Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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The lowdown...

  • Riders are amendments to health insurance policies that either add or exclude coverage
  • Option or benefit riders amend the contract to add benefits or increase coverage
  • Exclusionary riders are amendments that take away or limit areas of coverage
  • Prior to the Affordable Care Act many states permitted insurers to exclude types or medical categories from health insurance coverage
  • The Affordable Care Act abolished exclusionary riders in qualified health insurance

Insurance riders were a primary tool of the insurance industry for avoiding unwanted risks among the populations they covered. The practice involved separating out medical areas from coverage. For example, they might insure a woman of childbearing age but exclude pregnancy and maternity benefit.

Comparison shopping is an excellent method for finding the best value in Obamacare health insurance. Enter your zip code above to compare free quotes today!

Riders and Price Discrimination

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The practice of using insurance riders was a vehicle for price discrimination. Exclusions and limitations clearly favored the insurer’s risks over the consumer’s financial well-being. Riders represented changes in the standard premium agreement that reduced coverage but often did not reduce the price in a fair proportion.

Conversely, if a rider added coverage, the insurers charged more than it did for those with the standard agreement. The Affordable Care Act banned price discrimination and limited the instances in which insurers could use individual traits to set terms.

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Community Rating

The opposite of selective and individual based rating is community rating. Community rating treats every member of an insured group equally as to terms and price. Community rating replaced the widespread industry practice of medical underwriting.

The Affordable Care Act used a modified form of community rating. It permitted limited discrimination based on a few factors such as applicant’s age and location.

Exclusions, Limits, and Underwriting

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The most common use of riders was as add-ons that insurers used to limit or subtract items from the standard insurance agreements. Policy limits reduced coverage from levels needed to levels that protected insurers risks.

Exclusions completely removed certain types of coverage such as cancer in a smoker’s application. The process of identifying limits and exclusions usually involved medical underwriting which was an insurance investigation of an applicant’s medical history.

Community Rating without Riders

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The Affordable Care Act permits limited use of only a few individual factors when insurers set price and terms of coverage. The below-listed items describe the details of the narrow exceptions to community rating:

Age

The ACA permits insurers to charge older applicants more. Insurers can charge the oldest member of a subscriber group as much as three times the amount of the youngest subscriber. Before the ACA, insurers routinely charge five times the lowest premium for age. The age exception was a fact-based conclusion as evidence supported that insurers experienced higher costs related to age.

Location

The Affordable Care Act recognizes the difficulty of providing medical care in all areas of the US particularly in traditionally underserved areas such as large rural counties. Scarcity is a factor in determining the price of medical care. The ACA recognizes the facts and evidence on pricing in areas with low levels of available medical care.

Tobacco Usage

The Act encourages smoking cessation. It permits insurers to charge as much as one and one-half the lowest premium amount for subscribers that use tobacco. These tobacco users can gain lower rates upon completion of smoking cessation programs.

Family Size

The ACA permits price discrimination when insuring family groups rather than individuals. Dependents run a wide range of characteristics from older persons to young children and infants.

Type of Plan

The Obamacare tiers contain four types of plan. Platinum, Gold, Silver, and Bronze describe the actuarial values of these four types of health insurance. Insurers can charge more for the higher rated plans that cover more benefits and charge lower out-of-pocket expenses.

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The Individual Mandate

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The basic reforms of the Affordable Care Act favored consumers over insurance companies. The law abolished the practice of medical underwriting and denial of insurance due to pre-existing conditions. The individual mandate required every eligible citizen to get and keep qualified health coverage.

Guaranteed Issue Insurance

The corollary of the individual mandate was guaranteed issue insurance. The Affordable Care Act required insurers to accept every applicant and extend equal terms of coverage and price.

The Affordable Care Act banned the use of pre-existing conditions from denying coverage to children in 2010; the law extended the ban to protect all applicants in 2014.

Qualified Health Insurance

Exclusionary and limiting riders would disqualify insurance policies under the Affordable Care Act. The exclusions and limits in traditional insurance riders violate the requirements for essential health benefits, minimum actuarial value, minimum essential coverage, and limits on consumer expenses.

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Employer-Sponsored Health Insurance

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Group insurance providers and sponsors used riders to customize benefits. In addition to exclusions for certain condition, riders also could increase protection and provide specific coverage such as dental, hearing, and vision benefits.

Option riders were not part of the standard contract; they were add-ons that insurers attached to the standard agreement. They were a popular sales method for insurance companies to expose employee groups to higher priced options and market-related products.

Riders Could Add Coverage

Group insurers sometimes used riders to add coverage on a selective basis. This was a popular way for corporate employers to reward specific employees or groups of employees. Riders could add benefits and favorable costs.

Rider options could work with employer contributions like FSA or Health Reimbursement Arrangements.

  • Benefit options could reward senior executives
  • Employees could choose to increase coverage and accept the costs
  • Benefit options could add value to employment

Limiting and Exclusionary Riders

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The role of exclusionary or limiting riders in health insurance has declined due to the reforms of the Affordable Care Act. The industry used riders to protect profits and limit protection for consumers. The widespread practice protected insurers against risks they did not want to assume.

By reducing coverage for individual customers, they exposed insured consumers to unreasonable risks of medical debt.

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Riders in Health Insurance

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Riders may help insurers, employers, and consumers to customize coverage to suit their needs. The policies must be consistent with the requirements for qualified health insurance under the Affordable Care Act. Riders can add coverage that consumers prefer, and employees can offer option riders to employees.

Comparison shopping is an ideal way to measure the costs and benefits of option riders that increase coverage or add specific types of coverage. Compare free quotes now by entering your zip code below!