States have issued other types of regulations to ensure access to the individual private health insurance market. Among the more common are pre-existing condition limitations and medical loss ratios.
Pre-existing conditions are those conditions for which a policyholder was diagnosed, sought advice, sought treatment, or received care during a specific period of time prior to an application for insurance. Some insurers use pre-existing condition limitations to manage insurance costs by limiting or eliminating coverage of these conditions for some defined period of time after the initial purchase of a policy. Most states have implemented limitations on how far an insurer can go back to find prior claims for conditions (the look-back period) and how much time can elapse before coverage of these conditions begins (the exclusionary period). (See the subsequent section on Variation in Regulations within States for examples.)
A medical loss ratio is the percentage of dollars paid out as benefits to policyholders in relation to the premiums collected for the policies. For example, a state may require that an insurer spend at least 75 percent of the premiums they collect on medical claims. Loss ratios can be calculated for a particular policy form or design, a line of business, or a health insurer’s overall business. Only a handful of states require all insurers in the individual market to spend at least 75 percent of every premium dollar on medical care (Families USA, June 2008). Some states establish minimum loss ratios and reserve the right to review or approve the rates submitted by state-licensed insuring organizations. Insurers must estimate what they will spend on medical claims over the course of a year and set their premiums accordingly.
Because premiums must be set at the start of a policy year, actual claims may be more or less than anticipated. If an insurer has underestimated or overestimated the amount of claims, it may adjust the policy premiums in the following year to make up for the discrepancy. In some states, if claims are lower than expected and medical claim expenses do not meet the loss ratio, the insurer must refund the excess premium to policyholders at the end of the year.