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The Insurance Underwriting Process | A Payor’s Guide

Payor's Guide to the Insurance Underwriting Process

An efficient insurance underwriting process forms the backbone of the payor industry. 

Insurers use underwriting to evaluate the risk posed by potential clients and set premiums accordingly. Having the resources to deploy a streamlined underwriting process is essential for ensuring prompt and accurate assessments — upholding payor organizations’ financial stability and competitive edge.

As important as life insurance is, it can take 4-6 weeks to approve each application. Gathering the complete medical histories of policy applicants is one significant factor that causes delays.

Under HIPAA and the HITECH Act, healthcare providers have 30 days to release medical records to requestors, with an additional 30-day delay if they can provide a valid reason in writing. 

Fortunately, electronic Release of Information (ROI) platforms like Chartrequest help healthcare professionals deliver these documents on time.

In this article, you will review the insurance underwriting process and how ChartRequest can reduce obstacles along the way.

What Is Underwriting in Insurance?

Insurance underwriting is the method insurers use to determine the risk of insuring a person or business. It also helps them decide which pricing standards to set for specific types of customers. 

Think of the process as a background check. The company gathers data about a person’s health, car accident history, and factors that may put their homes at higher risk for storm damage.

Statistics show that nearly 50% of Americans under 65 have pre-existing health conditions, affecting their life insurance choices. While payors cannot charge more or deny services to these individuals, this information does help them assess risk on a broader scale.

Why an Efficient Insurance Underwriting Process Is Important

The insurance underwriting process requires significant attention and resources. 

Mismanagement of these essential duties could lead to an overwhelming backlog of insurance claims. Failing to assess risk and create a cost-saving policy properly could also result in available benefits running dry.

According to a survey, underwriters dedicate only 30% of their time to risk assessment. The rest goes to non-core work, like collecting medical records. Companies like ChartRequest can reduce the amount of time spent on each task by delivering these documents quickly and compliant with HIPAA guidelines.

With these plans in place, a payor organization can calculate risk and optimize insurance plans for improved health and reimbursement outcomes.

Types of Underwriting in Healthcare

Several methods are practical for evaluating and managing risk in the insurance sector. Each type has its own set of rules and advantages.

Below, you can review the five primary underwriting systems in the healthcare sector:

1. Full Medical Underwriting (FMU)

Full medical underwriting, or FMU, refers to when the payor inquires about detailed information about the applicant’s medical history before providing insurance coverage. They may ask for:

  • Records of past treatments
  • Any ongoing conditions
  • Medical examinations
  • Other essential clinical information

Advantage: FMU allows insurers to thoroughly assess the risk of providing coverage, potentially resulting in lower premiums for healthy applicants.

According to statistics, effective full medical underwriting practices increased net earned premiums by 11% in 2022. In other words, payors in the United States enjoyed a combined $1 trillion in premium earnings.

2. Moratorium Underwriting

Moratorium underwriting doesn’t require a patient to provide their medical history upfront. Instead, it imposes a waiting period on pre-existing conditions. For example, a patient with any condition developed in the last five years may not receive coverage under their active policy for the first few years.

According to a report, mandatory moratoriums contributed to over 80% of the statewide insurance non-renewal reduction.

Advantage: This method speeds up the application process and limits risks imposed on the insurance provider.

3. Continued Personal Medical Exclusions (CPME) or Switch Underwriting

CPME, also known as Switch Underwriting, is practical for patients who want to change insurers but remain on a similar coverage plan. Their new insurer accepts the medical underwriting terms of the previous policy, including any exclusions.

Advantage: It allows individuals to switch policies without losing coverage or undergoing full medical underwriting again.

4. Community-Rated Underwriting

The community-rated insurance underwriting process involves setting premiums based on the overall risk of the community or group rather than individual health status or history. Everyone pays the same rate.

Advantage: This method promotes fairness and equality in insurance premiums, regardless of individual health conditions.

According to the Kaiser Family Foundation, several states impose rating restrictions in the small-group health insurance market. This policy aims to promote equity in insurance costs across different demographics.

5. No Underwriting or Guaranteed Issue

No Underwriting, also known as Guaranteed Issue, means the insurer does not require any medical information before offering coverage. These policies can be expensive for members and may offer less comprehensive coverage.

Advantage: These policies provide an option for those who might not otherwise be able to obtain insurance due to their health status.

Factors That Affect Underwriting Results

The insurance underwriting process is like a puzzle. Insurers collect several pieces of information — primarily from the medical record — to create a complete picture before issuing a coverage plan.

Here are some of the elements on a medical chart they may consider:

Health Records

Medical histories give insurers a trove of information when formulating a coverage plan. If a person is generally healthy, they are less likely to make costly claims for the organization.

It’s important for patients to remember that withholding or lying about a medical condition during an application can result in the denial of claims or the cancellation of their policies.

Lifestyle Choices

Patient lifestyle habits — like tobacco and drug use — impact the insurance underwriting process for payors. 

Consider that insurance companies perceive smokers and those who enjoy skydiving as high-risk individuals compared to others.

According to some surveys, smokers can pay two or three times more for life insurance than non-smokers.

Financial History

Another factor insurers consider is a patient’s financial past. These elements give payors an idea of how likely a patient will pay their membership fees on time. 

Credit scores or bankruptcy history can help the insurance provider predict future behavior.

