How does health insurance policy underwriting work?

Health insurance companies use medical underwriting to make policy coverage decisions. Medical underwriting means that your insurer will look at your health information as part of the application process to decide what policy coverage they're willing to offer and how much your premiums will cost.

In practice, medical underwriting is used to determine what personal medical exclusions will apply to your policy. Private health insurance excludes pre-existing medical conditions, and the medical underwriting process determines what those exclusions will be. This is because there's a higher risk that you'll need treatment for a condition if you've had it before, and your insurer needs to either cover or exclude that risk. When you take out a business health insurance policy to cover your employees, the exclusions that apply will be personal to them but will affect the overall cost of your premiums.

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Every health insurance policy has some standard exclusions that vary between different insurers. These will apply regardless of your employee's medical history and typically includes accident and emergency services, cosmetic surgery or treatment for addiction. In addition, private medical insurance doesn't cover chronic conditions which need long-term care and management.

Other exclusions will vary depending on your medical history and will include any pre-existing medical conditions that your employee sought medical advice or treatment for in the five years before they joined the policy. However, these are subject to a moratorium period, so pre-existing conditions may not be permanently excluded.

How does a moratorium period work?

Pre-existing medical conditions are excluded for a two-year period from the date when the policy cover started. So, for example, if your employee had an operation on their shoulder six months before joining the policy, they wouldn't be covered for any private treatment on their shoulder during the first two years of the policy. However, if they stay symptom-free and don't need further treatment during that two-year period, your insurer can potentially remove the exclusion.

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What are the main types of health insurance underwriting?

There are three main types of underwriting available to business health insurance customers. Moratorium underwriting, full medical underwriting and medical history disregarded underwriting. Here's what each of these underwriting terms means and how they operate.

Moratorium underwriting

When your private health insurance is issued on a moratorium basis, any pre-existing conditions will be excluded from cover for the first two years of the policy, as we've already described. The difference between this and other types of medical underwriting is in how these exclusions are determined.

What information will your employees need to provide?

New employees won't need to provide medical details when they first join the policy, so you can add them quickly and easily. You'll be able to add them using the information you already have. Most insurers provide you with online resources to allow you to carry this out quickly and easily.

How the claims process works

When your employee makes a claim, your insurers will investigate to see what policy cover is available and whether any exclusions apply. They'll look at your employee's past medical history and decide whether there is evidence of any pre-existing conditions that exclude their current claim from cover. This can make the claims process lengthy, and there's no guarantee that it will be approved.

Benefits of moratorium underwriting

Moratorium basis underwriting is an excellent option for businesses whose employees have a generally straightforward medical history. It allows you to give your employees access to private medical insurance cover quickly and easily without asking them to complete any extra paperwork. It also gives your HR staff one less thing to chase, saving them time.

This could be a real advantage if you have a large workforce to manage.

Disadvantages of moratorium underwriting

The main disadvantage of this type of underwriting is that the claims process is much slower and more unwieldy. One of the main benefits of private medical insurance is that it gives you quick access to treatment, improving the prognosis for some types of cancer and preventing further deterioration in musculoskeletal injuries. Your employee may go through a protracted claims process only to have to start the process again to receive treatment on the NHS. With NHS waiting lists at record highs, that could cost them valuable time.

In addition, moratorium policies tend to be more expensive than other types of underwriting as your insurers can't accurately assess the risk factors involved in providing cover and must offset the risk that they'll need to deal with unexpected medical conditions.

Full medical underwriting (FMU)

Full medical underwriting applies exclusions in the same way as other types of medical underwriting, so any pre-existing conditions will be excluded from coverage during the first two years after your employee joins the policy. However, the policy will operate differently in practice because of how information is collected.

What information will your employees need to provide?

When an employee joins the policy, they'll provide details of their full medical history upfront by completing a health questionnaire with information about their general health and their past and current medical history, including treatment dates. They may also be asked about relevant medical conditions in their family history.

When the policy renewal is due, they may also need to provide details of any care they received during the past year that wasn't covered by the policy. For example, this could include NHS physiotherapy if your policy doesn't have outpatient cover or treatment at a private hospital which they paid for because it fell within a policy exclusion.

How the claims process works

FMU provides greater certainty during the claims process as your employee has already provided a full medical history, so they'll know what's covered and which pre-existing conditions are excluded upfront. Claims can be dealt with quickly and efficiently as your insurer only needs to check whether any benefit limits apply before responding.

This gives your employees access to private medical treatment quickly and easily.

Benefits of FMU

The main benefit of FMU is that it gives you and your employees greater certainty about what is and isn't covered from the outset, which also makes the claims process more straightforward.

The other advantage is that your premiums will often be cheaper as your insurer can accurately assess the risk that one of your employees will make a claim.

Disadvantages of FMU

The underwriting process can mean it takes longer to set up a policy. In addition, more paperwork is involved, which can create additional work for your HR staff in administering the scheme, adding new starters and collecting information for policy renewals.

It can also be challenging to get exclusions removed at the end of the moratorium period.

Medical history disregarded underwriting (MHD)

Medical history disregarded underwriting is only available with business health insurance policies. In addition, it's typically only offered to larger businesses with a minimum of 20 employees. Whilst this isn't a hard and fast rule, if you're looking for small business health insurance, you likely won't be eligible, and you'll need to look at other underwriting options.

MHD underwriting does what it says on the tin. Your employees won't need to provide any medical information, and your insurer will cover pre-existing conditions regardless of when the treatment was given.

What information will your employees need to provide?

Your employees won't have to provide medical information when they join the policy, so you can add them to the scheme immediately.

How the claims process works

The claims process is quick and easy as your insurer will only need to check whether the required treatment is covered under your policy and whether any coverage limits apply.

Benefits of MHD underwriting

With MHD underwriting, you can give your employees access to private care when needed, even if it involves treatment for a pre-existing condition. In addition, it makes the claims process more straightforward and protects your employees' privacy.

For example, say your employee is away from work and waiting for treatment. If you have an MHD policy, they'll be able to access private treatment immediately. Without it, an exclusion may apply, which means they'll need to wait longer for NHS treatment. So whilst you won't have direct access to their medical details, you may still expect them to explain why they'll be away from work for an extended period.

Disadvantages of MHD underwriting

As you might expect, the main disadvantage is the cost of your premiums. Covering all pre-existing conditions increases the risk that your employees will claim on the policy, so your insurer will charge more to cover the potential cost.

However, this may be worthwhile if it enables you to reduce absenteeism and improve your employees' overall health.

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Getting professional advice

A broker can help you understand your underwriting options and find the right private health insurance for your employees. We provide a personal service that's tailored to you. Get in touch with us for a comparison quote.

Louis Vafa
Senior Broker & SME Expert

Louis Vafa

Having previously worked for Axa Health and with over a decade's experience, Louis provides expert financial advice to both our personal and business clients.

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