Every State Must Close Obamacare’s Special Enrollment Loopholes

(A version of this Health Alert was published by Forbes.)

So, the Republican Repeal-and-Replace Obamacare train has finally left the station. Although free-market health reformers are divided on the merits of the American Health Care Act, as introduced by the Energy & Commerce and Ways & Means Committees of the U.S. House of Representatives, no-one can deny the Republicans have kept their promise to take up health reform as their first order of legislative business.

However, new legislation takes a long time to get to the President’s desk. Meanwhile, the Trump Administration has the unenviable task of enforcing a law they know harms Americans. They are doing the best they can to offer relief through administrative rule-making.

On February 17, the Centers for Medicare & Medicaid Services proposed a new rule to address one reason why Obamacare premiums jumped 25 percent this year: The exchanges attract too many sick people and not enough healthy people. This is called a death spiral; and one reason it occurs is the Obama Administration allowed people to jump in and out of the exchanges too easily.

People were able to abuse Special Enrollment Periods (SEPs). As with employer-based plans, health insurers in exchanges must accept applicants at any time of the year if they qualify for special enrollment. However, these qualifying events are not related to health status. Marriage, change of employment, or a long-distance move are examples of events that qualify an applicant for special enrollment.

However, there is evidence special enrollment is being abused. According to Avalere Health, special enrollees cost 5 percent more than those who enrolled during open season in 2015. Further, they only enrolled for an average of 3.6 months versus 7.8 months for those who enrolled during open season. This suggests some applicants have figured out how to game special enrollment. They apply for coverage once they have become sick, and drop it after treatment.

Some analysts claim health insurers are exaggerating this problem; and that tightening rules for special enrollment will dissuade healthy people from applying for coverage. This leads to the conclusion that rules for special enrollment should be eased to attract healthy applicants. However, if that were the case, health insurers would surely be lobbying for such changes. After all, insurers cannot claim Obamacare tax credits unless they enroll people. If they thought loosening standards for special enrollment would attract more healthy people, they would endorse that.

This adverse selection for special enrollment is likely due to the Obama Administration having allowed applicants to “self-attest” their qualifying event. The proposed rule will demand verification. For example, if an applicant gets married, he or she will have to provide evidence of having become married within 30 days of the wedding. That is not too high a hurdle.

The proposed rule also seeks to impose a continuous coverage requirement for special enrollment. For example, a person who moves to a new city cannot apply for special enrollment unless he had coverage in his previous city, with a look-back of 60 days.

This is too long. The ACA indicates the continuous coverage provisions for special enrolment should replicate those in the employer-based market. Individuals eligible for group coverage who lose other coverage must apply for group coverage within 30 days (unless coming from Medicaid or Children’s Health Insurance Program, in which case they have 60 days to apply). The exchanges should replicate this rule.

Another problem is that the proposed rule would only enforce this in states using Federally Facilitated Marketplaces (that is, healthcare.gov). Anticipating state-based exchanges would have trouble enforcing this rule for 2018, CMS seeks comment on whether there should be a transition period for state-based exchanges, or even that it remain optional for them.

On the contrary, giving state-based exchanges a “pass” on enforcing reasonable standards of verification and continuous coverage for special enrollment would be completely against the spirit (and arguably the letter) of the ACA. The original intent of ACA was that each state would establish an exchange. Indeed, there is strong legislative history indicating the federal government wanted and sought to induce every state to establish and exchange.

States which did not establish exchanges did federal taxpayers a favor. States establishing exchanges received grants totaling $3.9 billion through 2014 to help finance their exchanges. Those states enrolled about 2.6 million people in 2014, costing federal taxpayers $1,503 per enrollee. The majority of states, which did not establish exchanges, enrolled about 5.4 million people but only received grants totaling less than one billion dollars, or an average of just $152 per beneficiary.

Those states which established their own exchanges took billions of dollars of federal taxpayers’ money for the express purpose of being ready to execute Obamacare enrollment according to the law and regulations. CMS must enforce the new regulations equally among all the states. Non-enforcement would continue to put federal taxpayers at risk because states with state-based exchanges would not be taking important steps to stabilize the market.