Understanding Health Insurance Exclusions & Creditable Coverage

Your Guide to Pre-Existing Conditions and the Rules That Protect You

Many Americans have health-related problems that insurance companies can define as pre-existing conditions. A pre-existing condition is a health problem that exists before you apply for a health insurance policy or enroll in a new health plan.

Asthmatic young boy using inhaler
Science Photo Library - IAN HOOTON / Brand X Pictures / Getty Images 

At the end of the day, private insurance companies and health plans are businesses that are focused on their financial bottom line. It’s in their best interest, therefore, to exclude people with pre-existing conditions, impose a waiting period before coverage starts or charge higher premiums and out-of-pocket expenses to cover people with pre-existing conditions since those people are likely to cost the insurer more in claims expenses.

But such provisions are unpopular and make it harder for people to obtain health coverage, which is why various state and federal regulations have regulated this issue in most insurance markets.

A pre-existing condition can be something as common as high blood pressure or allergies, or as serious as cancer, type 2 diabetes, or asthma—chronic health problems that affect a large portion of the population.

Prior to 2014, in most states, an individual market health plan (the kind you buy yourself, as opposed to obtaining from an employer) could deny coverage for anything related to your pre-existing condition, charge you higher premiums based on your medical history, or even reject your application altogether.

If you were enrolling in an employer's plan, you faced potential waiting periods for pre-existing condition coverage if you hadn't maintained continuous coverage prior to enrolling in the new plan.

The Affordable Care Act and Pre-Existing Conditions

One of the hallmarks of the Patient Protection and Affordable Care Act signed into law in March 2010, was the elimination of pre-existing condition requirements imposed by health plans.

Effective as of September 2010, children under the age of 19 with pre-existing conditions could not be denied access to their parents' health plan, and insurance companies were no longer allowed to exclude pre-existing conditions from a child's health coverage.

As of January 2014, all new major medical health plans (including those sold in the exchange as well as plans sold outside the exchange) were required to be guaranteed issue, which means that pre-existing conditions can no longer be taken into consideration when an applicant enrolls.

Premiums can only vary based on age, zip code, tobacco use, and family size. So a person in the middle of cancer treatment will pay the same premium as their same-age neighbor who is perfectly healthy, and the cancer treatments will be covered by the new health plan.

Later in this article, we'll take a look at the expansion of plans that aren't major medical coverage (and that continue to exclude pre-existing conditions) under the Trump Administration. But first, let's take a look at how pre-existing conditions were treated before the ACA's reforms took effect:

The Pre-ACA Pre-Existing Condition Exclusion

Pre-ACA, a pre-existing condition could affect your health insurance coverage. If you were applying for insurance in the individual market, some health insurance companies would accept you conditionally by providing a pre-existing condition exclusion period, or a full exclusion on the pre-existing condition.

Although the health plan had accepted you and you were paying your monthly premiums, you would not have had coverage for any care or services related to your pre-existing condition.

Depending on the policy and your state’s insurance regulations, this exclusion period could range from six months to a permanent exclusion.

Individual market plans: For example, Lori was a 48-year-old freelance writer, obtaining health coverage in the pre-ACA individual market. She has high blood pressure that was well controlled on two medications. She decided to purchase her own health insurance that included drug coverage.

The only affordable health plan she could find had a 12-month exclusion period for her high blood pressure. For the first 12 months of her policy, all of her claims (including doctor visits and medications) related to her high blood pressure were denied. However, within that first year of coverage, she also got the flu and a urinary tract infection, both of which were completely covered because they were not pre-existing conditions. 

Although temporary pre-existing condition exclusion periods were used, it was also common to see permanent pre-existing condition exclusions in the individual health insurance market. Under those exclusions, the pre-existing condition would never be covered by the plan.

A person who broke an arm in a snowboarding accident in his teens and ended up with a titanium rod in his arm might have been offered a plan in the individual market later on, but with a permanent exclusion on anything related to the "internal fixation" (ie, the rod and any additional hardware) in his arm.

By the time the ACA was enacted, pre-existing condition exclusions were becoming less common, and underwriting rate increases were taking their place more frequently. So in the example of Lori, above, a health insurance company might have agreed to cover Lori in full (including her hypertension), but with a premium that was 25 percent or 50 percent higher than the standard rate for someone her age.

Since the ACA has been implemented, pre-existing conditions are no longer a factor in pricing or eligibility, and insurance applications no longer ask about medical history when people enroll.

