What if an employee or a dependent has a pre-existing medical condition?
It’s important for small business owners not to wait until an employee gets sick to purchase health insurance. Most states, Virginia included, let insurers charge a higher premium to firms with employees who have a pre-existing medical condition, which is a medical condition for which an individual has received care, treatment, or medical advice during the six-month period before coverage went into effect.
At first, the policy might temporarily exclude coverage for pre-existing conditions up to one year. After the exclusion period, the conditions will be covered and plan participants won’t have to satisfy another pre-existing condition exclusion period even if you switch health plans, as long as your employees have continuous coverage, which means coverage 63 days in a row with no interruptions.
Rating up, or increasing, premiums on the basis of health status is called medical underwriting. Virginia provides no limits on the extent to which plans can increase premiums on the basis of health status. During rate-ups, the severity of illness is taken into account. Thus, a premium increase for a minor, easily managed condition would be less than for a major, life-threatening illness. The adjustment based on illness severity could be counterbalanced by the size of the group being insured. Smaller businesses will incur greater rate-ups than larger businesses for the same illness because they have fewer insured people to spread the risk across.
The size of a rate-up is determined by the health plan and depends on such factors as actual and expected medical claims, and market conditions. If a firm already has insurance and is renewing the same plan, the premium can increase due to health status no more than 15 percent.
Each insurer has its own rate-up policies. The example that follows illustrates the impact common health conditions can have on insurance premiums for small businesses.
Premiums For A Small Firm With Less Than Perfect Health
The firm consists of six employees in the Richmond area with the following characteristics and health conditions
Gender |
Age |
Coverage |
Health Condition |
Female |
33 |
self-only |
|
Female |
49 |
self-only |
fibrocystic breast disease |
Male |
51 |
self-only |
controlled hypertension
|
Female |
27 |
self-only |
benign cervical dysplasia |
Female |
24 |
self-only |
|
Male |
42 |
employee |
Graves Disease |
In September of 2005, the total monthly premium for this firm - assuming no pre-existing medical conditions - was approximately $1,400. These premiums would increase to $2,100 for the firm through medical underwriting, or rating up premiums on the basis of health status.
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Part 1: Insurance Basics