You Can’t Buy Insurance until Next November

Here’s something that’s really odd. Let’s say at the end of last year there were almost 50 million uninsured people in the United States. Averaging over all the different estimates, let’s say that 5 million of them have now acquired insurance because of ObamaCare. But now it’s April and the open enrollment period is over. That means that 90% of the uninsured are still uninsured and they won’t be able to buy an individual insurance plan until next November.

As AP reporter Connie Cass explains:

With limited exceptions, insurers are refusing to sell to individuals after the enrollment period for HealthCare.gov and the state marketplaces. They will lock out the young and healthy as well as the sick or injured. Those who want to switch plans also are affected. The next wide-open chance to enroll comes in November for coverage in 2015.

The exceptions are generally limited to “qualifying life events” — marriage, loss of a job, etc.

Here is something you may find even more surprising: most of the uninsured don’t even know the market is closed –

A survey by the Kaiser Family Foundation in mid-March found that 6 out of 10 people without insurance weren’t aware of the marketplace deadline on March 31.

If you don’t find all this a bit odd, let’s review the bidding. During the 2008 presidential campaign every Democratic candidate for president from Barack Obama to Hillary Clinton left no doubt about the goal of health reform: It was to achieve universal health insurance coverage. But if that was the original goal of the Affordable Care Act, why would anybody design the system so that 45 million people are precluded from buying insurance for the next six months?

Answer below the fold.

Is that all there is?

As I explained in Priceless, health care is a complex system that no one fully understands. This much we know, however. When you intervene in ways that create perverse incentives in one part of the system, you are going to get perverse outcomes in other parts of the system.

As we’ve explained before, allowing people to buy health insurance by paying premiums that are unrelated to their health status creates perverse incentives on both sides of the market. Among these are the incentives of buyers to wait until they get sick before they sign up for health insurance. This decision is made even more likely if the penalties are weak, if the enforcement of the penalties are weak and if the penalties don’t even apply to a large swath of the American public.

Limited open enrollment periods are one way insurers limit the impact of this perverse incentive. If people know they can only enroll during a two month period, they are less likely to gamble on going without insurance for the remaining 10 months. Or at least that’s the theory.

By the way, as long as we are talking about oddities and other perversions, here is something else you may find strange: The insurers don’t know anything about the health status of the people who have enrolled in their health plans. Nothing? Nothing. That’s because they weren’t allowed to ask about anyone’s health condition at the point of enrollment.

If that doesn’t knock your socks off, remember that ObamaCare was supposed to usher in a new era in medicine. Instead of patients going to whatever provider they happen to find convenient and providers billing for whatever they happened to do, we are supposed to be in the age of managed care, integrated care, coordinated care, etc.

But how can care be integrated, coordinated and managed if no one knows the health condition of the patient? It can’t.  As the Wall Street Journal reports:

To fill in the blanks, insurers are calling, emailing and writing letters to new enrollees, urging them to divulge information about their conditions, prescriptions and even personal habits, often through online forms called health-risk assessments that have long been used in employer-sponsored wellness programs.

Read that last paragraph again if you are tempted to think that ObamaCare is going to usher in a new era of efficiency in health care delivery.

To make matters worse, insurers will soon have to set their premiums for next year. But how can they choose a new premium without estimating what their costs are going to be? And how can they estimate their costs without knowing how sick or how healthy their enrollees are? They can’t.

Paul Krugman and others on the left continue to claim that the Republicans have no alternative to all this. And there is some truth in that. Although I don’t know why. You would think that anyone with the IQ of a turnip would be able to come up with something better.

So let’s start with where we want to be and work backward:

  1. If we want to encourage insurance, people should be able to sign up at any time during the year — preferably at any time day or night.
  2. If we want people to be in a plan that best meets their health care needs, people should be able to switch plans at any time during the year; i.e., there should be continuous open enrollment.
  3. If we want health plans to choose ideal treatment regimens, they must be free to ask health questions at the point of enrollment.

