15.2 Guaranteed Issue, Rating Rules, and Marketplaces

15.2 Guaranteed Issue, Rating Rules, and Marketplaces

Before the ACA, individual major-medical underwriting used full medical underwriting: insurers could decline applicants, exclude pre-existing conditions, and charge higher premiums for health status. The ACA replaced that with guaranteed issue, guaranteed renewability, and tightly limited rating factors. These reforms are the most heavily tested portion of the ACA on the national exam.

Guaranteed issue means an insurer must accept every eligible applicant regardless of health status during open or special enrollment. Pre-existing condition exclusions are prohibited for everyone, including children. There is no longer a separate HIPAA-style waiting period for pre-existing conditions in ACA-compliant individual plans.

The Four Permitted Rating Factors

Under the ACA, premiums for an individual or small-group plan may vary based on only four factors. Everything else — gender, health history, claims experience, occupation, and pre-existing conditions — is prohibited as a rating factor.

Community rating is the underlying principle: premiums reflect the average expected cost of the rating area's pool, not the individual's health. Gender rating is banned — a 40-year-old man and a 40-year-old woman in the same area pay the same base rate.

Worked Age-Rating Example

The 3:1 age band means the highest adult premium cannot exceed three times the lowest adult premium. If the lowest-age adult base premium is $300/month, the oldest adult (age 64) may be charged at most $900/month (3 x $300) before tobacco loading.

Apply the 1.5:1 tobacco factor on top: a 64-year-old tobacco user could be charged up to $900 x 1.5 = $1,350/month. Note tobacco loading is not eligible for premium tax credit support — a point that resurfaces in Section 15.3.

The Health Insurance Marketplace (Exchange)

The ACA created Marketplaces (Exchanges) where individuals shop for qualified health plans and determine subsidy eligibility. A state may run its own Exchange, partner with the federal government, or default to the federally facilitated Marketplace (HealthCare.gov).

Enrollment occurs only during set windows:

• Open Enrollment Period (OEP): the annual window to enroll or change plans for the coming year.
• Special Enrollment Period (SEP): a 60-day window triggered by a qualifying life event — losing other coverage, marriage, birth or adoption, divorce affecting coverage, or a permanent move.

Outside these windows, an applicant generally cannot buy ACA major-medical coverage, which is why agents stress SEP documentation.

Guaranteed Renewability and Grandfathered Plans

ACA-compliant plans are guaranteed renewable — the insurer must renew regardless of the insured's changed health, and may only non-renew for non-payment, fraud, or market withdrawal.

Grandfathered plans (in force before March 23, 2010, with no major benefit changes) are exempt from some ACA mandates, such as covering all EHBs, but still must honor the ban on lifetime limits and the dependent-coverage-to-age-26 rule. The exam likes to ask which protections apply to grandfathered plans: dependent coverage to age 26 and the lifetime-limit ban do apply; full EHB and metal-level rules do not.

Dependent Coverage and Preventive-Care Mandates

Two further consumer protections appear across both individual and group plans. First, plans offering dependent coverage must extend it to adult children up to age 26, regardless of the child's marital status, residency, financial dependency, or access to other employer coverage.

Second, in-network preventive services rated A or B by the U.S. Preventive Services Task Force — immunizations, recommended screenings, and well-woman visits — must be provided with no cost-sharing, meaning no deductible or copay even if the insured has not met the deductible. Watch for the trap that out-of-network preventive care may still carry cost-sharing; the first-dollar rule applies to in-network services.

Open Enrollment, Special Enrollment, and Network Adequacy

ACA individual coverage is sold only during the annual open enrollment period (OEP) unless the applicant qualifies for a special enrollment period (SEP) triggered by a qualifying life event — loss of other coverage, marriage, birth or adoption, or a permanent move. Without a SEP, an applicant who misses OEP must wait until the next year, which is why guaranteed issue does not mean buy-anytime.

Plans must also meet network adequacy standards and publish a current provider directory; an enrollee who uses an out-of-network provider faces higher cost-sharing that does not count toward the in-network out-of-pocket maximum.

The Single Risk Pool and Medical Loss Ratio

ACA-compliant individual plans are priced from a single risk pool, so a carrier cannot quietly segregate sick enrollees into a higher-priced block. Carriers must also meet the medical loss ratio (MLR) rule: at least 80% of individual/small-group premium (85% for large group) must be spent on claims and quality improvement, or the carrier owes policyholders a rebate. The exam tests the 80/20 split and the fact that excess administrative spending is refunded.