Underwriting in health insurance is the process of assessing the risk linked with providing health insurance coverage.  It is a formality that ensures that the price of the coverage is proportionate to the risks an individual faces.

what is underwriting for Private Health Insurance?

Private medical insurance carriers use underwriting to screen potential policyholders during the application process. This procedure involves an inspection of an applicant’s medical and prescription history.

An underwriter is looking at the applicant’s medical history, lifestyle, demographics, and other factors that could influence an individual’s medical information assist in determining if the applicant is approved to participate in coverage and thus how much he should pay for health insurance according to an applicant’s risk class.

Benefits of Underwriting

Underwriting is a formality that protects the existing policyholders from people purchasing health insurance for medical treatment without being invested into the policy just for benefits, therefore it safeguards existing policyholders from rate increases from overuse of benefits by sick members, who have not invested policyholders before an illness.

If a preexisting condition is found during the underwriting process.

If an individual is determined as a high-risk prospect, the insurance carrier may charge a higher insurance premium and/or also set some limits or exclusions to the amount of coverage the policy offers such as a 1 year waiting period for preexisting condition or worst case scenario the high-risk prospect maybe be denied coverage entirely.

Why is underwriting important to existing policyholders?

Even though Underwriting sounds like a negative thing, it really isn’t for health insurance carriers already established “healthy at the time of entry” policyholders.

Healthcare needs vary greatly from healthy people to Unhealthy people. A healthier person may only see their doctor once a year for their annual checkups or during cold & flu season. Versus an unhealthy person that frequents the Doctors office, hospitals, labs, and pharmacies.

An unhealthy person is more likely to use the plan. Especially the hospitalization which is astronomically expensive. The overuse of benefits causes premiums to skyrocket. This affects everyone that is participating in coverage.

If an insurance carrier was trying to maintain a healthy profitable plan that is affordable to policyholders, a carrier might request a specific type of individual.  Preferably a person who doesn’t take a lot of medications and hasn’t been confined to a hospital within the last 2 years. Any applicant that has been diagnosed with a long-term illness may not be able to participate in coverage.