Employer-sponsored plans: If you were getting insurance at your job, depending on your employer and the health plans offered, you may have had a pre-existing exclusion period. However, the exclusion period was limited to 12 months (18 months if you enrolled late in the health plan) and only applied to health conditions for which you sought treatment in the 6 months before you enrolled in the health plan (these enhanced protections under employer-sponsored health plans were due to HIPAA, discussed below).

For example, 34-year-old Mike got a new job after being unemployed and uninsured for almost a year. His new company allowed employees to participate in its health plan at the end of the first pay period. Mike had mild asthma and sustained a knee injury playing basketball when he was in his 20s.

In the six months prior to the time he enrolled in his employer’s health plan, he had no doctor visits and did not take any medication. He was not subject, therefore, to any exclusion period for his pre-existing conditions.

Shortly after he started working, his asthma worsened, but he was fully covered for all of his asthma-related care because it wasn't considered a pre-existing condition since he hadn't received treatment for it in the six months prior to enrolling in his employer's plan.

Now that the ACA has been implemented, it no longer matters whether Mike had coverage prior to joining his new employer's plan, or whether he sought treatment for any medical conditions in the months before joining the plan—his pre-existing conditions are covered either way.

HIPAA and Creditable Coverage

In 1996, Congress passed the Health Insurance Portability and Accountability Act (HIPAA), a law that provides significant protection for you and your family members, particularly when you're enrolling in a plan offered by an employer. These protections include:

  • Limits on the use of pre-existing condition exclusions in employer-sponsored health plans.
  • Prevents employer-sponsored health plans from discriminating against you by denying you coverage or charging you more for coverage based on your or a family member's health problems.
  • Usually guarantees that if you purchase health insurance, you can renew your coverage regardless of any health conditions in your family.

Although HIPAA does not apply in all situations, the law made it easier for people to switch from one employer-sponsored health plan to another, regardless of pre-existing conditions.

And although HIPAA protections did not extend to private individual market coverage, some states had adopted regulations that allowed HIPAA-eligible individuals to purchase guaranteed issue coverage in the individual market (HIPAA-eligible means that the person had at least 18 months of creditable coverage without a gap of more than 63 days, and the most recent creditable coverage was under an employer-sponsored plan, a government plan, or a church plan; also, the individual must have exhausted COBRA if it was available, and can't be eligible for Medicare or Medicaid).

But in most states, prior to 2014, if HIPAA-eligible individuals needed to buy their own health insurance and had pre-existing conditions, their only guaranteed-issue option was the state-run high-risk pool.

Although the Trump Administration and Republicans in Congress tried (unsuccessfully) to repeal and replace the ACA in 2017, ACA repeal would not have affected HIPAA, which predates the ACA by nearly two decades.

Creditable Coverage

An important feature of HIPAA is known as creditable coverageCreditable coverage is health insurance coverage you had before you enrolled in your new health plan, as long as it was not interrupted by a period of 63 or more days.

The amount of time you had “creditable” health insurance coverage could be used to offset a pre-existing condition exclusion period in your new employer-sponsored health plan before the ACA eliminated pre-existing condition exclusion periods.

The bottom line: If you had at least 18 months of health coverage at your previous job and you enrolled in your new employer-sponsored health plan without a break of 63 days or more, your new health plan could not subject you to a pre-existing condition exclusion. This consumer protection was already in place before the ACA, and efforts to repeal and replace the ACA (in 2017 but also potential future efforts) would not impact this provision, as it's part of HIPAA rather than the ACA.

For example, Greg decided to change jobs for better promotion opportunities. He worked with a recruiter and found a new job, which he started two weeks after resigning from his previous position. His new job offered similar health insurance, available after the first month of work, and he enrolled in a family plan. Although Greg was in good health, his wife had type 2 diabetes and one of his children had asthma.

Greg had worked for his previous company for 2 years, during which time his family was covered under that employer's plan. He had no coverage during the two weeks he was between jobs, and for the first month of his new job, but his uninsured duration was less than 63 days. So in spite of pre-existing health conditions in his family, Greg’s health plan was not able to impose a pre-existing condition exclusion period. 

Now that the ACA has been implemented, Greg's employer cannot impose a pre-existing condition waiting periods on any new enrollees, regardless of their medical history or health insurance history. But even without the ACA, Greg's family would have been protected from pre-existing condition exclusions and waiting periods, thanks to HIPAA.

Pre-existing Conditions and the Trump Administration

In 2016, former President Trump campaigned on a promise to repeal and replace the ACA. He took office with a Republican majority in both the House and the Senate, and Republican lawmakers had pushed for ACA repeal throughout the Obama Administration's tenure.