So how do we get all this done in a way that avoids all kinds of perverse incentives? We follow some simple rules.

  1. No one is allowed to game the system. If you wait until you get sick to insure, you will be charged an actuarially fair premium so that you are not able to shift costs to others. If you want to upgrade to a richer plan, you have to pay the full actuarial cost of the upgrade. If you downgrade, you get to keep the full actuarial gains from the move.
  2. No insurer is allowed to dump its sickest, most costly enrollees on another plan without paying the full cost of the transfer.

The Medicare Advantage market is an example of where we might begin. Seniors pay a community rated premium to the health plan they choose. But Medicare adds to the senior’s premium, topping up the total payment until it reflects the true actuarial value of the insurance — given everything that is known about the enrollee’s health status. This means that plans that attract seniors with multiple conditions get premium payments of $60,000, for example.

But we don’t really need Medicare to do the risk adjustment. The health plans themselves can do it and they are likely to do a much better job if they are free to innovate and experiment and engage in voluntary, consensual transactions.

From time to time, we have called this “health status insurance,” and we are indebted to University of Chicago economist John Cochrane for thinking through the details.

Comments (48)

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  1. Ken says:

    Good post.

  2. Felix H says:

    I don’t know how we can claim that there is a market for health insurance when there are so many restrictions to the market that leads to market failure. The single and most harming assault against the market is the restrictions for individuals to access it. If people can only buy insurance during five month and insurers only offer plans for 5 months, it means that there is no free market. There are regulations in place that affect suppliers, demanders and price controls. There is no way we can achieve universal healthcare with all these restrictions in place.

    • Thomas says:

      Multiple barriers to getting insured is what leaves 90% of the previously uninsured to remain uninsured.

    • Bill B. says:

      Well if they wanted insurance bad enough, they should have signed up when they were supposed to.

      • Wilson L says:

        The problem is the people’s ignorance towards healthcare system. As the survey revealed most people don’t know all the details of the law and weren’t conscious of the different deadlines. Obamacare made a complicated market even more complicated. It makes it difficult to imagine how universal coverage can be achieved when even highly educated individuals don’t understand the premises of the law.

        • jmitch says:

          Universal coverage, i.e., an improved & expanded Medicare-for-All program, would actually be easier to accomplish on a technical level. Most people, educated or not, understand the basic premises of Medicare, and all you’d need to enroll is a SS number.

          • Val says:

            jmitch, Medicare, the mandatory socialized plan for seniors, costs over $12,000 a year per person and, adjusted for age and health, has a 50% higher utilization rate (it’s all “free”). It has the highest denial rate of all insurance plans, loses $70 billion a year to waste and fraud, and will be bankrupt in ten years. Medicare recipients must go to government doctors unless they can pay their own way. They get to choose from the bottom of the bucket because the top of the bucket doesn’t get involved with government medicine. It is illegal to sell private insurance to a senior. Are you sure that’s what you want?

            • jmitch says:

              Val: most of what you say is not true. Medicare does NOT have the highest denial rate. Traditional (fee-for-service) Medicare beneficiaries are NOT required to go to government doctors (I am a doctor. I do not work for the government. And Medicare patients come & see me. Also, I do not consider myself and my collegaues who see Medicare patients to be “the bottom of the bucket”). It is NOT illegal to sell private insurance to seniors (ever heard of MediGap policies?).

              • H D Carroll says:

                Val and jmitch: I’d like to know where you get the statistic that “adjusting for age and health, has a 50% higher utilization rate.” Throwing out the $12,000 figure is supposed to pointing to a “bad” thing also, I presume? The fact is that by the time you factor in an age factor of about 4, it translates into an average per commercial adult of maybe $3,000 if your $12,000 figure is correct. That’s not too bad. Of course, it reflects Medicare benefits, and more importantly, the probably substandard payment rate Medicare pays providers. Which, jmitch, is why using it as a standard for the whole country would lead to an overall massive reduction in what providers of all sorts would be receiving, and since they would have to outlaw any form of private insurance to make it work in such a manner, providers couldn’t make it up like they do now by cost shifting. No, the solution is that providers establish a single price list for themselves (individually), and everyone that uses them, no matter what payer affiliation they have, is expected to come up with that money – no discounts allowed, period. Then the government would be faced with the reality that they have have been buying seniors’ votes all these years by underpricing Medicare. If what they pay is, in fact, “enough,” then it is enough for all the rest of us to pay as well.

