Consumers exploit health insurance exchange loopholes

Health plans have found that Affordable Care Act (ACA) exchange plans are plagued with loopholes, and that some consumers are taking advantage.

BarkettSpecifically, John Barkett, director, policy affairs, Willis Towers Watson, Washington, D.C., says consumers have noticed that the public exchanges trust, but do not verify, that a consumer is eligible for certain special enrollment periods (SEPs).

For example, an individual could attest that he recently moved into a new rating area, without having to show proof of a move. This loophole allows consumers to enroll in coverage if they suddenly need healthcare, as they can claim that a qualifying event (e.g., a move) has occurred.

According to CMS, a consumer can also qualify for an SEP for such circumstances as loss of health coverage, losing Medicaid eligibility, changes in family status (e.g., marriage or birth of a child), or other exceptional circumstances.

In addition, Barkett says consumers are taking advantage of a rule that requires carriers to pay for services for up to three months while awaiting a consumer’s first premium payment. Given this, some patients have racked up high medical bills, which their insurance plans covered, and then dropped their plans for the rest of the year.

WolfsonIn other instances, Jay Wolfson, DrPH, JD, professor, public health, medicine and pharmacy; associate vice president, health law and policy; and senior associate dean, Morsani College of Medicine, University of South Florida, Tampa, Florida, says that some consumers have claimed special exemptions, such as being in the Medicaid coverage gap; being an undocumented immigrant; claiming to be a victim of domestic violence; having been affected by foreclosure, eviction, or a natural disaster; or not having sufficient taxable income to be affected by the “tax” penalty, in an effort to avoid having to enroll in a plan or pay a penalty.

Next: Who'se taking advantage?

Who’s taking advantage?

Wolfson pinpoints two types of consumers who are abusing the exchange system: those who cannot afford to participate and do not qualify for adequate subsidies; and opportunistic consumers who will play the system because they can.

The first group is divided into at least two segments. The first segment, because of their economic circumstances, simply does not have the resources to purchase health benefits. But when they find that they need care and services, they feel compelled to purchase what they can for their period of medical care. Once their care is completed, they drop coverage.

The second segment consists of people who can afford coverage, but choose not to purchase it. They either claim an exemption or otherwise game the system until a medical need arises, with the express intention of withdrawing after care and services have been provided.

“It is possible for both groups to do these things because there aren’t any minimal screens built into the application process,” Wolfson says. “Of course, both groups may be subject to the tax penalty for forgoing coverage over the course of the previous calendar year. But collecting the tax from people who do not pay taxes or who have no refunds coming can be a bureaucratic challenge.”

Next: Scope of the problem

Scope of the problem

Given the relative newness of the avoidance behavior, the dearth of good data on consumers using loopholes, and the impact of the tax penalty, it is too early to predict how negatively this is affecting health plans, Wolfson says.

In December, 2015, Blue Cross Blue Shield Association submitted comments to CMS stating, “Individuals enrolled through SEPs are utilizing up to 55% more services than their open enrollment counterparts, suggesting that SEP enrollees are sicker or waiting until they need care to enroll. SEP enrollees are also incurring costs in double digit magnitudes over the rest of the ACA risk pool.”

LambdinPaul Lambdin, director, exchanges and distribution strategy practice leader for health plans, Deloitte Consulting LLP, Stamford, Connecticut, says, “Anything in special enrollments periods that enables the consumer to wait to enroll until costly services are anticipated is a concern to plans. It drives up the cost of coverage for others and can lead to an unstable risk pool and marketplace."

Due to consumers not sustaining their role as members of a group plan, and oftentimes using more expensive, complex medical services before dropping coverage, other members can experience higher premiums as plans make efforts to compensate, Wolfson says.

Lambdin is concerned that premium prices could escalate to a point where some members can no longer afford them. “This is not a good thing for the marketplace’s sustainability,” he says.

Next: Looking ahead

Looking ahead

Earlier this year, CMS clarified that in order for a move to qualify someone for special enrollment, that move has to be a permanent move outside of an individual’s current coverage area-not a short-term or temporary move, Lambdin says. Going forward, CMS will require documentation of a permanent move.

CMS also nixed six special enrollment periods in early 2016. “Some of these were created because individuals were experiencing difficulties in the enrollment process, such as system errors or processing delays,” Lambdin says. “But they are no longer necessary because such system-related problems have been largely resolved.”

Although loopholes pose challenges, Lambdin does not foresee carriers leaving the marketplace as a result of them. “Some industry representatives have spoken up regarding the issues and have seen CMS respond,” he says. “It was a wake-up call.”

Barkett concurs. “In my opinion, plans are more likely to lobby public exchanges to change or enforce the rules than they are to pull out because of gaming,” he says. “These are solvable problems for public exchanges, and CMS is already taking steps to resolve them.”

“In general, the marketplace’s systems and processes are working-we are over the rough start-up patch,” Lambdin concludes. “Now it’s more about maintaining the right balance between delivering the right flexibility for consumers given their complicated lives and ensuring that health plans can run successful businesses.”

Karen Appold is a medical writer in Lehigh Valley, Pennsylvania.