Final answer:
An insurance company can use an exclusionary rider to limit claims for pre-existing conditions. Charging an actuarially fair premium to the entire group could lead to adverse selection. The Affordable Care Act addresses some of these issues through mandates and coverage requirements.
Step-by-step explanation:
One feature an insurance company can use to limit claims for pre-existing conditions is the exclusionary rider. This rider is an amendment or additional document that becomes part of the insurance policy and specifies a condition that the policy will not cover. Insurance companies may use this to mitigate risk from clients with known pre-existing conditions that are likely to result in high costs for the company.
When it comes to charging premiums, if an insurance company tries to charge the actuarially fair premium to the group as a whole rather than to each group separately, this can lead to adverse selection. Healthier individuals might choose not to purchase insurance, leaving a pool of higher-risk individuals, thereby increasing the average claim cost for the insurer. Additionally, selling through employers can help mix risk groups, which can partially mitigate this issue. The Patient Protection and Affordable Care Act (ACA) aims to resolve some of these issues by mandating that everyone buys insurance and preventing providers from denying coverage to individuals with pre-existing conditions.