an enrollee could exhaust.

Creditable Coverage

An important feature of HIPAA is known as creditable coverage. Creditable coverage is health insurance coverage you had before you enrolled in your new health plan, as long as it was not interrupted by a period of 63 or more days.

The amount of time you had “creditable” health insurance coverage could be used to offset a pre-existing condition exclusion period in your new employer-sponsored health plan before the ACA eliminated pre-existing condition exclusion periods.

The bottom line: If you had at least 18 months of health coverage at your previous job and you enrolled in your new employer-sponsored health plan without a break of 63 days or more, your new health plan could not subject you to a pre-existing condition exclusion.

This consumer protection was already in place before the ACA, and efforts to repeal and replace the ACA—or to overturn it in the courts—would not impact this provision, as it's part of HIPAA rather than the ACA (efforts to overturn the ACA legislatively have thus-far failed, and the Supreme Court has upheld the law three times, in 2012, 2015, and 2021).

For example, Greg decided to change jobs for better promotion opportunities. He worked with a recruiter and found a new job, which he started two weeks after resigning from his previous position. His new job offered similar health insurance, available after the first month of work, and he enrolled in a family plan. Although Greg was in good health, his wife had type 2 diabetes and one of his children had asthma.

Greg had worked for his previous company for 2 years, during which time his family was covered under that employer's plan. He had no coverage during the two weeks he was between jobs, and for the first month of his new job, but his uninsured duration was less than 63 days. So in spite of pre-existing health conditions in his family, Greg’s health plan was not able to impose a pre-existing condition exclusion period. 

Now that the ACA has been implemented, Greg's employer cannot impose a pre-existing condition waiting periods on any new enrollees, regardless of their medical history or health insurance history. But even without the ACA, Greg's family would have been protected from pre-existing condition exclusions and waiting periods, thanks to HIPAA.

It's important to understand, however, that large group plans and self-insured plans do not have to include coverage for all of the ACA's essential health benefits. And they can also base total premiums on the group's medical history, which is not allowed in the individual/family or small-group markets.

Short-Term Health Plans Do Not Cover Pre-Existing Conditions

The current federal regulations for short-term health plans, which took effect in October 2018, allow insurers to offer "short-term" plans with initial terms of up to 364 days, and total duration, including renewals, of up to three years.

States can still impose stricter regulations, and about half the states do so (you can click on a state on this map to see how short-term health plans are regulated within the state). But regardless of availability, short-term health insurance is not minimum essential coverage, and generally provides no coverage for pre-existing conditions

The Biden administration has proposed a rule change that would sharply limit the allowable duration of short-term plans.

But for the time being, in states that don't have their own regulations, short-term plans can potentially be seen as an alternative to major medical health insurance—albeit an alternative that offers much less robust coverage, but at a lower price for people who don't qualify for subsidies in the Marketplace.

It's important to note, however, that most people are subsidy-eligible, and the subsidies will often result in Marketplace coverage that has lower net premiums than short-term plans.

This is especially true with the subsidy enhancements that the American Rescue Plan created. Those provisions have been extended through 2025 by the Inflation Reduction Act, meaning that ACA-compliant coverage in the marketplace tends to be very affordable for most people who have to buy their own health insurance.

This is important because short-term plans have always been exempt from the ACA's rules. They can and do base eligibility on medical history, and they tend to have blanket exclusions for anything related to a pre-existing condition.

Other Plans That Don't Cover Pre-Existing Conditions

In addition to short-term health plans, there are other types of coverage that do not tend to cover pre-existing conditions. This includes things like health care sharing ministry plans, fixed indemnity plans, and travel medical insurance.

In general, any plan that isn't subject to ACA regulations is fairly likely to use medical underwriting (ie, base eligibility and/or premiums on medical history) and to exclude coverage for pre-existing medical conditions.

Medigap and Pre-Existing Conditions

Medigap plans are used to supplement Original Medicare, covering some or all of the out-of-pocket deductibles and coinsurance that a person would otherwise have with Medicare alone.

The HIPAA and ACA rules regarding pre-existing conditions do not apply to Medigap plans. Medigap insurers can impose a waiting period of up to six months for pre-existing conditions. But that period is shortened by the number of months (prior to enrolling in Medigap) that the person had other creditable coverage.

It's also important to note that most Medicare beneficiaries just have a one-time six-month enrollment window for Medigap plans. After that window ends, Medigap insurers can generally use medical underwriting to determine eligibility and pricing for new enrollees (unless a person has one of the limited guaranteed-issue rights or lives in a state that offers annual enrollment opportunities for Medigap plans).

Summary

For most types of health insurance, eligibility and pricing no longer depend on medical history, and pre-existing conditions are generally covered as soon as the plan takes effect. These consumer protections stem from HIPAA and the ACA.

But there are some types of coverage, including Medigap and short-term health insurance, where pre-existing conditions can still be an obstacle to enrollment, result in higher premiums, or be excluded by the plan. Some plans that pre-date the ACA are still in effect (although they can no longer be purchased) and can still exclude pre-existing conditions.

A Word From Verywell

Chances are, your health insurance no longer excludes pre-existing health conditions. This is true if you have an employer-sponsored plan, or if you have purchased your own major medical health insurance since 2014.

If you're covered under a plan that isn't subject to the ACA's regulations, such as a sharing ministry plan or a short-term health plan, you may find that you have little or no coverage for pre-existing conditions.

But the good news is that you can switch to an ACA-compliant individual/family plan during open enrollment for individual/family coverage (November 1 to January 15 in most states) or during your employer's open enrollment period. And certain qualifying life events will give you the opportunity to enroll in ACA-compliant coverage outside of the annual enrollment windows.