Maternity Coverage In The Individual Health Insurance Market

The House Committee on Energy and Commerce released a memorandum this week detailing the practices of the four largest private health insurance carriers (Aetna, Humana, UnitedHealth Group and Wellpoint) regarding maternity coverage on individual policies.  For anyone who is familiar with the individual health insurance market, the details of the memo will come as no surprise.  But since the majority of Americans are covered by group health insurance plans that cover maternity just like any other claim, the details of how maternity coverage works in the individual market may be eye-opening for a lot of people.

In Colorado, there are almost no options for maternity coverage in the individual market right now.  This will change next year when HB 1021 takes effect and requires all policies to include maternity coverage at issue or when they renew.  This approach actually makes far more sense than allowing women to add optional maternity riders to their health insurance policies.  Riders used to be somewhat common in the individual market in Colorado a decade ago, but nearly all of the carriers have stopped offering them as there was just no way to make them profitable.  That makes sense when you consider how pregnancy differs from most other medical expenses… nobody buys health insurance hoping or expecting to get cancer, or have a heart attack, or get hit by a car.  But women who opt to pay additional premiums in order to add maternity riders to their health insurance policies are nearly always hoping and expecting to become pregnant in the relatively near future.  This makes the loss ratio on maternity riders unsustainable, which is why most carriers no longer offer them.  Including maternity coverage on all policies makes much more sense, and brings the individual market more in line with the group market in that regard:  everyone will pay a somewhat higher premium (it remains to be seen how much this will be, but it should definitely be less than the cost of the previously available optional riders), but many insureds will not become pregnant.  This is exactly how group policies work – all insureds are paying for maternity, regardless of their age, gender, or whether they plan to have children in the future.

The House memo details how the PPACA will impact maternity coverage in the individual market:  As of 2014, applications will no longer be denied because the applicant is an expectant parent, and all policies will have to cover maternity costs (as opposed to just complications of maternity, which is the case now).  Colorado will be a step ahead of this, with all policies covering maternity as of 2011, but coverage will not be guaranteed issue for expectant parents here until 2014 when the PPACA regulations take effect.

People often have questions about why individual health insurance carriers (pretty much all of them, not just the four largest that are included in the House memo) decline applicants who are expectant parents, even if the policy itself does not cover routine maternity costs.  The answer is two-fold, and makes sense from an actuarial standpoint.  First of all, even though most individual policies do not cover routine maternity costs, they all cover complications of pregnancy, which can get very expensive, very quickly.  If a woman applies for a policy and she is not pregnant, she presents less financial risk to the insurance company than a woman who is currently pregnant and may go on to develop complications.  The other reason that expectant parents are typically declined for coverage (including expectant fathers and applicants who are adopting a child) is that newborn babies and adopted children can be added to either parent’s health insurance policy with no medical underwriting in the first month after the birth or adoption.  So if an insurance company accepts an applicant who is an expectant parent, they are also accepting the potential risk that goes along with adding a baby to the policy regardless of the child’s health.  Babies are added to existing policies all the time, but an expectant parent who applies presents a more immediate and definite risk than a person who may or may not become a parent at a later date.

Once the provisions of the PPACA become effective in 2014, all policies will be guaranteed issue, and pregnancy will no longer be a pre-existing condition that prevents expectant parents from obtaining individual coverage.  This will no doubt present an increased financial obligation for insurers, but hopefully the mandate requiring everyone to have health insurance will help to offset the additional costs.

About Louise Norris

Louise Norris has been writing about health insurance and healthcare reform since 2006. In addition to the Colorado Health Insurance Insider, she also writes for healthinsurance.org, medicareresources.org, Verywell, Spark by ADP, and Boost by ADP, and Gusto. Follow on twitter and facebook.

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