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Friday, February 04, 2011

Open Enrollment vs. Incentives to Purchase Insurance

Some outlets are now reporting a bit of political support for an amendment to the affordable care act that would replace existing incentives to buy insurance with a rule restricting new insurance contracts to a window of 4-6 weeks each year.   (Confusingly, this is often called "open enrollment," since insurers must accept everyone during the eligibility period; I'll call it "limited enrollment" b/c I think that's clearer.)  Limited enrollment, like universal coverage, is a response to moral hazard: if the worry is that people will wait until they're sick to buy insurance, why not only sell insurance for one month per year?  That way, the argument goes, folks can't easily switch when they get sick.

I don't think the limited enrollment idea works, because it undermines the central goals of the legislation, and evidence suggests it wouldn't even reduce moral hazard much. 

First off, limited enrollment would reduce the number of  people with coverage.  Tellingly, one of the supporters of the limited enrollment plan describes the guanteed-issue feature of the legislation -- you know, the provision that lets sick people get health care -- as a "big[] problem."  And, indeed, limited enrollment would make it harder for sick people to get coverage.  Signing people up for government programs is tricky as it is (note, for example, that Medicaid uptake rates rarely hit 90% in any state), and sicker and more socially isolated populations are even harder to enroll.  Now compound these problems by making enrollment more complicated, and possible only during a few weeks each year.  

The limited enrollment period will also likely increase costs.  Some studies suggest (subscription, but you can read the abstract for free) that when employers offer limited periods for switching, folks who can simply delay their medical care until after they are able to switch to better coverage.  In other words, limited enrollment doesn't mitigate moral hazard for a large segment of the consumer market. 

What limited enrollment does do is delay when people start getting treatment, which often means that they are sicker.  Unless they die faster as a result, that means in turn that their care will be more expensive.  Think of the diabetic or cancer patient who discovers their illness the week after open enrollment ends, and waits 11 months to begin treatment -- treatment that could have been far less invasive and costly if it had begun a year earlier.      

To the extent that people can shift around when they get care, limited enrollment also fails to solve the federalism problem in health care.  Again, one difficulty with regulating health insurance sub-nationally is that there is cross-border moral hazard, and a concomitant race to the bottom among states.  States don't want to offer more generous coverage if that would allow newcomers to collect without having paid in.  States might try their own limited enrollment periods, but if the studies are accurate, that wouldn't really work.  So some national solution is still necessary if anyone is going to be able to regulate the health insurance market.   

Posted by BDG on February 4, 2011 at 08:45 AM in Current Affairs | Permalink


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