Insurance is confusing. I was an executive in the field for 25 years and one of the departments I managed was customer service. Based on the activity of that department I would repeat that insurance is confusing. Part of the problem is, as with any field, that insurance has its share of “inside language” better known as “techno-babble”.
The goal of this article isn’t to try and explain insurance, people write entire books to try and do that, rather, I want to examine a very small part of the insurance dynamic and the role that it plays in the delivery system with regards to medical care. I would like to look at the “preexisting condition clause.
Presuming that one is too young to be covered by Medicare, a person will usually obtain individual health insurance through a health insurance company or obtain it through their employer. The problem from the insurance company’s standpoint, particularly with regard to individual coverage, is that people often seek coverage when they or a loved one need care. This is called “antiselection”.
The pure and basic concept of insurance is that many people band together and pool their money. There is a “norm” as to the number who will need treatment allowing the insurance company to survive and make a profit. Further, rates will remain the same or only inflate to reflect the economy. When a company is hit with a large amount of antiselection then the odds are much more likely of needed medical treatment changing the positive outlook for the company and policyholders.
To prevent antiselection from occurring, companies employ a policy provision called the preexisting condition clause. This clause exonerates the company from paying for medical conditions that are in existence at the time of policy inception.
To help one understand insurance, it is a good idea to understand the “structure” of the system. While the federal government does occasionally get involved with health insurance, it is by in large a state controlled operation. Each state has a commissioner of insurance who controls state legislation and monitors the operation and compliance of insurance companies.
The overriding federal law that is the backdrop for the preexisting condition clause is called the Health Insurance and Accountability Act of 1996 passed by Congress during the Clinton Presidency.
Hippa basically states that a preexisting condition can only be classified as a condition that was in effect six months prior to the effective date of the policy, and, further, it can only be excluded for one year after the effective date of the policy. (an exception would be a late enrollee) It should be recognized that this Hippa protection only applies to employer sponsored plans and government sponsored individual programs. Individual health insurance policies that people purchase on their own are not protected by Hippa. Individual plans not under Hippa protection are allowed to exclude a condition permanently.
What does all this mean? When one completes an application for health insurance that provides full coverage, they are asked medical questions pertaining to their medical history. If a person is honest and lists a preexisting condition then it will simply follow the policy guidelines as to execution, however, if a person does not list a condition, through an admitted and “permission-sought” procedure, the insurance company can check a virtual medical bureau of people’s health called The Medical Information Bureau and through information seeking methods locate said medical history.
The purpose of this article is to examine the preexisting condition clause. It is fairly straight forward and as long as people understand the rules they are usually not going to be surprised.
If we follow the procedures with respect to policy processing, I think we get more information than we bargained for. The person who assesses and approves a health application is called a medical underwriter. When a policyholder has a claim, it is processed by a claims examiner. Most companies spend more time examining claims than underwriting; the reason is obvious. At time of claim a preexisting condition may present itself or may lead to other conditions. The claim may show that the policyholder wasn’t honest at time of application necessitating a lot of expensive and time consuming research. If a person was dishonest enough, the policy may be “rescinded”; it never happened.
Many times when claims are processed it takes a long time to get resolution, and, often collection agencies are already using collection techniques before the claim is ever settled. However, the other major implication for the consumer is the overhead of an inordinate number of claims examiners. The numbers can be staggering and affect the company’s bottom line to the point that there are needed rate increases.
In studying the preexisting clause, I hoped not only to share a clause that affects most of us and our health insurance, but, to demonstrate the inner workings of policy and claims processing in relation to policy guidelines and cost to the consumer.
