Thursday, September 8, 2016

Are Exchanges’ Dual Dilemmas Mutually Exclusive?

Amidst the spike in health insurance premiums set to hit just before the November elections, health insurance Exchanges face two distinct dilemmas: Too few people enrolled overall—coupled with a disproportionate number of sick individuals. Unfortunately, solving these dual problems may prove mutually exclusive, as scrutinizing efforts of sick individuals seeking to obtain coverage could lead healthier people to abandon their efforts to enroll.

In recent months, insurers have raised concerns about special enrollment periods (SEPs), designed to allow individuals to sign up for coverage outside the usual fall open enrollment due to “life changes” like a move, a loss of employer coverage, or a change in marital status. Insurers believe those enrolling through special enrollment periods 1) incur more costs than those customers who sign up using the fall open enrollment and 2) are disproportionately likely to drop their coverage after several months. They believe a significant proportion of special enrollment period sign-ups come from individuals who obtain coverage due to a health crisis, obtain care with that coverage, and promptly drop it once they return to health.

In response, the Centers for Medicare and Medicaid Services (CMS), which sets federal policy for Exchanges, has proposed eliminating some special enrollment periods, and requiring documentation for others. However, an Urban Institute paper released earlier this summer noted that

This higher cost [to insurers] results from three factors: (1) enrollment by costly consumers who are ineligible for SEPs, (2) enrollment by costly consumers who are eligible for SEPs, and (3) limited enrollment by healthy and eligible consumers. CMS’s policy to verify eligibility by requesting consumer documentation addresses the first factor. However, it does not address the second, and it worsens the third by adding procedural requirements that are likely to lessen eligible consumers’ participation, especially among the healthy.

Therein lies the dilemma—both for the Administration, and for insurers. Verifying special enrollment periods will discourage those trying to “game the system” by inventing a “life change” where none exists, but it will do nothing to discourage sick individuals with a bona fide reason for claiming special enrollment—and it may also dissuade healthy individuals from signing up when they change jobs. If the second and third effects outweigh the first, the changes could actually worsen the overall health of Exchange enrollees.

Enrollment in Exchange plans remains moribund compared to original expectations. Administration data show total enrollment of 11.1 million on March 31—a decrease of 1.6 million compared to the beginning of the year, and just over half the 2016 enrollment originally projected by the Congressional Budget Office at the time of the law’s passage. While verifying special enrollment periods will help crack down on abuses of the system, they may do so by further diminishing enrollment. And the changes could actually worsen the problem of adverse selection—enrollment by too few healthy individuals, and too many sick ones—they were meant to fix.