We’ve been discussing the results of our poll on alternatives to the PPACA individual mandate. The second-most popular idea on the poll was “enforce a penalty that escalates the longer people wait to buy health coverage.” In the Government Accountability Office (GAO) report on mandate alternatives, a range of possible financial penalties are mentioned in conjunction with limiting enrollment windows (which was itself the most popular idea from the poll):
Late enrollees could enroll during subsequent open enrollment periods, or possibly between open enrollment periods, but incur financial penalties. Such penalties could take the form of requiring retroactive payments of missed premiums from the date of the last open enrollment period, or a flat or gradually escalating premium penalty depending upon the length of time without coverage. To encourage individuals to maintain their coverage once enrolled, the premium penalties could decline after a period of continued coverage, until they are eventually eliminated. Other financial penalties could include higher cost sharing for the individual, such as copayments, coinsurance, or deductibles. Another financial penalty could be to reduce or deny subsidies for otherwise eligible late enrollees. Another variation would be to provide a premium discount to all individuals who enroll when first eligible, but withhold the discount from late enrollees.
Of course, as the report goes on to point out, financial penalties might tend to further discourage younger, healthier, but less-wealthy individuals from purchasing coverage, which runs counter to the goals of broadening coverage and reducing costs.
The notion of of using financial incentives and penalties to change behavior is something that has been discussed quite a bit in recent years. For example, we recently looked at how the PPACA raises the level of financial incentives that employers can use to encourage employees to meet wellness targets.
We recently ran a poll on the best course of action to reduce adverse selection if the PPACA individual mandate is struck down by the Supreme Court. The number one answer was “use limited enrollment windows to reduce the occurrence of people joining a plan only when they become sick.”
In the absence of a mandate, open enrollment periods could be enhanced beyond the annual periods provided for under the Patient Protection and Affordable Care Act, as amended (PPACA) by incorporating different open enrollment period frequencies and coupling them with various penalties for late enrollees who do not enroll when first eligible. Limiting access to coverage to only such periods is intended to reduce the likelihood that individuals would otherwise wait until they need health care to enroll.
Open enrollment periods could vary in their frequency. Generally, the less frequent they are, the less likely individuals will risk remaining uninsured until the next such period. While PPACA provides for annual periods, these could be extended to every 18 months, every 2 years, or less frequently—some suggesting as infrequent as every 5 years. Or the open enrollment period could be a one-time event in 2014 with subsequent special open enrollment periods only for individuals experiencing qualifying life events that change eligibility for coverage, such as giving birth or attaining adulthood, divorce, or changing jobs.
The report suggests that changing open enrollment frequency could be combined with financial penalties or restrictions on coverage for those who miss the window. Key concerns raised by the GAO include the following:
Financial penalties might make coverage even more unaffordable for the low-income individuals the exchanges are designed to help
Overly restrictive enrollment periods may run counter to the goal of increased coverage
The additional inconvenience might influence the younger, healthier segments of the population to avoid enrolling
Interestingly, enrollment windows have been used to manage adverse selection related to the PPACA already. In 2010, Oregon implemented an enrollment window for child-only policies after two major insurers stopped carrying such policies in response to the PPACA’s elimination of preexisting conditions underwriting. Insurers were afraid that parents might wait to enroll until their children became ill.
With the Supreme Court currently considering the constitutionality of the Patient Protection and Affordable Care Act (PPACA) in whole or in part, everyone is weighing in on whether the law could or could not survive without the individual mandate, but almost everyone agrees that without the mandate, adverse selection could be a problem. Our latest poll asks: given such a scenario, what do you think would be the best strategy for managing adverse selection?
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