Should open enrollment end by December 31 to prevent adverse selection?

A year ago, I wrote a post in which I expressed the opinion that open enrollment should continue into January every year. At that point, the proposed guidelines from HHS had called for the 2016 open enrollment period to end on December 15, 2015 (ie, next week), and I noted that this would mean people whose plan was auto-renewed would have no opportunity to go back and pick a different plan after the first of the year.

Surgery in January with Anthem BCBS PPO

Surgery in January with Anthem BCBS PPO

Ultimately, HHS adjusted their proposed open enrollment period, and open enrollment is continuing through January 31. That’s the same enrollment period they’ve proposed for next year too, although it remains to be seen whether it will be finalized and whether it will remain on that schedule going forward.

My position a year ago was that people who don’t return to the exchange to compare their options might be surprised when they receive their January invoice. They may also be surprised to learn that the plan onto which they’ve been auto-renewed isn’t the exact same plan they had the year before, due to changes in plan designs and provider networks (carriers can “crosswalk” insureds to a new plan that the carrier deems “most similar” to a plan that’s being discontinued). And I noted that it was important to give them a chance to change their mind about auto-renewal and return to the exchange to actively select a new plan for the remainder of the year. Because of that, I felt that continuing open enrollment through at least January would be the most consumer-friendly policy.

But I’ve changed my mind.

I still believe it’s good for consumers to give them as much leeway as possible in selecting their own plan during open enrollment. But I’m concerned about the long-term implications for adverse selection and rate volatility when open enrollment continues after the coming year’s plans have already started to take effect.

Over the last several months, we’ve seen mounting evidence that claims have been higher-than-expected in the individual market, and that carriers are more likely to be losing money than turning a profit. One of the problems that has been mentioned by carriers is the fact that people are enrolling in a health plan – either during general open enrollment or as a result of a special enrollment period – obtaining significant amounts of care, and then cancelling their coverage. While that might seem beneficial to the consumer in the short-run, it’s terrible for long-term stability in the health insurance market, since it does nothing but drive up premiums for everyone who remains insured.

Here’s the problem with having open enrollment extend into January: Let’s say I need surgery, and know that it’s going to be expensive. Now that there’s no longer medical underwriting to obtain health insurance, I have my pick of any health plan on the market during open enrollment, regardless of the fact that I have a pending surgery. Since I know the surgery is going to be expensive, I pick the best plan that money can buy. It’s got a high premium, but a low out-of-pocket exposure and a great provider network.

Save money with a high deductible HSA and accident supplement the rest of the year... just in case.

Save money with a high deductible HSA and accident supplement the rest of the year… just in case.

That coverage takes effect January 1, and I’ve already got my surgery scheduled for January 2. All goes well, the surgery is completed, and my doctor gives me a clean bill of health two weeks later. And open enrollment is still going on. So I decide to take my chances the rest of the year, and switch to a much less expensive bronze plan before open enrollment ends on January 31. If I enroll by January 15, the new plan takes effect February 1; if I enroll in the second half of January, the new plan takes effect March 1. But either way, I’ve only ended up paying premiums on the more robust plan for one or two months, while obtaining significant benefits under the plan.

That’s not the way health insurance was designed to work. Actuaries price the plans with the expectation that people will pay premiums for 12 months. Obviously, someone who runs up significant costs will be a drain on the plan regardless of whether premiums are paid for one month or 12. But the problem becomes much more significant when the premiums are only paid for a month or two.

As long as we let open enrollment continue after the new plans have already taken effect, we’re greatly increasing the possibility of adverse selection. We’re essentially making it easy for people to do exactly what I’ve described above. And they’re not wrong for doing it… they’re absolutely acting within the provisions of the law, and people cannot be faulted for taking advantage of the opportunities that are readily available to them in terms of lower their healthcare costs.

So maybe we need to reverse course on this. Maybe we need to think long-term, and collectively. Maybe we need to ensure that by the time the new year’s plans take effect, open enrollment is over. That way, people have no choice but to select the plan they want for the entire year, before the year starts – with no opportunity to use the new plan briefly and then make a different plan selection for the remainder of the year

EDIT – just to clarify, open enrollment should definitely still be at least three months long, regardless of when it starts and ends. Every broker we know is currently working 70+ hours per week in an effort to handle open enrollment volume. The business that brokers used to do over the course of a full year is now compacted into just three months – compacting it any further would be next to impossible, and would negatively impact the ability of carriers, exchanges, navigators and brokers to provide adequate customer service to each enrollee. So if open enrollment were to end December 31, it would need to begin October 1 at the latest. If it were to end December 15, it should start by September 15.

UPDATE, 12/13/2015: Charles Gaba, of ACAsignups fame, suggested an excellent compromise:

That seems ideal from the perspectives of maximizing enrollment and minimizing adverse selection. The only downside I can see is the administrative aspect, since carriers and exchanges would have to determine whether or not an application submitted in January was coming from someone who already had coverage in force. If both enrollments were done through the exchange, it should be a fairly easy process. But if the first plan were off-exchange and the second on-exchange (or vice versa), the administrative angle could be a bit tricky. If it could be done though, there would be a significant overall benefit in terms of reducing adverse selection while also maximizing enrollment.

About Louise Norris

Louise Norris has been writing about health insurance and healthcare reform since 2006. In addition to the Colorado Health Insurance Insider, she also writes for healthinsurance.org, medicareresources.org, Verywell, Spark by ADP, and Boost by ADP. Follow on twitter and facebook.

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