Overview: Health insurance policies do not cover everything. Exclusions, limitations, and restrictions are three distinct tools insurers use to define the boundaries of coverage and manage their financial exposure.

These three mechanisms serve different purposes and operate differently. Understanding the difference is both practically and exam-relevant.

An exclusion completely removes coverage for a specific condition, service, or circumstance. No benefits are paid, and the excluded cost does not count toward the deductible or out-of-pocket maximum. Common exclusions include:

Cosmetic and elective procedures (plastic surgery for appearance, teeth whitening)
Experimental or investigational treatments
Dental and vision care (typically requiring separate policies)
Long-term custodial care
Injuries sustained while committing a felony
Self-inflicted injuries

Exclusions work by preventing adverse selection for predictable, high-cost, or purely voluntary services. If fertility treatments were universally covered without exclusion, only people planning to use them would seek out those specific policies — precisely the adverse selection problem that destabilizes a risk pool.

A limitation does not eliminate coverage but caps it. The insurer pays — but only up to a specified maximum. Limitations take three common forms:

Visit limits — for example, physical therapy covered for up to 30 sessions per year
Dollar caps — for example, chiropractic care limited to $1,000 per year
Waiting periods — requiring the policyholder to hold the policy for a specified period before certain expensive benefits (maternity care, orthodontia) become available

Limitations address moral hazard: when care appears free or very cheap because insurance covers it, patients and providers may use more of it than is medically warranted. A visit cap forces efficiency without eliminating the benefit entirely.

A restriction governs how covered care must be accessed rather than what is covered or how much will be paid. Failure to follow the restriction results in claim denial. Common restrictions include:

Network requirements — patients in HMOs must use in-network providers or receive no coverage (except emergencies)
Prior authorization — certain procedures and expensive drugs require advance insurer approval before they are performed or prescribed
Step therapy — the insured must try a less-expensive medication first before the insurer will authorize a brand-name or specialty alternative

Restrictions lower the insurer's cost per unit of service by channeling patients into negotiated-rate networks and by filtering out unnecessary or duplicative care through prior authorization.

Mechanism	Definition	What It Prevents	How It Reduces Exposure
Exclusion	Completely removes coverage for specific items	Adverse selection for elective/predictable high-cost care	Eliminates liability entirely for the excluded category
Limitation	Caps coverage by visits, dollars, or time	Overutilization (moral hazard)	Creates a hard ceiling on maximum payout per service
Restriction	Sets access rules that must be followed	Unnecessary care, overpriced out-of-network services	Steers patients to negotiated rates and filters claims