Mandatory Provisions in Health Insurance Policies

Instructor: Deborah Schell

Deborah teaches college Accounting and has a master's degree in Educational Technology.

Buying a health insurance policy can be complicated because of the number of provisions in the contract. In this lesson, you will learn about mandatory provisions in health insurance policies.

What Is Health Insurance?

Let's meet Janette. She wants to purchase a health insurance policy, but doesn't understand all the contract provisions. Let's see if we can help her with this problem.

Health insurance is insurance that pays for medical expenses. Janette could purchase coverage privately through an insurance company or the government could provide coverage. Companies providing health insurance must include certain mandatory provisions in their policies. Let's have a look at some of these mandatory provisions.

Mandatory Provisions

Entire Contract Provision

The entire contract provision states that the health insurance policy is a contract between the insurance company and the purchaser.

If Janette purchased a health insurance policy, she would be entitled to all benefits and clauses contained in the contract at the time that she signed it. Janette can make changes to the policy after signing, but the insurance company cannot make any changes.

Time Limit on Certain Defenses or Incontestability

Health insurance policies contain a contestability period (usually two years) during which the insurer could deny claims submitted by the policyholder because of misrepresentation on the application. However, if the policyholder has a pre-existing condition, the insurance company cannot deny a claim until after the incontestable period expires.

If the policyholder makes a fraudulent statement in his/her health insurance application, the insurance company can deny the claim at any time even if it is after the two-year contestable period.

The only exception to this rule is if the policy contains a guaranteed renewable clause, which means that the insurance company has to renew it even if they discover that the policyholder submitted fraudulent information.

Let's assume that Janette provided false information on her health insurance application three years ago. Her insurance company just discovered the misinformation and it has denied her claim submission. Since her policy doesn't have a guaranteed renewable clause, it has decided not to renew her policy.

Grace Period & Reinstatement

We're all busy and sometimes we forget to pay our bills on time. If we forget to pay the premium or the cost of our health insurance policy, the grace period provision means that we have some extra time to pay it before the insurance company cancels our coverage. The grace period varies, but can be up to 90 days after the premium was due.

Let's assume that Janette was busy at work and forgot to pay her health insurance premium when it was due on September 1. But because of the grace period provision in her contract she can pay a little late without cancellation. Say she was late enough that the account lapsed, or became inactive. The reinstatement provision allows Janette to reinstate her policy to its original status after paying the outstanding premium.

If Janette pays the outstanding premium after the grace period has expired, she will have to complete a new application and the insurance company could approve or deny it. If the insurance company does not do anything within 45 days, the insurance company is deemed to have automatically reinstated the policy.

Proof of Loss

The proof of loss provision states that a policyholder has 90 days to tell the insurance company and provide documentation about a loss and provide information about the extent of it. Say Janette fell on some ice on February 15. She would have until May 16 to let the insurance company know about the injury and the costs associated with it.

Physical Exam and Autopsy

The physical exam and autopsy provision states that the insurance company could order a physical exam for the policyholder periodically, or, in the event of his/her death, they could order a medical examiner to complete an autopsy.

Legal Actions

The legal actions clause states the period of time that the policyholder can take legal action against the insurance company after providing proof of loss. If Janette were unhappy with the insurance company's decision about a claim, she would have to wait at least 60 days after she submitted proof of loss to begin any legal action. But she can't delay forever, there's a maximum time limit as well (usually three to five years).

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