15.2 Guaranteed Issue, Rating Rules, and Marketplaces

Guaranteed Issue and Renewability

Before the ACA, individual health insurers could decline an applicant or exclude a condition based on health history. The ACA replaced this with guaranteed issue: an insurer offering individual or small-group coverage must accept every eligible applicant who applies during an enrollment period, regardless of health status, claims history, or pre-existing conditions. Coverage is also guaranteed renewable — the insurer cannot cancel or refuse to renew because the insured got sick.

The ACA bans pre-existing condition exclusions entirely for these plans. A diabetic and a marathon runner of the same age in the same area pay the same base premium.

Exam trap: guaranteed issue does not mean year-round enrollment. To prevent adverse selection (people buying only when sick), enrollment is normally limited to the annual Open Enrollment Period or a qualifying Special Enrollment Period.

The Four Permitted Rating Factors

The ACA restricts what an insurer may use to set the premium. Only four factors are allowed for individual and small-group medical plans:

Banned rating factors are tested heavily: gender, health status, claims history, occupation, and pre-existing conditions may NOT affect the premium. This is community rating (modified/adjusted community rating).

Worked Numeric: Age and Tobacco

A 21-year-old non-smoker pays a $400 base premium. Under the 3:1 age band, the oldest adult (e.g., 64) could be charged up to $1,200. If that older adult uses tobacco, a 50% surcharge raises it to $1,800. The tobacco load is multiplicative on top of the age-rated premium, not added to the youngest rate.

The Health Insurance Marketplace (Exchange)

The ACA created the Health Insurance Marketplace, also called the Exchange, where individuals compare and buy qualified health plans (QHPs). A state may run its own State-Based Marketplace, or default to the federal platform (HealthCare.gov).

• Open Enrollment Period (OEP): the annual window to enroll or change plans, typically Nov 1 – Jan 15 on the federal platform.
• Special Enrollment Period (SEP): a 60-day window triggered by a qualifying life event — loss of other coverage, marriage, birth/adoption, or a permanent move. Voluntarily dropping coverage or non-payment is NOT a qualifying event.

Only plans purchased on the Marketplace can receive premium tax credits and cost-sharing reductions; identical off-Exchange plans cannot. Marketplace QHPs are organized by the metal levels from 15.1.

Exam trap: a person who simply forgot to enroll during OEP and has no qualifying event must generally wait until the next OEP — affordability regret is not an SEP trigger.

Medical Loss Ratio (MLR)

The ACA also polices how insurers spend premium dollars through the Medical Loss Ratio (MLR) rule. An insurer must spend a minimum share of premium on actual medical claims and quality improvement rather than on administration, marketing, and profit:

• 80% minimum MLR for the individual and small-group markets.
• 85% minimum MLR for the large-group market.

If an insurer falls below the threshold — for example, paying only 75% of small-group premium on care — it must issue rebates to policyholders for the shortfall. Producers should expect a question contrasting the 80% individual/small-group floor with the 85% large-group floor.

Open vs. Special Enrollment Recap

Because guaranteed issue removes the insurer's ability to screen out sick applicants, enrollment timing becomes the main safeguard against adverse selection. Outside the annual Open Enrollment Period, an applicant generally needs a qualifying life event to enroll. Common triggers include losing minimum essential coverage, marriage or divorce, the birth or adoption of a child, and a permanent move to a new rating area. Each opens a 60-day Special Enrollment window — counted from the event date, not from when the consumer noticed it.

Off-Exchange and Short-Term Plans

An ACA-compliant plan can be bought off the Exchange directly from the insurer; it carries the same EHB, guaranteed issue, and rating protections but cannot receive premium tax credits or cost-sharing reductions. Separately, short-term limited-duration plans are NOT ACA-compliant: they may medically underwrite, exclude pre-existing conditions, and skip EHBs, so they are not minimum essential coverage. Recommending a short-term plan to a client who needs comprehensive coverage is a frequent exam-trap and a suitability concern.

Guaranteed Issue and the Three Permitted Rating Factors

The ACA bars insurers from declining applicants or charging more for health status - coverage is guaranteed issue, and pre-existing conditions cannot be excluded. To keep premiums actuarially sound, the law permits only three rating factors (plus geography):

• Age - a maximum 3:1 ratio; the oldest adults may be charged no more than three times the youngest.
• Tobacco use - up to a 1.5:1 surcharge.
• Family size / tier (individual vs. family).
• Geographic rating area.

Gender, occupation, and health history may not affect the premium. This is modified community rating.

Marketplaces and Enrollment Periods

Coverage is sold on the federal or state Health Insurance Marketplace (Exchange), where shoppers compare standardized metal-level plans and determine subsidy eligibility. Enrollment is restricted to the annual open-enrollment period; outside it, a consumer needs a qualifying life event (marriage, birth, loss of other coverage, move) to trigger a special enrollment period. The employer shared-responsibility rule requires applicable large employers (50+ full-time-equivalent employees) to offer affordable, minimum-value coverage or face a penalty.