What is Guaranteed Issue in Health Insurance?

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In health insurance, guaranteed issue refers to a circumstance in which a health care policy is offered to any and all eligible applicants regardless of health status. Guaranteed issue allows individuals with long-standing, pre-existing medical issues gain health insurance, as their medical history is not taken into consideration.

Guaranteed Issue Under the Affordable Care Act (ACA)

Under the Affordable Care Act, all individual health insurance policies with effective dates of January 2014 or later must be sold on a guaranteed issue basis. Insurers can no longer base eligibility for coverage on the applicant's medical history, and pre-existing conditions can no longer be excluded from new plans.

This was certainly not the case prior to the Affordable Care Act. As of 2012, there were only six states where individual market coverage (the kind you buy yourself, rather than obtaining from an employer) was guaranteed issue. In the remaining 44 states, insurers looked at each applicant's medical records and those with significant—or sometimes fairly minor—pre-existing conditions were denied coverage.

In addition to being guaranteed issue, coverage in the individual and small group market is also now issued with modified community rating as a result of the ACA. That means that premiums cannot be based on medical history; they can only vary based on age, tobacco use, and zip code. Guaranteed issue and modified community rating are certainly good news for those with pre-existing medical conditions.

However, it's still important to discuss your pre-existing conditions with a broker, enrollment assister, or the person who handles your employer's human resources department, before you pick a plan. That's because the provider networks and prescription drug formularies will vary significantly from one plan to another. If you have a pre-existing condition, you'll want to make sure that if possible, the plan you choose includes your doctors in its network and covers the medications you take. The specifics of the plan's cost-sharing (deductible, coinsurance, and copays) will also be important if you have pre-existing conditions, as you'll want to have a good understanding of how much you're likely to have to pay in out-of-pocket costs during the year.

Guaranteed Issue If You are Buying Health Insurance for a Small Company

Federal law requires that all health care plans marketed to companies with two to 50 employees be offered on a guaranteed issue basis. This has been the case since HIPAA became effective in 1997—for two decades, insurers have not been able to deny coverage to small employers based on their employees' health status.

However, HIPAA did not prevent insurers from basing premiums for small groups on the overall medical history of the group. That meant that unless a state disallowed it, insurers could offer discounts to healthy groups, and charge higher premiums for groups with less healthy employees and/or dependents. They could also charge higher premiums for groups with occupations deemed hazardous, despite the fact that workers comp (as opposed to employees' health insurance) covers on-the-job injuries.

But the ACA ended the practice of basing premiums on small groups' medical history or type of industry. In addition to being guaranteed issue, small group coverage now follows the same modified community rating rules used in the individual market: premiums can vary only based on age, tobacco use, and zip code.

Guaranteed Issue for Large Employer Groups

Large employers are required to offer coverage to their employees under the ACA. To facilitate this, insurers are no longer allowed to impose minimum participation requirements when large employers seek coverage for their employees. Most very large group self-insure, however, making this a moot point. 

Although insurers must offer large group coverage on a guaranteed issue basis (ie, the group cannot be rejected altogether), large group coverage does not have to follow the modified community rating rules that apply to small group and individual plans. That means that rates for large groups can still be based on the overall claims experience of the group, with discounted rates for healthier groups, and higher rates for less healthy groups.

For reference, "large group" typically means more than 50 employees, although there are a few states where it applies to groups with more than 100 employees. 

Coverage That's Exempt From ACA Rules

There are still a variety of types of coverage that aren't regulated by the ACA and don't have to be sold on a guaranteed-issue basis. This includes things like short-term health insurance, critical illness plans, health care sharing ministry coverage, and individual life insurance policies. Applicants for these types of coverage typically have to prove that they're healthy in order to be accepted and can be declined or charged higher premiums if they have pre-existing medical conditions.

Medicare, Medicaid, and CHIP

Government-issued health insurance, including Medicare, Medicaid, and the Children's Health Insurance Program (CHIP), is guaranteed issue. Applicants have to otherwise be eligible for the coverage, but their medical history is not a factor. The same is true for most of the private supplemental coverage offered to Medicare beneficiaries.

But Medigap plans sold outside of the initial enrollment period are an exception. When a person turns 65 and enrolls in Medicare Parts A and B, there's a six-month window during which any Medigap plan sold in that area is guaranteed issue. But after that window closes, Medigap plans in most states can use medical underwriting (i.e., look at the person's medical history) to determine whether an applicant is eligible for coverage and what price they should be charged. There are some limited special enrollment periods when Medigap plans are guaranteed issue, and some states have set up annual guaranteed issue windows for Medigap plans. But in most states, there's no annual enrollment period for Medigap like the one that exists for Medicare Advantage and Medicare Part D plans.

Guaranteed Issue Outside of the United States

While the Affordable Care Act has made getting health insurance in the United States a whole lot easier for people with pre-existing conditions, it has its limitations. The Affordable Care Act only impacts health insurance in the United States. Countries outside of the United States have different rules governing the selling of health insurance.

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