A health policy includes a preexisting condition exclusion and a waiting period before coverage of those conditions begins. These provisions primarily serve to:
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Why A is correct
Preexisting condition limitations and waiting periods attack the core of adverse selection: the temptation to purchase insurance after a condition has already developed. If an applicant could immediately collect for a condition known before enrollment, the risk pool would be flooded with certain losses. These provisions, together with application questions and underwriting, keep the timing of purchase aligned with genuine risk transfer. (Under the ACA, such limitations are restricted in many plans, but the anti-selection rationale remains a foundational concept.)
Why the other options are wrong
- B) The provisions are risk-management tools aimed at selection timing, not punishment for honest disclosure.
- C) The provisions limit what is covered for preexisting conditions; they are not a basis for cancellation upon filing a claim.
- D) Medical questions and underwriting remain central; the exclusion is an additional safeguard, not a replacement.
Memory hook
Exclusions for preexisting conditions say: you cannot buy the fire extinguisher after the fire starts.