But once the reality of repeal was within reach, Republican leaders in Congress were unable to garner enough support to pass any of the ACA repeal bills that were considered in 2017. The House passed the American Health Care Act to repeal portions of the ACA, but several versions of the bill failed to pass in the Senate so the measure was never enacted.

The ACA has not been repealed: As of 2021, the only provision of the ACA that had been repealed was the individual mandate penalty, with repeal effective as of 2019. People who were uninsured in 2018 are still subject to a penalty, but those who were uninsured in 2019 and beyond will not face a penalty, unless their state implements one. (Massachusetts already had an individual mandate prior to the ACA; DC, New Jersey, Rhode Island, California, and Vermont all have individual mandates as of 2020.)

Some of the ACA's taxes (the medical device tax, the Cadillac tax, and the health insurance tax) were repealed by Congress in 2019, with the repeals effective in 2020 and 2021.

And all of the ACA's consumer protections, including the provisions related to pre-existing conditions, are intact as of 2018. In fact, it was rallying cries about pre-existing condition worries that doomed the ACA repeal efforts in 2017, with millions of people contacting lawmakers and expressing concerns that weakening or repealing the ACA would return us to the days of pre-existing condition exclusions and intrusive medical history questions on health insurance applications.

Plans that exclude pre-existing conditions are becoming more prevalent due to new federal regulations. For the time being, the ACA is intact and major legislative efforts to repeal and replace it have largely been put on hold. That is likely to remain the case for at least the next couple of years since Democrats once again gained control of the House of Representatives in the 2020 election.

The Trump Administration implemented new regulations that made non-ACA-compliant health coverage more accessible. This includes association health plans for small businesses and sole proprietors, and short-term health plans for individuals.

Association Health Plans: With expanded access to association health plans, proposed by the Trump Administration in early 2018 and finalized in June 2018 small groups and self-employed individuals can obtain coverage under large group rules, which are much more relaxed than a small group and individual market rules in terms of complying with the ACA.

In terms of pre-existing conditions, large group plans do not have to include coverage for all of the ACA's essential health benefits, and large group insurers can base premiums on the group's medical history, which is not allowed in the individual or small group markets.

Short-Term Health Plans: In addition, the new regulations for short-term health plans, which were finalized in August 2018 and took effect in October 2018, allow insurers to offer "short-term" plans with initial terms of up to 364 days, and total duration, including renewals, of up to three years.

States can still impose stricter regulations, and about half the states do so (you can click on a state on this map to see how short-term health plans are regulated within the state). But in states that don't have their own regulations, short-term plans can potentially be seen as an alternative to major medical health insurance—albeit an alternative that offers much less robust coverage, but at a lower price.

The up-to-364-days definition was already used at the federal level prior to 2017, but the Obama administration changed the definition so that short-term plans couldn't have durations of more than three months (the Obama Admin rule was finalized in 2016, but didn't take effect until 2017). But the new rule allowing short-term plans to have total durations of up to three years was new under the Trump Administration.

This is important because short-term plans have always been excepted from the ACA's rules. They can and do base eligibility on medical history, and they tend to have blanket exclusions for anything related to a pre-existing condition.

Allowing people to keep these plans for up to three years (in states where insurers offer that option) means that more people will have coverage under plans that don't cover pre-existing conditions.

Those plans will obviously only appeal to healthy people, leaving sicker people in the ACA-compliant insurance pool. That, in turn, will drive up premiums in the ACA-compliant market (this was a clearly defined factor that drove rate increases for 2019 individual market health insurance nationwide). But the ACA-compliant plans will continue to cover pre-existing conditions.

Even before the Obama administration limited short-term plans to three months, some states didn't allow them at all, and other states limited them to six months in duration (the number of states with restrictions on the duration of short-term plans has increased in 2018, with several states pushing back against the new federal rules). But regardless of availability, people who purchase short-term insurance are not considered insured in the eyes of the ACA.

Short-term health care insurance was subject to the ACA's individual mandate penalty. But that penalty no longer applies as of 2019, as it was prospectively repealed as part of the GOP tax bill. So while some people may have shied away from short-term plans prior to 2017 because they wanted to avoid the ACA's individual mandate penalty, that incentive no longer applies as of 2019.

To be clear, people will still be able to access individual market coverage that includes the ACA's pre-existing condition protections. But when legislative attempts to repeal the ACA were unsuccessful, the Trump Administration started working to relax the rules via regulatory action. And when plans that don't cover pre-existing conditions and/or essential health benefits are made more widely available, the onus is on consumers to make sure that they fully understand the plan they're buying.

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10 Sources
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