                • jmitch says:

                  I am not so sanguine about a drastic reduction in provider income under a single-payer plan. Sure, doctors would get paid less on a per-patient basis than they are now BUT they would be paid for 100% of the patients seen (ie, no “charity care”) and AND insurance transaction costs under a single-payer would also be much less. Last time I checked, the average physician salary in Canada was about $248K – not bad.

              • Val says:

                jmitch, according to AMA’s National Health Insurance Report Card of 2009, Medicare denies 6.85 percent of its claims, higher than any private insurer (Aetna was second, denying 6.80 percent of its claims), and more than double any private insurer’s average. http://tinyurl.com/m73kw7 and http://tinyurl.com/ych6kox and
                http://tinyurl.com/kyvtj2s

                Traditional Medicare recipients cannot seek any reimbursement for their spending outside of Medicare providers. That effectively forces them to use Medicare providers unless they are of means. And you, as a provider, cannot take payment outside or beyond Medicare’s allowance or you will be suspended from Medicare for two years. It doesn’t matter how important and life-saving your service was. Essentially, you work for the government because the federal government controls you and controls your senior patients.

                42% of the physicians in my area do not accept Medicare and Medicaid. Reimbursement is simply too low. Granted, there are some benevolent physicians and physicians who work for entities that accept public funds, but there are also many who don’t have to yield to government. pressures. They are able to thrive without government intervention. http://tinyurl.com/lvcytzz

                I should have said, “It is illegal to sell PRIMARY health insurance to a senior.” It is. Go look for insurance for a 65-year-old. The federal government has its grip on every single senior. Medigap is not primary insurance. Seniors are not even allowed to have HSAs. This is a good place to look for health insurance: http://www.ehealthinsurance.com/

                I note you didn’t address the per person cost of Medicare nor the high utilization rates, so I won’t address those.

    • Erik says:

      Republicans demanded an “Open Enrollment” so the system could not be gamed.

      Remember the stories about people refusing to buy insurance unless it was on the way to the hospital?

      Well, the GOP got what they asked for and now it is the administrations fault.

      Gotta love that wacky GOP.

      • John R. Graham says:

        Why would they have put open enrollment in PPACA at the insistence of the GOP, when we know they passed it without GOP votes?

        • Erik says:

          John,
          Are you suggesting that the GOP did not make that claim?

          We both know they did.

          • John R. Graham says:

            I’m just stating that nothing in PPACA was put into PPACA to bring Republicans on board!

            With respect to open enrollment, what NCPA has proposed is open enrollment but if you miss open enrollment you are free to apply subsequently at higher rates – like Medicare.

          • John R. Graham says:

            I’m just stating that nothing in PPACA was put into PPACA to bring Republicans on board!

            With respect to open enrollment, what NCPA has proposed is that if you miss the deadline, you are free to apply subsequently at higher rates – like Medicare.

  3. Vicki says:

    Good song pairing.

  4. jmitch says:

    The only cost-effective way in which insurance can provide universal care to everyone without knowing a priori who’s sick and who’s not, is by expanding the risk pool to include everyone. And the only cost-effective way to do that is through a single-payer mechanism.

    • Val says:

      jmitch, see my comment above ^^^.

    • Wanda J. Jones says:

      You don’t seem to worry much about putting all your eggs in the basket of a government that so screwed up Obamacare.

      Wanda J. Jones
      San Francisco

    • H D Carroll says:

      You do realize that “single payer” must inevitably lead to “single provider,” don’t you?

      • jmitch says:

        HD Carroll: No, I don’t understand. Canada has had a single-payer system for 40+ years, and most of the providers and hospitals are private. Patients are allowed to choose who they want to see and which hospitals to visit for treatment.

