The Affordable Care Act (ACA) was intended to solve the problem of affordable coverage for people with preexisting conditions by using an age-old strategy that politicians love. That strategy is often referred to as OPM (other peoples’ money). For instance, ACA regulations force insurers to accept all applicants -- including unprofitable ones -- at rates unadjusted for their health risk. Premiums can vary somewhat by age, but not by health status. Thus, Obamacare is a bad deal for most people by design; the majority of enrollees are charged much more than their expected costs. In theory, this should allow individuals with health problems to obtain health coverage cheaper than they otherwise would. The problem with these schemes is they rarely work as advertised. Moreover, there are perverse incentives for individuals to cheat if they can -- and delay enrollment until they need expensive medical care.
This dubious policy was briefly tried back in the 1990s and 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 in health plans composed of mostly unhealthy enrollees. Coverage became a bad value for everyone except the sick for whom any coverage was better than nothing. Sound familiar? It should: that’s what’s happening to Obamacare plans today. The ACA attempts to lessen the risk of adverse selection by forcing younger and healthier people to buy expensive health coverage that’s a poor value.
A recent New York Times article examined how some people are gaming Obamacare health plans. Individuals remain uninsured despite the mandate -- only signing up for coverage when they need expensive medical care. In theory the uninsured cannot sign up until open enrollment periods for coverage that begins the following year. But eager to grow exchange plans as much as possible, the Obama Administration foolishly created multiple special enrollment categories. These allow 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 approved special enrollment categories. Special enrollment includes legitimate reasons, such as a job loss, marriage and the 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 when insurers are allowed to decline applications for special enrollments when applicants don’t qualify. Individuals often arbitrarily select a bogus category and sign up anyway.
This is a problem. 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. Insurer 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 the rolls 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 income 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 sky-high 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 ill-conceived redistribution scheme.
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