Unbiased Analysis of Today's Healthcare Issues

ACA and Commercial Underwriting

Written By: Jason Shafrin - May• 18•15

The ACA (aka Oabamacare) has a “guaranteed issue” provision that requires insurers to offer coverage to all individuals who apply.  The ACA also prohibits insurers from taking into account patients’ pre-existing conditions when setting premiums and mandates the coverage of certain services, such as preventive services and an annual check-up.

This sounds like a great idea.  Everyone can get insurance; sick people don’t cost more; and everyone gets lots of benefits.

However, this poses a significant challenge for insurers. InsureBlog writes:

“The guaranteed-issue aspect of the ACA essentially negates underwriting,” Stark said, referring to Obamacare rules requiring health insurers to allow anyone to enroll, even if they’re already sick. “Health insurance companies have struggled with plan pricing for the past few years because they now must sell to anyone, regardless of preexisting conditions.

Thus, insurers must set premiums based on the average cost of insuring a large group of people without knowing the composition of people who make up their group of enrollees. An alternative to the ACA–from the Best of Both Worlds proposal–would allow insurers to set premiums that reflect their true health care costs. To ensure premiums are affordable, this proposal proposes subsidies to the poor, especially the sick poor.

Although the ACA does lower premiums for the sickest individuals, moving away from market prices is likely to have problematic long-run consequences.

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One Comment

  1. Ben G. says:

    How did insurers underwrite large group plans, which didn’t take into account an employee’s pre-existing conditions, in years past?

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