Medical Underwriting: Overview and Benefits

What Is Medical Underwriting?

Medical underwriting is the process of evaluating an application for health insurance coverage by examining the applicant's medical history. The price of coverage is determined by the risk factors of the applicant.

Depending on the insurance company's policies and on federal and state regulations, medical underwriting for high-risk candidates may lead to exclusion of coverage for certain conditions, denial of coverage altogether, or coverage offered only at a very high price.

Medical underwriting also is practiced in determining individual rates for life insurance and disability insurance policies.

Medical Underwriting Explained

Medical underwriting may be undertaken for an individual or for a small group, such as a company seeking coverage for its employees. Such individual scrutiny would not be feasible when setting rates for a large company.

During the medical underwriting process, insurance companies examine the medical history, demographic profile, lifestyle, and other factors that may relate to a candidate's current and future medical needs. Through actuarial analysis, an estimate of the risk associated with providing health coverage to that person is determined and priced.

The use of medical underwriting may be limited by law. For instance, companies that offer Medicare supplement plans, if they are purchased within six months of Medicare eligibility, cannot take an individual's health history into account when setting their rates for individual applicants.

The Affordable Care Act of 2010, popularly known as Obamacare, limited the ability of insurance companies to set rates based on individual health history for Americans who purchased insurance through its exchanges. Age, gender, and cigarette smoking could be considered.

The act also banned companies from denying coverage based on pre-existing conditions or limiting coverage of pre-existing conditions. That negates one of the primary goals of medical underwriting. That is, the job of an underwriter is to identify pre-existing conditions that add risk for the insurance company.

Due Diligence

The amount of due diligence an insurer does when considering a health insurance application depends on the resources it devotes to research into an individual’s medical history. The most comprehensive examination is referred to as full medical underwriting (FMU).

Full medical underwriting involves a thorough analysis of an individual’s medical records. The process requires the health insurance applicant to provide a medical history going back years, and the insurer may contact healthcare providers that the individual has used.

Medical Underwriting Pros and Cons

Advocates of medical underwriting say the process keeps individual health insurance premiums as low as possible for most customers. 

Critics maintain it prevents people with relatively minor and treatable pre-existing conditions from obtaining health insurance. 

Diseases that could make an individual uninsurable include serious conditions such as arthritis, cancer, and heart disease, and common ailments such as acne, being 20 pounds over or under the ideal weight, and old sports injuries. 

In the United States, the Affordable Care Act changed many of the rules associated with the way insurers qualify individuals looking for health insurance. A full decade after the act passed, it is still unclear whether those rules will stand and, if not, what will replace them.