Government to crack down on Obamacare cheaters

The Center for Medicare and Medicaid Services (CMS) has announced an Obamacare pilot program aimed at cutting down on the number of enrollees who game the system by signing up outside the normal open enrollment period. From CNBC:

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Federal health regulators on Tuesday said they plan to screen at least some people who apply for Obamacare health insurance coverage on HealthCare.gov during so-called special enrollment periods in 2017 to verify their eligibility first.

At the same time, those regulators revealed that a new confirmation process implemented earlier this year — which required people to provide documentation to confirm their eligibility for special enrollments — has led to a nearly 15 percent drop in the number of such sign-ups compared to the same period last year.

The normal Obamacare enrollment period happens at the end of the year and lasts two months (December and January). In theory, only people in certain circumstances should be able to sign up for coverage outside of that window. For instance, people who age beyond their parents plans or who lose a job are allowed to enroll outside the normal enrollment window.

However, some enrollees have been gaming the system. Since insurers cannot deny anyone coverage, it’s possible to sign up for an insurance plan after becoming ill then dump it after getting expensive treatment. Politico reported on this problem back in January:

Obamacare customers are gaming the system, buying coverage only after they find out they’re ill and need expensive care — a trend insurers warn is destabilizing the fledgling health law marketplaces and spiking premiums for everyone.

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.

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Tightening up the rules will certainly help insurers stem some of the losses but it may not be enough. Vox’s Sarah Kliff notes a new paper by the Society of Actuaries which finds that the average Obamacare enrollee appears to be getting sicker:

Between 2014 and 2015, SOA finds that Obamacare’s average risk scores went up by 5 percent. This means that the overall pool of people on the marketplace were sicker in 2015 than 2014.

Kliff writes that this could be a sign of the dreaded “death spiral.” She adds that most consumers will be insulated from this by Obamacare’s subsidies, which is true. That may keep the people who are paying next to nothing for their insurance from dropping out. It won’t induce the people who don’t get subsidies, many of whom have stayed away because of high prices and high deductibles, to join. In other words, this may not kill Obamacare but it will almost certainly prevent it from becoming a more stable market.

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