American Medical Security Group Says It Will Cease ‘Reunderwriting’ Practices

Officials at Wisconsin-based American Medical Security Group Inc. on Aug. 6 said that the insurer will end the practice of annually reunderwriting individual health insurance policies in 20 states on Jan. 1, the Wall Street Journal reports. American Medical plans to move from the practice of reunderwriting, in which health insurers raise premiums for individual policyholders after they become ill or file claims, to a "block rating" practice, in which insurers increase premiums at the same rate "across a particular policy type" (Terhune, Wall Street Journal, 8/7). Most companies that market health insurance to individuals evaluate patients' medical histories only when they sell the initial policies. However, American Medical reviews the health of policyholders at each annual renewal. The insurer reviews claims that a policyholder has filed in the past year, as well as their disease diagnoses, and assigns points to the claims and diagnoses based on the probability that they will result in future claims. Under the point system, American Medical places policyholders into one of three tiers -- preferred, manual or substandard. Preferred policyholders receive no increase in their monthly premium rate other than increases based on medical inflation; manual policyholders receive a 5% increase as a result of their health and claims filed; and substandard policyholders receive a 37% increase for the year and for each additional year spent in the tier (Kaiser Daily Health Policy Report, 4/9). Although a spokesperson for American Medical said that the insurer considers reunderwriting an "acceptable and appropriate way of rating our business," CEO Samuel Miller said in a statement that American Medical "cannot risk the long-term confidence of our agents and insureds because of misperceptions about tier rating."

Impact on Reunderwriting
American Medical's decision to end the practice of reunderwriting represents a "blow to the controversial rating practice," the Journal reports. According to supporters of reunderwriting, the practice limits premium rate increases for the "healthiest customers" and "encourages them to remain insured." Opponents, however, reject the practice as "punishing the sick and violating the basic tenet of risk-sharing in insurance" (Wall Street Journal, 8/7). State insurance regulators have begun to address the issue (Kaiser Daily Health Policy Report, 7/30). Last month, for example, the Florida Department of Insurance suspended the license of American Medical for reunderwriting individual health insurance policies. A spokesperson for Sen. Bob Graham (D-Fla.) said that American Medical's decision to end the practice of reunderwriting will not affect the senator's plans to introduce legislation next month that would prohibit premium increases for individuals based on health (Wall Street Journal, 8/7).