On April 13, 2017, the Department of Health and Human Services (HHS) issued the final market stabilization rule (Final Rule) under the Affordable Care Act (ACA) to help stabilize individual and small group markets. According to a press release by the Centers for Medicare and Medicaid Services (CMS), the government intervention was necessary to remedy the following instabilities:

  • Approximately one-third of counties in the United States have only one insurer participating in their Affordable Health Benefits Exchange (Exchange) for 2017.
  • Five states have only one insurer participating in their Exchanges for 2017.
  • The premium for the benchmark second-lowest-cost “silver plan” on HealthCare.gov increased by an average of 25% from 2016 to 2017.
  • Approximately 500,000 fewer Americans selected a plan during the Exchange open enrollment period in 2017 than in 2016.
  • Many states saw double-digit increases in their insurance premiums for 2017, including:
  • Arizona—116%
  • Oklahoma—69%
  • Tennessee—63%
  • Alabama—58%
  • Pennsylvania—53%

While the Final Rule appears to refine the ACA, its accompanying press release makes clear that the Trump administration still believes the ACA is unsustainable in the long term. Nevertheless, a key component of the Final Rule is its effort to address abuses pertaining to special enrollment periods.

Open Enrollment and Special Enrollment Periods

The ACA created open enrollment and special enrollment periods (SEPs). During these periods, qualified individuals can enroll in ACA-qualified health plans through a state-created Exchange.

Absent special circumstances, individuals typically enroll in new Exchange coverage, or change existing coverage, during an open enrollment period, which occurs once yearly. In 2017, the open enrollment period was reduced to 45 days.

In contrast, SEPs occur outside of an open enrollment period and generally last up to 60 days from the occurrence of a qualifying life event, which includes (1) loss of health coverage, (2) changes in household, (3) changes in residence, and (4) other qualifying events such as leaving incarceration or becoming a United States citizen.

Concerns Regarding Special Enrollment Period Pre-enrollment Eligibility

Open enrollment periods are meant to incentivize individuals to obtain yearlong coverage during a predefined, scheduled period. SEPs, on the other hand, are designed to address unforeseen life-changing events that happen outside of an open enrollment period. Health insurers, however, have long complained that inadequate enforcement of the SEP pre-enrollment eligibility standards has resulted in abuses.

The most notable abuse is the use of SEPs by ineligible individuals. For example, health insurers have reported that a substantial number of individuals are choosing to forgo purchasing health insurance coverage unless and until they become sick and require expensive care. As acknowledged in the preamble to the Final Rule, “policies and practices that allow individuals to remain uninsured and wait to enroll in coverage through a special enrollment period only after becoming sick can contribute to market destabilization and reduced issuer participation, which can reduce the availability of coverage for individuals.”

SEPs promote this behavior when pre-enrollment eligibility standards are not enforced such that individuals can easily misuse these periods to obtain coverage, effectively, at any time (e.g., whenever they get sick). In particular, there has been concern regarding the accuracy of claimed qualifying life events. The preamble states that “allowing previously uninsured individuals to enroll in coverage via a special enrollment period that they would not otherwise qualify for can increase the risk of adverse selection, negatively impact the risk pool, contribute to gaps in coverage, and contribute to market instability and reduced issuer participation.”

Accordingly, in 2016, the CMS issued warnings and took preliminary actions to address SEP misuses. The CMS also proposed a pilot program that would require HHS to verify the pre-enrollment eligibility of 50% of new SEP applications starting in 2017. Based on feedback from health insurers, the CMS elected to strengthen its enforcement stance even more.

Changes to Special Enrollment Period Pre-enrollment Eligibility Enforcement

Before the Final Rule, in most cases, individuals who enrolled through an SEP self-attested to their qualifying life events. However, the Final Rule is “increasing pre-enrollment verification of all applicable individual market special enrollment periods for all States served by the HealthCare.gov platform from 50 to 100 percent of new consumers who seek to enroll in Exchange coverage through these special enrollment periods.” All new SEP applications will remain “pending” until HHS confirms the occurrence of a qualifying life event. “In this context, ‘pending’ means the Exchange will hold the information regarding [qualified health plan] selection and coverage start date until special enrollment period eligibility is confirmed, and only then release the enrollment information to the relevant issuer.” Applicants will have 30 days to provide documentation showing their eligibility.

The Final Rule will go into effect June 19, 2017. Its verification requirement will apply to all new consumers in states served by the HealthCare.gov platform, including Federally-Facilitated Exchanges and State-Based Exchanges on federal platforms. The verification process will be phased in, focusing first on the most commonly used qualifying life events (and those of most concern), including permanent move, loss of minimum essential coverage, marriage and adoption.

Conclusion

While reactions to the Final Rule have been predictably mixed, the Final Rule may have a constructive impact by making it more difficult for individuals to abuse the SEP pre-enrollment qualifying limitations. Whether this will help stabilize the Exchange marketplace is a question that will not soon be answered.