Excluding or limiting coverage under a health insurance contract for preexisting conditions

Issued and entered December 28, 1998 by E.L. Cox, Commissioner of Insurance

INFORMATIONAL STATEMENT AND PROCEDURAL GUIDELINES ISSUED PURSUANT TO ACT 306 OF THE PUBLIC ACTS OF 1969 AS AMENDED

Public Act 517 of 1996 was signed into law on January 13, 1997. Many insurers have inquired about the practical application of Section 500.3406f which was added to the Insurance Code by this Act. The purpose of this bulletin is to provide information to insurers for use in determining the parameters of permissible preexisting condition exclusions and limitations for group and individual expense-incurred hospital, medical, or surgical policies or certificates under 3406f.

Section 3406f restricts an insurer's ability to "exclude or limit coverage for a condition" on and after October 1, 1997. That section reads in pertinent part:

An insurer may exclude or limit coverage for a condition as follows: ...only if the exclusion or limitation relates to a condition for which medical advice, diagnosis, care, or treatment was recommended or received within 6 months before enrollment and the exclusion or limitation does not extend for more than [either 6 or 12 months depending on the type of coverage] after the effective date of the policy or certificate.

MCL 500.3406f (1) (bracketed reference added).

The language pertaining to restrictions on preexisting condition exclusions or limitations did not focus merely on policy language, but instead referred to the acts of the insurer. Section 3406f (1) forbids an insurer from excluding or limiting coverage except as permitted by section 3406f. The adoption of section 3406f did not merely make the issuance of a policy with nonconforming preexisting condition language unlawful. It also made it illegal to exclude or limit coverage in a manner inconsistent with the restrictions in section 3406f. Therefore, enforcing a nonconforming preexisting condition exclusion or limitation after September 30, 1997 is prohibited, even if the policy or certificate took effect before October 1, 1997. Please note that section 3406f measures the permissible limitation or exclusion period from the effective date of the policy or certificate. Also note that section 3406f applies to limitation and exclusion riders for specifically identified preexisting conditions as well as general preexisting condition limitation and exclusion clauses. Therefore, not only is an insurer prohibited from issuing policies with nonconforming policy language on or after October 1, 1997, but an insurer is also prohibited from enforcing policy language to the extent that is inconsistent with limitations in section 3406f on or after October 1, 1997.

As an example, assume an individual policy was first effective on September 1, 1997. On or after October 1, 1997, an insurer violates section 3406f when it excludes or limits coverage for a preexisting condition beyond September 1, 1998 (12 months from the effective date), because to do so would be contrary to the restrictions contained in section 3406f. (In addition, under this same example, an insurer violates section 3406f when it excludes or limits coverage for a preexisting condition on or after October 1, 1997 if the exclusion or limitation relates to a condition for which medical advice, diagnosis, care, or treatment was recommended or received more than 6 months before enrollment.)

Insurers are advised to review all claim denials and all policy/certificate exclusions and limitations on and after October 1, 1997 for consistency with the requirements of code section 3406f. Questions regarding this bulletin or code section 3406f should be directed to the Michigan Insurance Bureau, Commercial Market Standards Division, P.O. Box 30220, Lansing, MI 48909, or call (517) 373-0242.