Insurers blame the problem on lax rules that allow more than 900,000 people to sign up for coverage outside the standard enrollment season — for instance, when they change jobs or move — without sufficient proof they are eligible. No one knows precisely how many might be manipulating the system, but the plans say they run up much higher medical bills and then jump ship, contributing to double-digit rate increases and financial losses.
Both those trends make the risk pools skew toward sicker, costlier customers — and under Obamacare, plans can no longer deny coverage to those with expensive medical conditions. That problem has been exacerbated by the large numbers of healthier people who are choosing to stay uninsured rather than shell out money for coverage.
The issue represents a huge challenge for the Obama administration, which faces a delicate balancing act in regulating the exchanges. On the one hand, it wants as many people as possible to sign up for coverage since that's the main goal of the Affordable Care Act. But it also needs to make sure that the insurance companies see the exchanges as worthwhile markets in which to compete.
In a speech Monday night, Andy Slavitt, acting administrator for the Centers for Medicare & Medicaid Services, which oversees the exchanges, acknowledged the problems and said the administration would tighten the rules for special enrollments — and terminate coverage for those who found to have signed up improperly.
"There are some [special enrollment periods] that we need to clarify because they're subject frankly to abuse," Slavitt said at the J.P. Morgan Healthcare Conference in San Francisco. "There may be bad actors and others out there who are abusing those." He said the administration would spell out its plans in the next week, and stressed that people who want coverage need to get it by the Jan. 31 deadline for the regular signup period.
The stakes couldn't be larger: UnitedHealth Group, the country’s largest insurer is threatening to pull out if the problems aren’t addressed. Others are demanding that loopholes be limited or closed, saying they fear the marketplaces could unravel.
"Unless some fundamental flaws are corrected, we believe there is a grave risk that the federal exchange will not operate as a viable, competitive market in 2017," Aetna wrote to the Obama administration about proposed marketplace rules for 2017.
The Blue Cross Blue Shield Association, whose members dominate many of the exchanges, offered a stark warning. "Current rules and procedures allow millions of consumers who enroll through [special enrollment periods] to have an adverse effect on the overall market stability because they can purchase coverage only when they need medical care,” the trade group wrote the administration.
BCBSA calculates that exchange customers who sign up during special enrollment periods are 55 percent more expensive than their counterparts who enroll during the regular season. Aetna estimates that 25 percent of its HealthCare.gov enrollments last year came through special enrollments and those members have “unusually high claims generation” and remain on the rolls for less than four months on average — less than half the time of other Obamacare consumers.
UnitedHealth Group said last year that it expected 30 percent of its exchange enrollments to come outside the normal sign-up window — and that those customers were 20 percent more expensive than other Obamacare enrollees.
On Friday, Humana became the latest insurer to anticipate losses from its Obamacare business. The health plan announced in an SEC filing that it is unlikely to collect enough money to cover costs for some customers who bought individual Obamacare plans and is setting aside what’s known as a premium deficiency reserve to cover losses.
Some are skeptical the numbers are as bleak as health plans say. Through June of last year, about 10 percent of total enrollees through HealthCare.gov, or about 940,000 individuals, had signed up for coverage through special enrollments, according to administration figures. But there's no obvious reason why certain insurers would attract a disproportionate share of those enrollees.
"It's still a small minority of enrollees," said Larry Levitt, senior vice president for special initiatives at the Kaiser Family Foundation, a nonpartisan research group. "It's overstating it to say people can simply sign up whenever they want."
Special enrollments are supposed to be limited to big life events that necessitate a change in coverage. About half of those enrolling in plans outside the standard window say they’ve lost health coverage, typically because of a job change.
But plans say that people don't have to document they've changed jobs or lost insurance through work. America's Health Insurance Plans, the industry’s main lobbying group, has identified 41 reasons consumers can use to sign up for coverage outside of the standard window, including natural disasters and a change in immigration status.
Those enrollees are "incurring extremely higher costs over the rest of the ACA risk pool," AHIP wrote in comments on the 2017 payment rule.
Greg Scott, who oversees Deloitte's health plans practice, says it isn't surprising that consumers are finding and exploiting opportunities to save money. He compares it to how they maximize tax deductions.
"We should expect to see similar behavior in the world of public health insurance exchanges," Scott said. "I would think there is a potential to become somewhat more specific and restrictive in defining and administering [special enrollment periods]."
Besides limiting the reasons individuals may sign up outside the typical window and tougher verification rules, health plans want the administration to shorten the 90-day grace period in which consumers with subsidized plans can continue to receive coverage. They note many people have figured out they need pay for only nine months to get a full year of coverage. An enrollee might buy an ACA policy, get their health needs addressed and then let their coverage lapse — without having to pay the penalty for being uninsured.
Levitt said it's not surprising that individuals signing up for coverage off-season are more expensive than others. People who need medical care are more likely to invest the time and energy to figure out how to sign up outside the normal enrollment window.
"The trick is to limit these special-enrollment periods to people who truly find themselves in unforeseen circumstances, but without making the burden of documentation so great that it discourages people who really qualify," he said