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To Make Marketplaces Work Best, Enroll More People — Not Fewer

January 25, 2016: This post has been updated to reflect that the current open enrollment period is for 2016 coverage.

Health insurers claim that too many people are inappropriately using special enrollment periods (SEPs) in the health insurance marketplaces, gaming the system to get just-in-time coverage for expensive medical care.  In reality, research shows that too few people are likely taking advantage of the health coverage opportunities SEPs offer when life circumstances change.

People who want marketplace coverage generally must enroll during a designated annual open enrollment period.  (Enrollment for 2016 coverage is open through January 31.)  The rest of the time, people can enroll in a health plan in the marketplace or change to a different plan only if they experience a life event that triggers an SEP, such as the birth of a child, marriage, or the loss of employer-sponsored coverage.  SEPs are thus a key pathway for low- and moderate-income people to obtain marketplace coverage and the premium credits and cost-sharing reductions that can make that coverage affordable.

This is a high-stakes debate.  Insurers are pressing the federal government to significantly tighten SEP rules and give the companies greater control over who does and doesn’t get coverage through SEPs.  The Administration has responded by eliminating some SEPs that are no longer needed and boosting enforcement to ensure that enrollees are using SEPs appropriately.  For millions of uninsured people who would be eligible to enroll in marketplace coverage each year — as well as the overall risk pool — bending further to insurers’ pressure would be the wrong prescription. 

The Urban Institute estimates that fewer than 15 percent of people eligible for SEPs use these opportunities to enroll in marketplace coverage; the rest are likely to end up uninsured.  Health insurers report that the people now enrolling through SEPs tend to generate higher medical claims costs than those signing up during open enrollment.  That may be because the small subset of eligible people using SEPs are the ones who most expect to need health services in the near term while many healthier people who cost less for insurers to cover are sitting out.  SEP awareness is very low, and outreach to consumers about marketplace enrollment drops steeply after the open enrollment period closes.  People may not realize that making a permanent move and losing other health coverage are opportunities to enroll in a marketplace plan.

If insurers are aiming to keep costs down by enrolling a balanced mix of healthier and sicker people through SEPs, they’re taking the wrong approach.  Eliminating SEPs and imposing tighter SEP rules and new verification requirements for SEP eligibility risk further deterring healthy people who are eligible to enroll in a marketplace plan because of a life event during the year — and undermining the overall risk pool in the individual insurance market inside and outside the marketplaces as well.  Instead, insurers should focus on better outreach and education about the SEPs to enroll more eligible people.