What Is Medical Underwriting?

Medical underwriting refers to the process by which a life or health insurer uses an applicant's medical history to decide whether they can offer them a policy, and whether the policy will include pre-existing condition exclusions and/or a premium that's higher than the standard rate.

This article will explain what you need to know about medical underwriting, how it has historically been used, and how it's still used today.

When insurers are allowed to consider pre-existing conditions, medical underwriting is the process they use to find pre-existing conditions and factor them into eligibility, pricing, and coverage.

Various state and federal regulations have been implemented over the years to limit medical underwriting for major medical health insurance.

But life insurance and disability insurance that people purchase on their own (as opposed to obtaining from their employer) are still usually medically underwritten unless it's for a very small amount of coverage.

When we look at health insurance, it's important to understand that there are different rules for different types of coverage, including individual market plans (the kind people buy on their own), employer-sponsored small group plans, employer-sponsored large group plans, and government-run plans like Medicaid and Medicare.

And medical underwriting can apply to an entire group—when employers apply for coverage for their employees—or to an individual person.

Major Medical Coverage

Medical underwriting for new enrollees is no longer used for major medical coverage in the individual or small group market, due to the Affordable Care Act (ACA).

Individual Market Coverage

Individuals can only purchase plans during open enrollment or during a special enrollment period (linked to a qualifying life event). But the insurer cannot consider the applicant's medical history (note that tobacco use might be seen as an exception, as insurers in most states can still charge people more for coverage if they use tobacco).

This is a significant change brought about by the ACA. Before 2014, individual market coverage could be purchased at any time. However, insurers in most states could consider an applicant's medical history to determine whether they were eligible for coverage.

If the insurer determined that the person's medical history made them ineligible for coverage, the application was rejected. And even if they were eligible for coverage, the insurer could include pre-existing condition exclusions or increased rates based on medical history.

That is no longer the case in any state. As a result of the ACA, individual market coverage is guaranteed issue, regardless of medical history, but year-round enrollment is no longer available.

Small Group Coverage

Small groups (up to 50 employees in most states, and up to 100 employees in California, Colorado, New York, and Vermont) can purchase coverage at any time during the year, although employees can only join their employer's plan during open enrollment or a special enrollment period.

(Employees can enroll when the plan is first purchased by the employer, or when they first become eligible for the plan, or during the annual enrollment window. Otherwise, a qualifying event is necessary to enroll or to disenroll.)

An insurer offering small group coverage can't consider the group's overall medical history when setting premiums or determining eligibility for coverage, and neither can an individual employee's medical history be taken into consideration when they enroll.

Before the ACA's reforms, insurers in 38 states and DC were allowed to base a small group's premiums on the overall health status of the group. Individual employees could not be charged different premiums based on health status, or denied eligibility for coverage (this was due to HIPAA). But employees who didn't have continuous creditable coverage (ie, without a gap of 63 days or more) could have pre-existing condition exclusion periods.

The ACA did away with the pre-existing condition exclusion periods, and with the practice of basing a small group's total premiums on the health history of the group's members.

Large Group Coverage

The rules for large groups are different, even now that the ACA has been implemented. Most very large groups—and many medium-sized groups—opt to self-insure rather than purchasing coverage from an insurer.

But when they buy coverage from an insurance company, premiums for a large group can be based on the group's overall claims history, which means a less healthy group can be charged higher total premiums than a healthier group.

But individual employees within the group are covered on a guaranteed issue basis and are not charged different rates based on their individual medical history. This has long been the case, due to HIPAA.

Current Medical Underwriting Uses

Although medical underwriting is a thing of the past for new enrollees in the individual market, and for new small group plans, there are still several types of coverage that still utilize medical underwriting.

They include plans that are considered "excepted benefits" under the ACA (that is, they aren't regulated by the ACA, as they're not considered major medical health insurance), as well as some plans that are sold to Medicare beneficiaries.

And as noted earlier, individual life insurance policies and disability insurance policies typically use medical underwriting; nothing has changed about that.

Excepted Benefits

Excepted benefits include short-term health insurance and supplemental insurance products such as dental/vision plans, accident supplements, critical illness plans, and fixed indemnity plans.

Most excepted benefits are designed to supplement major medical coverage, rather than replace it. Some people do choose to rely on fixed indemnity plans as their only coverage, but that's generally not wise, as those plans can leave enrollees with substantial out-of-pocket exposure in the event of a serious illness or injury.

Fixed indemnity plans, as well as critical illness plans and accident supplements, provide cash benefits if and when the enrollee has a covered claim, and the benefits can be used to pay out-of-pocket costs under the person's major medical policy or to help offset other expenses.

Short-term plans are typically used as stand-alone coverage, but only for a limited period of time. The Trump administration expanded the rules for short-term plans so that they can have initial terms of up to 364 days and total duration, including renewals, of up to 36 months.

But about half the states have more restrictive rules that apply instead of the federal rules. And the Biden administration has proposed a rule change that would limit the total duration of short-term health plans to no more than four months.

The application process is usually fairly short and simple, but most short-term plans also include blanket exclusions for any pre-existing conditions (with "pre-existing condition" defined by the plan in terms of how far back the insurer will look at the person's medical history—an enrollee who had surgery a decade ago might not have an exclusion in their new short-term plan, but one who had surgery a year before getting the short-term plan most likely would have an exclusion).

