Improving automatic re-enrollment by respecting revealed preferences

In this morning’s Health Affairs Forefront, Dr. Coleman Drake and I argue that the automatic re-enrollment mechanism for the ACA marketplaces needs to be modified. We observed that when a large carrier, Bright Health Group, suddenly left the market for the 2023 Plan Year, almost a million people would be automatically be transffered to different insurers. The current Centers for Medicare and Medicaid Services (CMS) algorithm prioritizes metal level and plan type (EPO, HMO, POS, PPO) as the only valued features.

This is problematic:

CMS’s intent in creating these criteria was to respect enrollees’ preferences regarding cost sharing, gatekeeping, and out-of-network benefits… Health insurance literacy on plan types is poor, and prior research on Marketplace health plan choice indicates enrollees place very little value on plan type. Another plan characteristic—premiums—is of far greater concern to enrollees…

Premiums are not a criterion in the current reenrollment algorithm. This is problematic for two reasons. First, premiums have a substantial effect on whether enrollees maintain coverage from one year to the next; premium increases reduce re-enrollment. Second, defaulting an enrollee from a zero-premium plan to a plan with a premium requires that the enrollee start making a premium payment to stay insured. That enrollees would be defaulted from zero-premium plans to plans with premiums was not a major concern when CMS updated their algorithm in 2017—zero-premium plans were rare at the time…

Keeping enrollees in zero-premium plans is not simply about keeping them in a plan with a lower premium. Rather, it is important because it eliminates the hassle of making a premium payment. This administrative burden to health coverage often requires lower-income enrollees to mail a check or money order to their insurer over the holiday season. Zero-premium plans eliminate this burden, increasing both duration and retention of coverage.

We know that zero premium plans have become extremely common due to both legislative changes (ARPA/IRA subsidy changes) and policy changes (Silverloading). There is growing evidence that zero matters a lot not as a matter of pricing but as a matter of hassle. Other researchers have found that the people who are most responsive to removing burdens tend to be healthier so reducing burden stabilizes risk pools. We propose a new mechanism:

We propose that for people who are enrolled in a zero premium plan in the current year and their insurer leaves their market, that they get matched to a zero premium plan offered by a different in the same metal level and plan type if possible. If there is no match on plan type, we suggest prioritizing on zero premium if possible. Anyone who was paying a positive premium would go through the current sorting and re-assignment mechanism.

We think that this change would move the information and compliance costs from the individual to the state which can handle these challenges en masse with an automated process. This would be a modification for an edge case when low cost insurers leave markets but we think that this would be a substantial improvement while reducing administrative costs.