Insurance companies earn profits when they collect more money from premiums than they pay out in claims. Therefore, they must follow established criteria when assessing applicants so that they can determine the degree of claims risk the applicant poses.
The types of criteria used by health insurance companies include the applicant's age, height, weight, gender and overall health history. They also consider applicants' occupations and whether they use tobacco.
After the insurance agent completes the application, he sends it to an underwriter who evaluates the information to determine if the necessary criteria are met. The underwriter can accept, reject or assign a higher premium to account for an existing or previous medical condition.
Health insurance companies may rate criteria differently. One company may charge a higher premium based on a previous medical condition while another may not. Some companies are also more willing to accept preexisting conditions than others.
Insurance companies benefit from using selection criteria by minimizing the possibility of insuring unhealthy people. As a result, they pay out fewer claims, which can help keep the premiums for existing policyholders under control.
Anyone who has applied for health insurance in the individual market knows that insurance companies make use of selection criteria when assessing applicants. The applicants are typically required to answer a series of health-related questions and consent to having their medical records examined.