Short-term health insurance plans often rely on post-claims underwriting, which means that the process of combing through medical records happens after a person is enrolled in the coverage and has a claim, as opposed to happening before the policy is issued. If the post-claims underwriting process determines that the claim is based on a pre-existing condition, the insurer can deny the claim.

Medicare

Most Medicare coverage does not include medical underwriting, but there are a couple of important exceptions. Medigap plans in most states are medically underwritten if you apply after your initial enrollment period ends. There are limited special enrollment periods that allow people to enroll in Medigap plans after their initial enrollment window, but they're fairly uncommon.

Some Medicare beneficiaries who are in fairly poor health find that they simply cannot switch to a different Medigap plan due to the medical underwriting process.

Medicare Advantage plans do not utilize medical underwriting. Prior to 2021, Medicare Advantage plans generally did not accept applications from people with end-stage renal disease (ESRD; kidney failure). But this changed in 2021, as a result of the 21st Century Cures Act.

As long as there are Medicare Advantage plans available in a given area, all Medicare beneficiaries in that area are eligible to enroll in the Advantage plans if they wish to do so, regardless of their medical history.

And unlike Medigap plans, there is an annual open enrollment period for Medicare Advantage plans. During this window (October 15 to December 7), Medicare beneficiaries can switch to a Medicare Advantage plan or switch from one Medicare Advantage plan to another.

There is also a Medicare Advantage Open Enrollment Period (MAOEP), from January through March, when a person with Medicare Advantage can switch to a different Advantage plan or switch to Original Medicare. In both the fall enrollment period and the MAOEP, a person's medical history is not taken into consideration.

The federal government has not established a similar window for Medigap plans, although some states do provide limited annual enrollment opportunities for Medigap coverage.

Life Insurance and Disability Insurance

Life insurance is almost always medically underwritten unless you're obtaining basic group life insurance coverage via your employer. There are some guaranteed issue policies available, but they tend to have very low benefit amounts.

A life insurer will pull your medical records, but they might also send a nurse to your home or office to conduct a basic medical exam, including a blood and/or urine sample.

Life insurers tend to be particularly diligent with the underwriting process when the applicant is requesting a substantial benefit amount. So expect the medical underwriting to be more thorough if you're applying for a million-dollar policy than it would be if you were applying for a hundred-thousand-dollar policy. (Note that the company will also look at your financial situation to determine whether you actually need a million-dollar policy.)

The same basic concepts apply to disability insurance: If you're shopping for a disability policy on your own (as opposed to enrolling in the coverage your employer offers), you can expect to be subject to fairly extensive underwriting.

Post-Claims Underwriting

Insurers can do their medical underwriting when you apply for coverage or after you have a claim unless you're in a state that prohibits post-claims underwriting.

Prior to 2014, individual market insurers routinely used both. Some insurers would be very thorough with the initial underwriting process, obtaining the applicant's medical records and poring over them before issuing the policy.

But other insurers would use the honor system when the person applied, accepting the information the applicant provided on the application without requiring medical records to back it up. Those plans, however, tended to have much stricter post-claims underwriting.

That meant that if the person had significant medical claims within the first few years of having the plan, the insurer would then pull medical records from before the person enrolled in the plan, and go over them with a fine-toothed comb.

If they found medical issues that they could tie to the current claim (or that would have caused them to reject the application in the first place), they could deny the claim or even rescind the policy.

In some cases, like large group coverage, the pricing is set based on claims history when the group applies, and post-claims underwriting isn't used—although the group's rates in future years will be affected by the group's current utilization of health care, assuming the plan is experience-rated.

But insurers that offer excepted benefits can opt for initial underwriting or post-claims underwriting or a combination of the two, as long as they comply with state regulations.

Most short-term plans tend to rely on post-claims underwriting, as the application process is generally pretty simple, with coverage effective as early as the day after you apply. So, it's important to remember post-claims underwriting and not be lulled into a false sense of security: Just because the insurer offered you a short-term plan does not mean that you don't need to worry about pre-existing conditions.

In most cases, short-term plans have blanket exclusions for any pre-existing condition, and you can expect them to double-check your medical history if you end up filing a claim while you have the policy.

Summary

Medical underwriting refers to insurance companies using an applicant's medical history to determine whether they're eligible for coverage, and if so, whether to include a pre-existing condition exclusion and/or higher premium.

As a result of the Affordable Care Act, medical underwriting is no longer used for individual/family or small group health insurance. But it is still used for policies that aren't regulated by the ACA, such as short-term health insurance. And it's used by Medigap insurers if a person applies for coverage after their initial six-month enrollment window ends. Medical underwriting is also still used when people apply for individual life or disability insurance.

A Word From Verywell

Medical underwriting is a tool that insurers use to keep claims—and premiums—as low as possible by avoiding having to pay for pre-existing conditions.

Medical underwriting is much less prevalent than it used to be, thanks to the Affordable Care Act and its protections for people with pre-existing conditions. But some coverage, including short-term health insurance, individual life and disability insurance, and Medigap plans purchased after the enrollee's initial enrollment period, are still subject to medical underwriting.

Before you enroll, make sure you understand how medical underwriting might be used to determine your eligibility and/or premiums. And keep in mind that even if your plan is issued with a standard price and no specific exclusions, the insurer may still be able to use medical underwriting after the fact, if and when you have a claim, to determine whether any sort of pre-existing condition is involved.