Laws can also shape the operational landscape of underwriting. For instance, some areas have rules about what information is reviewable for insurance decisions. These limitations keep the process fair and prevent discrimination.

Laws Governing Life Insurance Application Approval

In the insurance industry, several regulations ensure fairness, privacy, and nondiscrimination during the application process.

Here’s a simplified breakdown of these laws and what they mean:

1. Health Insurance Portability and Accountability Act (HIPAA)

HIPAA is the federal standard that ensures medical information remains private and protected.

It prevents insurance companies from sharing patients’ Protected Health Information (PHI) without their consent. This law also makes sure patients’ health details stay confidential except for authorized use in the insurance underwriting process.

Several high-cost HIPAA violations occurred in 2023, emphasizing the importance of staying current and up-to-date with these laws. The maximum criminal penalty for intentional HIPAA violation is ten years in prison.

2. Genetic Information Nondiscrimination Act (GINA)

GINA is a federal law that prohibits discrimination based on genetic information.

It stops insurers from using genetic information, such as DNA testing results, to deny coverage or set higher premiums. This practice ensures fair treatment for those with unavoidable genetic conditions.

3. Affordable Care Act (ACA)

The ACA is a comprehensive healthcare reform law that includes several provisions related to insurance underwriting and application approval.

This critical legislation aims to make healthcare more accessible and affordable to a broad spectrum of Americans. Additionally, all plans under the ACA must cover essential health benefits and limit premium variation based on age. These provisions help create a more equitable insurance market for individuals and small businesses.

ACA requires insurance companies to justify rate increases of 15% or more on premiums before they can apply them.

4. Fair Credit Reporting Act (FCRA)

The FCRA is a federal law regulating consumer credit information collection, use, and disclosure.

It ensures that insurers obtain accurate and relevant financial information from applicants before making underwriting decisions, preventing them from making biased or discriminatory decisions based on incorrect financial data.

7 Steps of the Underwriting Process

Here is what a usual insurance underwriting process looks like:

1. Application Gathering

The first step in the underwriting process is collecting information from the applicant. This practice requires patients to fill out forms covering their personal, financial, and medical histories.

2. Initial Assessment

Once the applicant submits their documents, underwriters can begin to take action. They use the information the applicant provided to assess the risk level and ensure that individual information matches up.

3. Medical Records Retrieval

Underwriters may require more details about a person’s health before revising a coverage plan from a healthcare provider or custodian. ChartRequest is a valuable tool during this underwriting phase to securely access medical records.

4. Risk Analysis

With adequate data, underwriters can move on to the risk analysis stage. During this step, payors look at the health, lifestyle, and financial stability to predict how likely an individual is to file a claim. This step is all about balancing the risks with the potential costs to the insurer.

5. Decision Making

After gathering all the necessary information, underwriters decide whether to offer applicants coverage and at what price. This step ties everything together, using the collected data to balance risk and decide on premiums.

6. Policy Issuance

If everything checks out and the underwriter approves the application, they will formally issue the policy. At this step, the individual can officially enjoy active coverage and review their plan via a company platform or account portal.

7. Ongoing Review

It’s important to remember that the underwriting process doesn’t end once the policy is in place. Insurers periodically review policies as new information comes to light. These reviews ensure that patient coverage reflects any changes in your risk profile.

Best Practices for Insurance Underwriting

An efficient insurance underwriting process requires a blend of knowledge, skills, and best practices. Just as important is empathizing with and understanding an applicant’s unique situation. Human insight enables underwriters to create equitable, competitive policies personalized to specific requirements.

Here are some crucial guidelines to ensure a smooth workflow:

Continuous Training and Development

Underwriters must participate in ongoing education. This responsibility keeps employees sharp and informed about the latest trends, technologies, and insurance regulations. 

Staying Updated with Regulations and Standards

Laws and individual organizations heavily regulate the insurance industry. These standards can evolve, so it is crucial to monitor legislation and industry changes routinely. This method will help payors avoid expensive HIPAA violations or lawsuits that may jeopardize their ability to continue business.

Implementation of Technology

Technology is pivotal in improving the insurance underwriting process. From automated systems that gather and analyze data to AI that more accurately predicts risks, the right technology can transform underwriting.

When underwriters leverage technology, they can process applications faster and more accurately. This advantage leads to better decision-making and happier customers.

Strong Cybersecurity Practices

Data theft is a major concern in the insurance industry. Payors need to understand the basics of phishing prevention in healthcare to avoid accidental disclosures of PHI.

If that information falls into the wrong hands, it could lead to severe problems, such as identity theft or financial loss.

Moreover, hackers are finding new ways to sow chaos with the development of advanced technology. That is why insurers should regularly update their cybersecurity policies. 

Clear Communication

Clear communication between underwriters and applicants is crucial for success. Applicants must understand what information payors expect from them, and each organization prices premiums.

Providing clear explanations can improve customer satisfaction and trust in the insurance process.

Boost Your Insurance Underwriting Process Using ChartRequest!

An efficient insurance underwriting process can make all the difference for both payors and members. ChartRequest can enhance your experience with a simplified medical record request platform.

Our user-friendly platform allows you to easily request, track, and receive medical records from healthcare providers whenever needed. Additionally, our advanced technology and iron-clad encryption keep data safe from cybercriminals. 

If you seek to enhance your underwriting processes, choose RecordGateway by ChartRequest.

Book a free demo with us and consult our ROI experts today!

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