Discrimination Under HIPAA and the Affordable Care Act: Why Health Insurers Can’t Pick and Choose Insureds

In general, insurers are allowed to choose who they insure. The process of sorting the insurable from the uninsurable is called “underwriting,” and it’s how most insurance companies function. People or companies who want coverage have to submit evidence that they are insurable—that they don’t produce too high a risk—before the insurer will issue a policy or make it active.

In the case of health insurance, however, discriminating against certain insureds means that a large number of people go uncovered—often the people who need health insurance the most. For this reason, there are safeguards in place that reduce health insurance companies’ ability to choose who they will insure based on the type of risk they present. Here’s an overview of how it works.

The Health Insurance Portability and Accountability Act (HIPAA), first made into law in 1996, curtailed health insurers’ ability to discriminate against certain potential insureds in group health plans. Under these rules, health insurers were not allowed to deny people in group health insurance plans coverage because of their health status, medical history or existing conditions, history of claims filed, evidence of insurability, disability, receipt of healthcare in the past, or genetic information.

In addition, insurers were not allowed to charge insureds more based on any of the above information. However, group plans were usually administered by employers, and the insurer could charge the employer more if there were employees in the group plan who incurred extra cost or risk.

HIPAA had some holes that still made it difficult for many people who needed insurance to get it. For instance, HIPAA did not prohibit insurers from limiting or restricting coverage for people deemed less than ideally insurable, and it did not mandate a certain baseline of coverage. In addition, HIPAA did not prevent healthcare insurers from discriminating against potential insureds who were buying plans individually.

The Patient Protection and Affordable Care Act, introduced in 2010, further limited health insurers’ ability to discriminate against certain categories of insureds. Under the new rule, insurers are not allowed to refuse coverage to anyone, whether in a group or individual plan, if they have a pre-existing medical condition. People cannot be charged more or denied treatment based on their status of health under the new law.

These rules make it riskier for health insurers to insure—as it forces them to take on sicker, more expensive insureds as well as those who are healthy and have low health care costs. However, the Affordable Care Act’s mandatory signup rule—under which everyone is required to have coverage or face a financial penalty—is supposed to mitigate the risk. This measure is there to encourage people, especially younger, healthier people, to buy coverage to offset the cost of insuring less healthy people.

It is clearly in the health insurance company’s interest to pick and choose the people they insure. However, it’s bad for society as a whole—as this could leave millions of the people who need coverage the most without it. HIPAA and, later, the Affordable Care Act made it easier for those with less than ideal health histories to get coverage. Learn more about these laws by checking out our HIPAA course here.

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