Insurance companies use which of the following to limit claims from pre-existing disabilities or to control adverse selection?

Insurance companies implement probationary periods as a means to limit claims related to pre-existing disabilities and to mitigate adverse selection. A probationary period is a designated time frame after an insurance policy becomes effective during which certain conditions or illnesses may not be covered. This strategy serves two main purposes.

First, it helps to prevent adverse selection, which occurs when individuals with higher risks are more likely to purchase insurance, potentially leading to greater loss for the insurer. By instituting a probationary period, insurers can reduce the likelihood that individuals will seek coverage only after receiving a diagnosis or treatment for a condition that they know will require significant medical expenses.

Second, probationary periods specifically address concerns related to pre-existing conditions by stipulating that any claims arising from conditions diagnosed or treated within this waiting period are excluded from coverage. This allows insurance companies to manage their risk effectively while ensuring that individuals are more likely to be forthright about their health status when applying for insurance coverage.

In contrast, recurrent disability clauses, reduced benefits, and elimination periods serve different functions within health insurance policy structures and do not specifically target the issue of pre-existing disabilities in the same manner as probationary periods do.