Drug and Alcohol Exclusions in Health-Insurance Policies and the Courts

Greg Hurley, Senior Knowledge and Information Services Analyst, National Center for State Courts

Many states still allow health-insurance policies to include clauses that exclude coverage for injuries suffered while under the influence of drugs or alcohol. What are the policy considerations of such clauses for courts?

In 1947 the National Association of Insurance Commissioners (NAIC), an organization of insurance regulators, adopted the model Alcohol Exclusion Law as part of a model Uniform Accident and Sickness Policy Provision (UPPL). The model provision was very influential and was adopted by a majority of states. In 2001 NAIC revised the UPPL and removed the model Alcohol Exclusion Law. The stated purpose of this change recognized that substance abuse is a medical condition and not merely an ethical or character defect. The change is reported to have been widely supported by the medical community. Since 2001 at least 12 states have repealed or amended the statutory authority that authorized drug and alcohol exclusions in health-insurance policies. However, many states still either explicitly or implicitly authorize them. The table below identifies states that either permit drug or alcohol exclusions, prohibit them, or have not taken a position.

Table 1: Alcohol- and Drug-Exclusion Clauses by State

 

Alcohol and Drug Clauses Permitted

Alcohol and Drug Clauses Prohibited

Alcohol and Drug Clauses Neither Permitted nor Prohibited

Alabama

California

Massachusetts

Alaska

Colorado

Michigan

Arizona

Connecticut

Minnesota

Arkansas

District of Columbia

New Hampshire

Delaware

Illinois

New Mexico

Florida

Indiana

Oklahoma

Georgia

Iowa

Texas

Hawaii

Maine

Utah

Idaho

Maryland

Vermont

Kansas

Nevada

Wisconsin

Kentucky

North Carolina

 

Louisiana

North Dakota

Maine

Ohio

Mississippi

Oregon

Missouri

Rhode Island

Montana

South Dakota

Nebraska

Washington

New Jersey

 

New York

Pennsylvania

South Carolina

Tennessee

Virginia

West Virginia

Wyoming

Totals

25

17

10


The purpose of this article is to point out the policy considerations with drug and alcohol exclusions in health-insurance policies, rather than make a value judgment as to whether they should be lawful. It will also identify case types or issues that appear in courts because of these policies. Drug- and alcohol-exclusion laws permit health-care-insurance companies to include a provision in their policies to exclude coverage for injuries suffered while under the influence. People taking medications prescribed by a doctor, and taking them as prescribed, are outside the scope of these statutes. 

The purpose of these provisions is to discourage the use of intoxicating substances and reduce the overall cost of insurance products for the public. This approach makes sense if illicit drug and alcohol use is seen as moral depravity. This allows for people that are following societal norms to avoid effectively subsidizing the bad behavior of others in the form of increased insurance premiums. However, over the past few decades, medical professionals, the law, and the public have begun to recognize that illicit drug and alcohol abuse are the outward manifestation of mental-health issues and are not caused by moral infirmities. When viewed in this light, the core purpose for which drug and alcohol exclusions in health-insurance policies were created is not being advanced, and perhaps it is time to reconsider whether they are still appropriate.

One thing to note about drug and alcohol exclusions is that in states that permit them in health-insurance plans, companies are not generally required to include them. Additionally, there is no quality statistical information about the prevalence of these provisions. However, in states that authorize their inclusion, there are some significant public policy concerns about the downstream effect of these provisions. First, emergency-room doctors and other medical professionals that treat emergent medical issues have a disincentive to test for drugs and alcohol in their evaluation of patients. These medical professionals recognize that, in many instances, if an insurance policy refuses to cover the costs of their services, the medical costs will likely become an uncollectable debt. The cumulative effect of these uncollectable debts will impair the financial health of their organizations. Second, the lack of information regarding the presence of drugs or alcohol can limit medical professionals’ ability to provide accurate diagnoses and treatment regiments for their patients. It also limits their ability to briefly counsel patients on their drug or alcohol use, which has been found to be a simple but sometimes effective intervention. Third, these provisions provide a strong disincentive for patients to seek medical care when they are under the influence of drugs or alcohol. This delay in treatment may greatly exacerbate the medical issue or worse. 

Drug and alcohol exclusions in health-insurance policies find their way into state court cases, although it is not currently possible to know their prevalence. Patients denied coverage due to a drug and alcohol exclusion can file an action challenging that determination. However, the more likely way that these cases will appear in court is in the form of a debt-collection action. This action may be brought by the original medical provider or by a subsequent purchaser of bulk debt. In either case, people confronted with a debt-collection action for a significant amount of money frequently file for bankruptcy. Once a bankruptcy is filed, a bankruptcy stay order will be issued, which halts any debt-collection litigation during the pendency of the bankruptcy. Stay orders are a burden on state court dockets because they cause cases to “inactively linger” for months or years.  

When the concept of drug and alcohol exclusions in health-insurance policies was originally conceived of 70+ years ago, they advanced a public-policy consideration in a reasonable way based on the information at the time. However, now that more is known about the root causes of drug and alcohol abuse and the unintended consequences of these policies, it may be time for states to reconsider whether the these policies are still justified. 


Reports are part of the National Center for State Courts' "Report on Trends in State Courts" and "Future Trends in State Courts" series.
Opinions herein are those of the authors, not necessarily of the National Center for State Courts.