This post first appeared on the Health Affairs Blog on February 16, 2016.
The third annual Open Enrollment period for the Health Insurance Marketplaces ended on January 31, but enrollment will continue year-round for individuals experiencing certain life or work transitions. Individuals who permanently move, get divorced, lose coverage due to job loss, job change, or an increase in income, or experience other qualifying changes in circumstances are eligible for a time-limited Special Enrollment Period (SEP) in the Marketplaces when their transition occurs.
These enrollment opportunities are a critical part of the health insurance safety net created under the Affordable Care Act (ACA). But the SEP safety net could be weakened if the Centers for Medicare and Medicaid Services (CMS) or Marketplaces take steps that would make it more difficult for individuals to enroll using Special Enrollment Periods, a policy change that insurers are advocating.
Insurers have alleged that SEPs are being misused by consumers, but have not publicly provided data demonstrating misuse. Insurers concerns seem to stem in part from their surprise at the number of SEP enrollees, and those enrollees’ shorter duration of coverage and higher costs compared to those who enroll during Open Enrollment.
However, research indicates that many more individuals are likely eligible for SEPs than have taken advantage of them, and that the individual market has always faced considerable turnover among enrollees. Marketplaces and insurers have been very aware that high enrollment during Open Enrollment is crucial for maintaining a balance of low- and high-risk enrollees, thereby helping to keep premiums sustainable. The same principle applies equally to SEP enrollment. The best way to reduce adverse selection and keep average premiums down is to achieve greater mid-year enrollment, including among healthier individuals.
Insurers are recommending changes that could have the opposite effect — reducing SEP enrollment. Insurers have asked CMS to add verification requirements for SEP applicants and reduce or streamline the number of SEP categories. In January, CMS announced initial actions that will eliminate six SEP categories that were likely intended as temporary, clarify SEP eligibility based on moving to an area in which different Marketplace plans are offered, and conduct an assessment of existing enrollment to evaluate whether misuse is occurring. This was intended as just a first step. CMS “will continue to make further adjustments in the future based on what we learn from continued monitoring and analysis of special enrollment period usage and compliance.”
While CMS is considering further SEP policy changes, some insurers recently announced a decision that could also reduce SEP enrollment. In early February, Anthem, Aetna, and Cigna announced that they will no longer pay brokers for applications completed outside of Open Enrollment.
Special Enrollment Periods Are Underused
SEP enrollment trends indicate under-use, not overuse, of the enrollment opportunities. A national study by the Urban Institute estimated that fewer than 15 percent of consumers who are eligible for a SEP enroll.
his Urban Institute study and another study by researchers at the University of Minnesota together indicate that between eight and 10 million Americans could be eligible for SEPs each year, a group of potential enrollees that is similar in size to the nearly 10 million Americans enrolled in the Marketplaces as of June 2015. When compared with actual SEP enrollment to-date (approximately 940,000 in Healthcare.gov states in February through June 2015), these studies of SEP eligibility collectively demonstrate that there is still significant room for SEP enrollment growth.
Short Duration And High Churn Are Normal For The Individual Market
Short duration of coverage is also not an indication of abuse because short stints in the individual market were quite common even prior to the ACA reforms. A study by Kaiser Family Foundation found that among those enrolled in individual market in January 2010, only 62 percent remained in that coverage five months later.
The research also demonstrates the extent to which the uninsured—the primary target population for Marketplace enrollment—should not be thought of as a static population. In the late 1990s, one out of every three Americans had a lapse in coverage over a four year period, according to a study published in Health Affairs. Twenty eight percent of those individuals were uninsured for between one and four months. Although the subsidies provided under the ACA may help to stabilize the individual market, the ACA continues the role of the individual market as a residual market, that is, the market consumers turn to when they lack employer-based coverage or are not eligible for Medicaid or other public programs.
Previous studies have predicted high levels of churn between Medicaid and Marketplace coverage. A national analysis by the Urban Institute predicted that 1.8 million Americans would be eligible for an SEP when they lose Medicaid coverage each year and become newly eligible for tax credits. A California-specific analysis by my UC Berkeley Labor Center colleagues estimated that 17 percent of non-elderly individuals enrolled in Medicaid at any point in time would be expected to become eligible for Marketplace coverage within 12 months due to an increase an income.
Higher Costs Among Mid-Year Enrollees Even More Likely With Low Enrollment Rates
Given low SEP enrollment rates, it is no surprise that SEP enrollee costs are higher, on average. Enrollees with the greatest health care needs are the most likely to seek out information about mid-year enrollment opportunities, spend the time necessary to complete the application process, and enroll within the limited enrollment window permitted (typically 60 days after their life change). This does not mean that those enrollees are misusing SEPs; rather, it suggests that a large share of the SEP-eligible population is failing to enroll.
Targeted Efforts To Increase Special Enrollment Period Sign-Ups Are Needed
Greater SEP enrollment can be achieved by improving awareness of the ability to enroll mid-year. A national survey by the Urban Institute found that fewer than 39 percent of adults were familiar with SEPs in the third quarter of 2014. In California, 49 percent of individuals surveyed in 2015 were aware of the opportunity.
It is important that information about SEPs and enrollment assistance be targeted towards potential enrollees at the exact time they are eligible. Last year, Mary June Flores and I published a policy brief that outlined strategies that Covered California and other Marketplaces could implement to maximize enrollment during work and life transitions.
We recommended that Covered California partner with public and private institutions that individuals interact with when they undergo transitions, in order to provide information about Marketplace coverage and connect individuals to enrollment assistance at the right time. For example, the California Employment Development Department could play a critical role in helping to connect individuals receiving unemployment insurance with health insurance, and the Department of Motor Vehicles could play the same role for individuals who permanently move.
Simple And Easy Enrollment Process Can Help Minimize Adverse Selection
Greater SEP enrollment not only depends on improving consumer awareness, but also on a smooth and easy enrollment process for applicants. One important aspect of achieving this is improving the transition processes between Medicaid and Marketplace coverage, which has been difficult for applicants in some states in the initial years of the ACA.
Ensuring that the application process for all SEP eligible individuals is not overly burdensome can also ensure higher enrollment rates. Adding new verification requirements would only create another hurdle to enrollment, when no evidence of widespread abuse under the current processes has been publicly presented. Increased verification processes could especially deter enrollment among healthier individuals who may be less motivated to push through a difficult enrollment process, further increasing adverse selection, which is an effect that is opposite of the insurers’ desire.
The Marketplaces have not only been critical for increasing coverage among those who would otherwise lack coverage over the longer-term, but they also play an important role as a safety net for individuals who are temporarily without coverage when they are undergoing transitions. It is in the best interest of Marketplaces, insurers, and potential enrollees alike to maximize enrollment of eligible individuals who experience qualifying life events, which includes making mid-year enrollment processes for eligible individuals simple and easy.
Laurel Lucia, How Do We Make Special Enrollment Periods Work?, Health Affairs Blog, 2/16/16, http://healthaffairs.org/blog/2016/02/16/how-do-we-make-special-enrollment-periods-work/. Copyright ©2016 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.