        • H D Carroll says:

          jmitch: right, no provider in Canada is allowed to practice privately, so they all work for the government, seems clear to me – the UK NHS is freer than the Canadian system. When the Canadian doctor wants to make some actual income, and choose how to practice, they go across the border to the US a day a week and have a real practice. Where will you get your income when you can only be paid at the Medicare rate which is subject to political budgeting decisions rather than “what it really costs” to provide the service?

          • Centrist says:

            H.D.Carrol – Look at answer #7 (reviewing the others as you read).

            Debunking Canadian health care myths
            http://www.denverpost.com/recommended/ci_12523427

          • Jmitch says:

            OK, Mr. Carroll, please back up your statement, “they go across the border to the US a day a week and have a real practice.” Proof??
            Also, private practice IS allowed in Canada. In fact, a recent president of the Canadian Medical Association (Dr. Brian Day, I believe) ran
            a private clinic in BC.

  5. Matthew says:

    “That means that 90% of the uninsured are still uninsured and they won’t be able to buy an individual insurance plan until next November.”

    The government has already extended the enrollment deadline for those who had “technical difficulties” signing up, might as well extend it so everyone else can too.

    • Frank T says:

      But there is an honor code for individuals to be able to get the extension. The government believes in the individuals and will grant them an extension. I don’t believe it will work, but at least they are trying something.

  6. Esteban M says:

    Obama and his supporters criticize the top one percent for having money (most of whom got it by working hard on the first place). Yet his signature law, Obamacare, is helping two percent of the population while making the remaining 98 percent worse off. How can people who have worked to improve themselves be criticize, and those who are receiving benefits for their entitlement be praised? I think somewhere along the way we have messed up our priorities.

    • James M. says:

      I agree with aid to help people overcome and escape poverty. But there is a limit between getting out of poverty and being incentivized to stay in poverty because of government transfers.

  7. Diana Furchtgott-Roth says:

    That is amazing. My 22-year old son was waiting to get a tax ID number for his foreign-born wife before signing up for health insurance. He lives in Maryland, where the state has just turned to Connecticut with help with the exchange because it is nonfunctional. So he cannot get insurance until November?

    • Gitmoray says:

      Your son’s wife achieving a Tax ID would be a life change event and thus qualify their family for a Special Enrollment Period. they should be able to buy in whenever that change occurs.

  8. K. Rogoff says:

    In a pure market, a product won’t be favored if it is in a bad quality.

  9. Ron says:

    New Headline you won’t see by mainstream media: “Uninsured Rises under ObamaCare.”

    Why?
    1.Many who signed up will not pay the first premium
    2. Many who pay the first premium will default on future premiums before the end of this year. (under ObamaCare they still are covered for 3 months after default).
    3. More than half of the signups are for Medicaid who were pre-ObamaCare eligible and have constant signups and dis-enrollments throughout the year. (Many of those who signed up for Medicaid and commercial coverage were not previously uninsured.
    4. Obama is also counting all children up to age 26 since the 2010 passage of ObamaCare added as covered when most of them were covered anyway under state laws and self-insured plans that covered dependendts to between 25-30 under pre-ObamaCare laws.

    The numbers are all fudged and fake as were the “jobs created and saved” under the stimulus plan.

    What Obama and Putin have in common? NBC and Pravda

  10. steve says:

    I dont see why year round enrollment is an issue. Limited enrollment periods are actually pretty common, and an easier way to deal with this than trying to figure out the actuarily fair cost. (Who pays for that?) I am pretty sure you have read Mark Pauly and I am pretty sure you know he has ben an advocate for this as a replacement for the individual mandate. If you read through the qualifying life events list, it basically means everyone can sign up whenever they need to do so, except for those who are intending to free ride.

