The Affordable Care Act (ACA) was intended to solve a problem — affordable coverage for people with preexisting conditions — using an age-old strategy referred to as OPM (other peoples’ money). For instance, ACA regulations require insurers to accept all applicants — including unprofitable ones — at rates not adjusted for their health risk. Premiums can vary somewhat based on age, but not health status. By design, Obamacare is a bad deal for most people, who are charged much more than their expected costs. In theory his allows people with health problems to pay less than they otherwise would. The problem is these schemes never work. Moreover, there are perverse incentives for individuals to cheat — and wait to enroll until they are in need expensive services.
When this scheme was tried in the 1990s (without a mandate) it was a disaster. Overcharging healthy people caused them to avoid health insurance like the plague — resulting in a condition known as adverse selection. Over time health coverage became incredibly expensive. Premiums shot up 500 percent to reflect the higher costs of the health plan. Coverage became a bad value for everyone except sick people for whom any coverage was better than nothing. Sound familiar? It should because that’s what’s happening to Obamacare plans today. The ACA attempts to lessen adverse selection by forcing young and healthy people to buy expensive health coverage that’s a poor value.
Likely in response to this unjust system, a recent New York Times article explained that many people are cheating the exchange plans. They remain uninsured despite the mandate — only signing up for coverage if they become sick or need expensive medical services. In theory the next opportunity to enroll is not until the next open enrollment period at the end of the year. But eager to grow exchange plans as much as possible, the Obama Administration foolishly created multiple special enrollment categories. This allows just about anyone to sign up during the year long after the open enrollment deadline has passed.
Insurers complain there is no concise list of the allowed special enrollment categories. Special enrollment includes legitimate reasons, such as a job loss, marriage and birth of a baby. But special enrollment is also allowed for about two dozen other reasons. Worse, there are no provisions to ensure the appropriate category is used. The rules are ambiguous about whether insurers are even allowed to bar late applicants from special enrollments for which they don’t qualify. Individuals often arbitrary select a bogus category and sign up anyway.
This is a problem because claims data shows that individuals signing up using special enrollments aren’t just slackers who lost track of time during open enrollment. Late enrollees use more medical care than those enrolling during open enrollment. They are also more likely to drop coverage soon after receiving expensive medical care. Health insurer Aetna reports one-quarter of its 2015 enrollees signed up through a special enrollment category. Aetna enrollees who sign up during open enrollment tend to maintain coverage for eight to nine months on average, whereas those signing up during a special enrollment drop out in only half that time. Anthem also reports members who took advantage of special enrollment are twice as likely to drop coverage only months after signing up.
Another large insurer, United Healthcare, reports more than 20 percent of its enrollees signed up through special enrollment. Those late enrollees used more care on average than those enrolling on time. One-quarter to one-third of BlueCross enrollees in Illinois, Montana, New Mexico, Oklahoma and Texas were late enrollees who signed up through special enrollment. They too were much more likely to generate large claims soon after enrolling.
Anyone can legally drop coverage for two consecutive months, say November and December, and not owe a penalty. Individuals can also merely stop paying premiums and insurers cannot kick them off the rolls for 90 days (although insurers can stop paying medical claims after 60 days of missed payments).
Although this loophole has been closed, in 2014 and 2015 special enrollment was allowed near the tax filing deadline in April. Maybe a woman was expecting a baby due in August or September. She could sign up in April, stop paying premiums in August and her insurer could not kick her off until November. Imagine that! $10,000 worth of medical care purchased for the price of only four months’ worth of premiums.
The Affordable Care Act is little more than a poorly-designed wealth redistribution scheme that is prone to fraud. Premiums have skyrocketed as Obamacare Deadbeats game the system, driving off honest people who can no longer afford Obamacare’s outrageous premiums. Insurers need the authority to block these scam artists. Better yet, all consumers need the freedom to select health coverage of their own choosing — not some poorly conceived mandatory welfare scheme.
An earlier version of this Heath Alert appeared in Town Hall.