What Is Post-Claims Underwriting?

Post-claims underwriting happens when an insurance company accepts an application for coverage and then waits until if and when the policyholder files a claim to adequately assess the risk involved with covering that particular policyholder. Post-claims underwriting can occur with any type of insurance, including health insurance.

Medical Underwriting Basics

To understand post-claims underwriting, you have to first understand how medical underwriting works in general. The basic idea is that insurance companies want to minimize risk by thoroughly evaluating an applicant's medical history—or in the case of an employer group, by evaluating the group's overall claims history.

Medical underwriting allows an insurer to reject an applicant altogether, exclude specific pre-existing conditions, or charge a higher premium based on medical history.

As of 2014, the Affordable Care Act (ACA) ended medical underwriting for individual/family and small group major medical health plans. Individuals are now limited to enrolling in coverage only during open enrollment or a special enrollment period triggered by a qualifying event, but insurers cannot use an applicant's medical history in any way when determining eligibility for coverage or in processing claims.

Due to the Health Insurance Portability and Accountability Act (HIPAA), small group health plans were already guaranteed-issue. But insurers in many states were allowed to charge premiums that differed depending on a group's overall medical history, and employees who didn't have prior continuous coverage could face waiting periods before they had coverage for pre-existing conditions.

Under the ACA, none of that is allowed anymore. Premiums for small groups are not based on the group's medical history, and there are no longer any pre-existing condition waiting periods (for small group or large group plans).

Medical underwriting is still used, however, for short-term health insurance plans, Medigap plans after a person's initial enrollment period ends (some states prohibit this, and there are some circumstances that trigger special enrollment periods with guaranteed-issue rights), and large group health plans (defined as 51 or more employees in most states, although California, Colorado, New York and Vermont define large group as 101 or more employees).

Note that medical underwriting for large group plans applies to the group's overall claims history, rather than to individual members of the group. Medical underwriting is also used for life and disability insurance policies.

How Post-Claims Underwriting Is Different

Medigap insurers and large group health insurers tend to do their due diligence on the front end, at the time the application is submitted. The process that Medigap insurers use includes gathering information from the applicant, the applicant's doctors, and pharmacy databases.

This sort of process was commonly used in the individual major medical market before the ACA eliminated medical history as a factor that insurers could use. It was not uncommon for an insurance company to take several days or even a few weeks to determine whether to accept an applicant, and if so, whether to exclude any pre-existing conditions or charge a higher premium based on medical history.

But some insurers relied partially or fully on post-claims underwriting, which was essentially a wait-and-see approach—issuing the policy based on the applicant's summary of their own health history, but reserving the right to request medical records later on, if and when a claim was filed.

At that point, if the insurer found evidence that the applicant had not been entirely truthful about their medical history, the policy could be rescinded. Under the ACA, rescission is limited to cases of fraud or intentional misrepresentation, and medical history is no longer a factor at all.

Short-Term Health Plans and Post-Claims Underwriting

Short-term health plans are not subject to any ACA regulations, and for the most part, they tend to rely on post-claims underwriting. These plans usually have very simple, short applications that include a handful of yes/no questions about serious medical conditions, body mass index (BMI), pregnancy, etc.

As long as the applicant indicates that they don't have any of the listed conditions, the policy can be issued as soon as the following day, with the insurance company doing nothing to ensure that the information provided by the applicant was accurate. This allows the insurer to start collecting premiums immediately, and also allows the applicant the peace of mind of knowing they're insured right away.

Except there's a pretty significant catch: If and when a claim is filed, the insurer can then go back through the person's medical records to determine whether the claim is related to any pre-existing conditions. Most short-term health plans include blanket statements indicating that pre-existing conditions are excluded.

Prior to the ACA, individual major medical insurers that relied on pre-existing condition exclusions would generally specify the exact exclusion. For example, a policy could be issued with a rider stating that medical claims related to the person's left knee would not be covered. But in the short-term market, plans tend to be issued with a blanket exclusion rider for any pre-existing conditions.

Since these insurers generally rely on post-claims underwriting, they don't necessarily know what the specific pre-existing conditions are when the person first enrolls. Applicants who answer "yes" to any of the few specific health questions on the application are typically rejected altogether. But applicants with a wide range of less-serious pre-existing conditions can still truthfully answer "no" to all of the medical history questions on a short-term health insurance application.

The blanket exclusion means that the insurer won't pay for any claims related to any pre-existing conditions that the person has, even if they're not significant enough to result in the application being rejected.

If and when the person has a claim, the short-term health insurer will then request the person's medical records in order to determine whether the claim has anything to do with a pre-existing condition. If it does, the claim will be rejected.

How to Avoid Post-Claims Underwriting

The problem with post-claims underwriting is the way in which it can result in the rug being pulled out from under a person who believed that they had solid coverage in force. They took steps to get insured, and then, just when they need it most, they might find out that their claim is being denied—or their coverage rescinded altogether—as a result of things the insurer found during the post-claims underwriting process.

For people who don't qualify for premium subsidies, short-term health plans are less expensive than ACA-compliant plans. (Note that with the American Rescue Plan in place, more people are eligible for premium subsidies.) But in addition to the less robust benefits provided by short-term plans, post-claims underwriting is obviously a serious drawback.

Since applicants aren't always aware of how it works, they may assume they have adequate coverage and forego enrollment in a plan that would actually cover their pre-existing conditions (and subsequent conditions that might be related to a prior condition), only finding out when it's too late that they don't actually have the coverage they need.

The best way to avoid post-claims underwriting is to ensure that if you're buying your own health insurance, it's a plan that's compliant with the ACA. This can be a plan purchased in the exchange in your state, or an individual major medical plan purchased directly from an insurance company. Because of the ACA, these policies no longer use medical underwriting at all—post-claims or at the time of application.

Under rules that the Trump administration finalized in 2018, short-term health plans are allowed to have terms of up to 364 days and can be renewed for a total duration of up to three years. But about half the states have stricter rules, and many of the insurance companies that offer short-term plans have opted to further limit the available plan durations. Plan availability varies considerably from one area to another.

In areas where you can get a short-term health plan that lasts for nearly a year and can be renewed for up to three years, it's easy to see how people might confuse the available short-term plans with ACA-compliant plans—especially now that there's no longer a federal penalty for relying on short-term health insurance. Short-term plans are not considered minimum essential coverage, so people who relied on them between 2014 and 2018 were subject to the individual mandate penalty.

But as a general rule of thumb, if the application is asking you questions about your health history (other than tobacco use), the plan is not compliant with the ACA. If you enroll in it, be aware that if you have a claim while you're covered under the plan, the insurer is well within their rights to go back through your medical history with a fine-toothed comb, looking for a reason to deny the claim.