    Steve

  11. Al Baun says:

    “That means that 90% of the uninsured are still uninsured and they won’t be able to buy an individual insurance plan until next November.” jg

    Correct me if I am wrong, but ‘THAT’ only means that these uninsured simply won’t be able to get an ‘Exchange’ (group) policy or qualify for cost share or credits until next November. They can still pick up a standard ACA compliant policy from most insurers for the seven short months until the exchanges open again.

    As far as the still-uninsured, if someone were living in a cave and did not know about the ACA or deadline, or was somehow encouraged not to participate in the exchanges by … let’s say … negative or misleading tv/internet/radio opinion source(s), then they will have to wait seven months and pay, at least, a whopping (7/12 x $95) $58.33 in tax penalty; still relatively cheap entertainment to follow these sites.

    Odd, but considerate, that you are now concerned about people not being able to sign up for the ACA.

    • Wanda J. Jones says:

      It’s always amazing to me that the very people who insist that the government solve the problem of so many people being unin- sured continue to insist that everyone can sign up, there ‘s no problem to doing so. Did no one factor in the reality of people with “low social assets.”–Little education, no family, isolated living situation, IQ of under the US average, and just living in a marginal culture? About 40% of adults can’t read. It’s okay to notice that and plan how to deal with it.

      Wanda J. Jones
      San Francisco

    • H D Carroll says:

      The only individual policies available between enrollment periods are going to be the limited “short term” type policies that are non-renewable, and have full pre-ex limitations. Unless anyone knows of some idiot carrier offering individual policies (anywhere, on/off exchange, with/without subsidy, it doesn’t matter) subject to ACA compliant individual market requirements, offering full coverage of all conditions, including pre-ex?

  12. Gail Wilensky says:

    Your 5 million number is too low. Reasonable number for the exchanges but it doesn’t include new Medicaid enrollees who were previously uninsured. Together the number might be 8 million although Medicaid enrollment can continue throughout the year so should grow a bit—but your overall point is valid.

    • Ron says:

      But ObamaCare was about getting to the uninsured in the commercial market because of pre-existing conditions and insurer underwriting. Many of the Medicaid enrollees were previously eligible but only now sign up because of billions in promotion, advertising, and paid navigators & their organizations. It is disingenuous to even count the Medicaid enrollees in the non-expansion range.

      • H D Carroll says:

        I dare say a sizable minority, if not a majority, of the people who have signed up for (and, yea, even unto actually paying for) individual policies have simply swapped prior coverage for new coverage since there is no fear of penalty for pre-ex, and if they were over 45, certainly over 50, they may have gotten a relatively good deal on the age subsidy. Even if those motivations weren’t there, they may have been forced to switch because old policies were cancelled. If they weren’t “healthy,” they would certainly have done so. I believe the “net reduction” in uninsured for people who were not eligible for Medicaid, who are not children up to 26, etc., will have been very small once the dust settles – assuming they allow the data out of their box and admit it.

  13. Devon Herrick says:

    The 5 million number also includes people who have paid their first or second monthly premiums, but will drop out when money gets tight. Once the thrill of having coverage wears off, many will probably drop off the rolls when they realize their plan deductible still makes a trip to the doctor relatively expensive.

    The exchanges don’t offer the type of coverage many people want. Past research has found that moderate-income people would rather a health plan that provides for a few prescription drugs and doctor visits without cost sharing; but doesn’t provide unlimited hospitalization benefits. Because the proponents of the Affordable Care Act thought everyone should have unlimited benefits, many people will find their coverage too expensive and of little value.

  14. Jimbino says:

    The idea of eliminating “gaming the system” is a dead-end. I can game SS, Medicare and Medicaid by simply controlling my rate of marriage and divorce.

    Now Obamacare allows you to sign up, outside the normal window, if you have a life-changing event. So what? I can marry, move to another state, move to another county, take a new job and what the hell else?

    I don’t know about the rest of you, but I find that “gaming the [socialist] system” is always better than going into debt for an education and then working like a fool to support the hypochrondriac, breeding females.

    • Ron says:

      Hopefully some will move to states that support the dependency society and leave the rest of us to build an opportunity society without the drain of the free-riders.

