Health insurance, like car or home insurance, is based on risk. The healthiest and youngest applicants, those who present the least risk, are offered the cheapest and most comprehensive plans. When a person applies for health insurance, the insurer's medical underwriting department scrutinizes her medical records, determines her risk, approves or rejects the applicant and sets the premium price if she's approved. The goal of medical underwriting is to prevent adverse selection—the act of waiting until illness strikes to get health insurance.
Many Americans with pre-existing conditions are part of group plans, available through their employers or their spouses' or parents' employers. Unlike individual plans, group plans cannot discriminate because of pre-existing conditions. Group plans are usually comprehensive, meaning that they cover routine and diagnostic care as well as major medical care. COBRA--short for Consolidated Omnibus Budget Reconciliation Act--is a comprehensive plan available to those who lose their employer-based insurance. COBRA does not discriminate based on a pre-existing condition, and coverage is guaranteed as long as the application is filed within 62 days of insurance loss. State high-risk pools are another comprehensive plan for those with pre-existing conditions. As of June 2010, 35 states had high-risk pools for uninsurable residents.
Some insurance companies accept risky candidates depending on their overall health and the seriousness of their pre-existing conditions. Such companies, however, often increase those candidates' premiums. Other companies impose riders, which exempt the insurers from covering treatments related to the pre-existing conditions for a specified period. Major medical plans are available to people seeking insurance only for catastrophic events, such as a car accident.
HIPAA, short for Health Insurance Portability and Accountability Act, grants coverage to those who apply for insurance within two months of losing prior coverage. For a person to qualify, his prior coverage must have been creditable, meaning that it must have been a comprehensive plan lasting at least 18 months. Per the 2010 U.S. health care reform bills, starting in 2014 insurance companies can no longer reject applicants because of pre-existing conditions.
People with pre-existing conditions usually pay higher premiums. Insurance companies mark up premiums during the medical underwriting process. COBRA is also expensive. For one person, a COBRA plan exceeded $400 per month as of 2010. Even with high deductibles, state high-risk pool premiums usually started at $300 and could exceed $1,000 per month as of 2010. To allay costs, high-risk policyholders can deduct premium costs from income taxes because the IRS allowed deductions for medical costs above 7.5 percent of the adjusted gross income. Furthermore, those who were fired or laid off between Sept. 1, 2008, and May 31, 2010, could apply for a federal COBRA subsidy.
A pre-existing condition is a disorder present before an individual applies for health insurance. Diabetes, cancer and heart disease are the most prevalent pre-existing conditions in the United States. Although it's not an illness, pregnancy typically counts as a pre-existing condition. Some pre-existing conditions such as allergies have little bearing on the outcome of an insurance application; others such as HIV and multiple sclerosis can render a person uninsurable.