Gaming open enrollment

The open enrollment for the Exchanges presents an opportunity for people who meet the following conditions to game the system:

• Young
• covered by Bronze insurance via work
• Just received a hit by the bus diagnosis
• Living in a fairly cheap insurance area
• able to move fast

Where I live and work, most of the big employers dealt with the employer mandate in a fairly similar manner.  Anyone who was working more than roughly 28 hours a week on average and not covered by the regular employer offerings was offered a “simple” Bronze plan with a $6,000 deductible.  The premium was paid for an employee contribution of 9.5% of annual earnings (to be reconciled at the end of the year)  and the employer picking up the rest.  This is sufficient to satisfy the employer mandate requirement that large employers offer a minimally qualifying plan to all people who work, on average, more than thirty hours a week.  But it is a fairly shitty plan as the employee contribution by dollar amount and salary percentage was much higher than most full time workers who got mid-silvers to low golds for a far worse plan.

If a person was covered under simple Bronze effective January 1, and on January 10th received a diagnosis of something big, ugly and expensive where treatment is needed but could be delayed for a week or two, there is a way to game the system to minimize total costs for the year.

Here is how:

Go to HealthSherpa.com and enter your information.  Enter an income that you know will disqualify you for subsidies.  Ask to see the “Worst Case Scenario” which is all premiums paid, the deductible paid by you in full and all of the out of pocket maxed used up.  If your situation is bad enough, you can max out a Bronze plan in an afternoon.  Several Gold and Platinum plans will appear at the top of the search results.

Add up the sum of the premiums, and out of pocket max for the top two or three returned results.  That number would be your yearly exposure.  If that is less than sum of your employee contribution to the premium for a simple Bronze plan and the out of pocket max, seriously think about dropping the employee coverage for the one already identified newly sick individual and paying for the Exchange policy out of cash.

You would still be responsible for a out of pocket share and premiums, but the sum of the premiums and deductible under this adverse selection play is less than the sum of premiums and out of pocket limit for a Bronze plan.

This play only works in very limited circumstances.  I tested the scenario for urban New Mexico and my home zip code.  Both work up to the mid-30s for non-smokers and late 20s for smokers.  There is a big question as to whether or not all of the needed or wanted docs and facilities are in the low cost networks.  There is the question as to whether or not the particular diagnosis is expensive as hell but treatment can be pushed back for a few weeks safely.  I would expect that only a couple hundred people out of the twelve million or more on-Exchange buyers this year could run this safely and effectively.

Why does this work?  Basically, the way the current open enrollment system is structured, it provides a free switch option as people can be covered in the new contract year and still switch once new information comes into play.  If this was a big adverse selection problem that the risk adjustment system could not compensate for, the easiest fix would be to have a prospective open enrollment system instead of a concurrent open enrollment.  By that I mean open enrollment would go from say October 1st to December 15th every year, and every policy would start on January 1st of the following year.  That is how most major employers run their open enrollment.

There are a couple of free options that can and should be gamed in the health insurance system.  The COBRA system has a long period of retroactivity where someone does not have to pay their first premium for at least two months.  If they found something else in that two months, it is afree option for hit by the bus coverage that they decline by not sending in the premium.  If they got hit by a bus on day 47 while uninsured, they can send in their two months premiums on Day 60 and be fully insured for Day 47.  The Exchanges have a similar policy for non-payment of premiums.  Once the initial payment is received, three months of non-payment is needed for for an insurer to drop a person.  If a person is tight for cash and knows they’ll have a better option in 75 days either through change in life circumstances or a new open enrollment period, it might make sense for them to stop paying unless they get hit by a bus before Day 90.  They’ll then owe three months of premiums to get current again but it is a low cost option.  This is just another low cost option built into the system.  It would be removed if it gets too expensive and too skewing of the risk pool, but so far it is not.