The post below is a guest blog from Jay Lowe who serves as Principal, Health & Welfare Consultant for CAI’s employee benefits partner Hill, Chesson & Woody.
Recent data from the Centers for Medicare and Medicaid Services show that enrollment in Marketplace plans during Special Enrollment Periods (SEP) continues to increase. Between February 23 and June 30, 2015, CMS reports that close to 950,000 people enrolled in coverage. Under the ACA, a qualifying life event allows someone to enroll in Marketplace coverage at that time. One does not have to wait until the normal open enrollment period that begins November 1 for coverage to be effective January 1. The SEP could be triggered by such things as loss of group coverage, birth of a child, marriage or divorce. While this is a provision of the law that ensures Americans will not have to go without coverage, the SEP could prove to play a big part in the rising rates of the individual market year after year.
The Good and the Bad
The data in the CMS report suggests that during this SEP timeframe those enrolling tended to be younger than average. This can account for things like children aging off of their parents’ plans and parents enrolling their newborns in coverage. This is good as those that are younger tend to be healthier and have more predictable costs year in and year out. Insurers like this as the premium they pay in helps to offset the costs for those that have more health-related issues and tend to use more healthcare. Insuring the young, healthy population is a vital piece in helping to keep Marketplace costs lower and something that the insurance companies count on when determining rates every year. But the SEP provision for the Marketplace can pose a potential problem for these insurance companies.
So that insurers can more accurately determine the risk of their blocks of business and set rates accordingly, the ACA provides for an open enrollment period once per year. Without an SEP, a person is unable to enroll and must wait until the beginning of the next calendar year to have coverage. The problem that the SEP creates is now people can buy coverage outside of the normal annual open enrollment period. While the addition of the younger, healthier members is good, the SEPs also provide an opportunity for unhealthy members to join. The ACA requires insurance companies that participate in the Marketplace to provide coverage to anyone who enrolls. No longer can somebody be denied coverage or be rated up based on a health condition. While many who enroll during an SEP are young and healthy (which the insurance companies like), there are many who are sick and unhealthy. The insuring of this unknown risk poses a big problem for insurers as they are unable to adjust rates during the course of the year based on the medical conditions of those entering the plans. Members who enroll during an SEP get the same rates (based on age and plan design) as those that enrolled in the annual open enrollment period.
Ultimately, insurance companies may be forced to raise rates as claims and loss ratios go up. The SEPs provide a much needed avenue for people to buy insurance coverage. But what will this do to rates? As we enter in to the third year of the Marketplace it will be interesting to see how the insurers continue to respond to constant dilemma.