What are exclusions for pre-existing conditions? How do they work?

What is an exclusion?

With respect to health insurance plans specifically, an exclusion for a 'pre-existing condition' refers to a specific medical event or condition that is not covered by the policy. In other words, exclusions are medical events or conditions for which the insurer is not required to provide coverage or pay a claim.

To understand how these exclusions work, and why they are used with respect to extended healthcare insurance plans, one must first understand what medical underwriting is and a little about human behaviour.

Medical Underwriting

Medical underwriting is the process by which a professional working at the insurance company (known as an underwriter) is tasked with reviewing your application for insurance, and will assess whether or not coverage can be offered to you.

Order to complete this assessment, the underwriter first must get an understanding of your health history.

The primary way by which an underwriter acquires an understanding of your health history is your answers to the medical questions that are found on the insurance application. Additionally, the underwriter may write to your physician (and pay your physician) to produce what is referred to as an attending physicians' statement - which is essentially a summary of your medical record.

Additional tests may be requested at the discretion of the underwriter should additional clarification be necessary (e.g. blood work, urine sample), however for the vast majority of healthcare applications these tests are not required.

When is Medical Underwriting Required?

It's important to understand that medical underwriting isn't required for all types of health care plans. Depending on which type of extended healthcare plan you are applying for, medical underwriting may not be required at all.

Please have a look at this article that explains more fully the different types of plans, and how underwriting plays into each.

Generally, medical underwriting is only required for a type of health care plan known as a Medically Underwritten health care plan.

How Exclusions Work

Whenever there is medical underwriting involved for health insurance, one can generally assume that anything that you are currently being treated for or taking medication for will be excluded from coverage.

Why is this? It comes down to human behaviour, and a phenomenon known as anti-selection.

Anti-selection

As you can imagine, if insurance companies allowed it, people would only ever purchase insurance after they have a problem.

Think about it for a moment, if you could buy insurance for your home after it was already on fire, you would almost certainly wait buy it. Likewise, if you could buy insurance for your car after you've already experienced an accident you would almost certainly wait to buy it. Insurance companies wouldn't be in business for very long if they allowed this to happen.

Same thing is true for health insurance. If insurance companies allowed it, people would only ever apply for health insurance after they have developed some health history, or have become aware of a health condition that they have recently developed.

This is a behavioural phenomenon known as anti-selection.

In other words, anti-selection occurs when the applicant has information about their health that the insurance company does not have, and the applicant tries to use this knowledge differential in order to secure insurance coverage that might not otherwise be offered to them.

To mitigate against this behavioural phenomenon, insurance companies complete medical underwriting, and will exclude pre-existing conditions.

Exclusions for pre-existing conditions

How the insurance company chooses to exclude your pre-existing health condition may vary depending on the quantity, severity, and and nature of the condition(s).

Acute Conditions

If the health condition you've been diagnosed with is something that is regarded as being acute in nature (i.e. likely to be temporary), insurance companies will generally exclude that health condition initially but at the underwriter’s discretion may offer to reconsider the exclusion after a certain period of time (e.g. 12, 24, 36, 48 months) - subject to being symptom and treatment free for the duration.

Chronic Conditions

Conversely, if the health condition is something that is regarded as being chronic in nature (i.e. likely to be permanent), insurance companies will generally exclude that health condition on a permanent basis, and often without reconsideration.

Too Numerous and/or Severe Conditions

Insurance companies will generally have internal guidelines regarding limits around how many pre-existing conditions a person may have and still qualify for coverage. If the applicant exceeds the limit, then the insurance company may decline to offer coverage altogether.

Also, for particularly severe existing medical conditions the insurance company may choose to decline coverage on that basis as well.

I was declined for coverage, what do I do?

If you have applied for insurance, and the insurance company has perhaps declined to offer you coverage, or they have offered you coverage containing exclusions that you don't wish to accept, then your alternative is a Guaranteed Acceptance plan.

Guaranteed Acceptance plans do not ask medical questions on the application, do not require medical underwriting, and will cover pre-existing conditions, however for the reasons discussed above with respect to anti-selection, the insurance company must design Guaranteed Acceptance plans such that they offer less coverage at a relatively higher cost in order for those plans to be sustainable and profitable.

How do I avoid my coverage having exclusions?

The best thing you can do to avoid your coverage containing exclusions is to simply apply for coverage when you have little to no health history. If you have a clean bill of health, it is easy for the insurance company to offer you coverage without any exclusions whatsoever. Because we as human beings tend to accumulate health history as we age, this implies that the ideal time to apply for coverage is when we are young and healthy.

Summary

To recap;

• An exclusion for a 'pre-existing condition' refers to a specific medical event or condition that is not covered by the policy
• Medical Underwriting is the name for the process insurance companies use to get a picture of your health history. This process is intended to protect insurance companies from the behavioural phenomenon known as 'anti-selection'.
• Medically Underwritten healthcare plans always require Medical Underwriting to be completed. Depending on your health history, this may result in health conditions to be excluded from your coverage.
• Best approach is to apply for a healthcare plan while you're young and healthy before you've accumulated much health history.

Next steps

Aeva was designed to help make the process of selecting a health care plan as easy as possible, by asking you a few simple questions and presenting you with a curated list of choices from Canada's top insurance companies.

Prefer a human touch? You can also always chat/email/or speak with an Aeva advisor who will be happy to assist you with selecting a plan that's right for you and your family.

Give us a try at https://aeva.ca

Thanks for reading!