  15. Wanda J. Jones says:

    John–Obviously, this touched a nerve. Keep this up. The numbers are being mis-used and mis-interpreted. As for insurers not knowing the health status of new enrollees, I have developed a plan of attack on this: 1, Pencil and paper check-offs, (80%) 2. A risk review visit to a health theatre where an electronic history can be administered, ( 10% 3) a set of those are invited to an H & P conducted by an RN teams, (5%) and 4) referral to a physicians who can take a deeper look. (3%.))

    Takes planning and a will. The government did neither in their zeal to get this flawed coverage out there. Making it work seemed not to be in their health goals.

    Wanda J. Jones
    San Francisco

  16. Barry Carol says:

    Without the open enrollment period, people could just wait until they’re sick to sign up for insurance on a guaranteed issue basis which would result in what the insurers call a death spiral.

    Medicare Advantage uses the open enrollment approach with limited exceptions like turning 65 or retiring and losing employer coverage. It works fine as far as I can tell.

  17. Gitmoray says:

    John, Obamacare has enough things wrong with it to criticize without shooting at things like an Open Enrollment and penalties that are necessary to maintain a rational system. I am really surprised by the flawed arguments in this post, and it feels like your 14 year old son sneaked into your computer and sent this one out. Also, if we part from the premise that we have a system where pre-ex exclusions are forbidden, allowing insurers to ask health questions in an application is insane. We would create an incredible opportunity for litigation every time an application got screwed up, as people would claim they were unfairly denied.

    I do think our present system of calendar based Open Enrollment is stupid and horribly inefficient. Open Enrollment should be individualized based on the birthday of the main insured. This way the systems would be properly utilized 365 days/yr and processes would smooth out. Our present system of the great Annual Migration must have been invented by somebody’s reptilian brain.

    • Ron says:

      Oh, what a tangled web we weave when first we practice to deceive.

      The inconsistencies in logic are a result of the lies that got ObamaCare passed to begin with. It is not John that is flawed, it is the law and the continued lawless changes through “executive orders” and “judicial discretion” not to prosecute violaters of the law. (E.g. Insurers can continue to sell illegal policies until after the next election,). The presidential statement, “I’ll listen to any ideas to I improve the law” statement seems directed at Americans for Progress liberal groups and excludes working with Congress on changes.

      The recent bipartisan elimination nof the small group $2000 deductible limit is a good start, but more of the law needs to be eliminated.

      1. Eliminate the age pricing restrictions that artificially increase premiums for the young
      2. Eliminate the subsidy for anyone over 200 percent of poverty level.
      3. Eliminate the individual mandate.
      4. Eliminate the Actuarial equivalence (allow other than metal plans)
      5. Eliminate the single risk pooling
      6. Eliminate the medical loss ratio
      7. Eliminate the insurance tax
      8. Eliminate the intrusive research, control, and command agencies and committess under ObamaCare

      9. Add national insurAnce licensing (or allow cross state reciprocity)
      10. Add national subsidized high risk pooling
      11. Allow pricing based on biometric risk assessment
      12. Add tort reform
      13. Add more flexibility and higher limits for use of Health Savings Accounts

      14. Change children to age 26 to be tax dependent children only
      15. Keep no underwriting
      16. Allow ERISA limited pre-existinging exclusions for all.(covered after 6 months without treatment or 12 months with co it uo us treatment)
      17. Change state insurance laws to be consumer-oriented rather than insurance company oriented and written. (There are a plenty of these ideas, too many to list here)

      Even small employers are already finding they can eliminate the crazy and costly areas of ObamaCare by going to self-insured financing. That will leave the remaining pool of fully insured plans with higher and higher claimants.

      Insurers are finding new ways to promote self-insured plans for small groups (as low as 10 lives) called “level premium” self-insured financing. New captive reinsurers are developing. MEWAs are making a comeback as they and Self-insured plans are apecifically excluded from the ObamaCare requirements for being a Qualified Health Plan.

      Can anyone say…..death spiral?