As the discussion over the future of health reform continues in the United States Senate, some Republicans are looking for ways to boost coverage levels, help stabilize insurance markets, and lower health costs. For years, the U.S. has had insurance enrollment levels below what was possible because of lower than desirable take-up of existing options. For example, before implementation of the Affordable Care Act (ACA), studies estimated there were over 10 million adults and children eligible but not enrolled in public insurance (mainly Medicaid and the Children’s Health Insurance Program). In 2015, there were still 29 million people in the U.S. who were uninsured, many of whom were eligible for subsidized insurance.
Take-Up of Health Insurance Is Important for Avoiding Break-in-Coverage Penalties and Stabilizing the Market
Republicans in Congress would like to roll back key provisions of the ACA and replace them with alternative provisions. In May, the House passed the American Health Care Act (AHCA), which would eliminate the ACA’s requirement that most people enroll in coverage or pay a tax. In its place, the legislation would impose a 30-percent premium surcharge for one year for anyone with more than a two-month break in their coverage. To minimize the number of people paying this penalty, policy makers must take steps to increase the take-up of insurance.
Boosting enrollment is also important for stabilizing the individual insurance market. Currently, under the ACA, the markets are less stable than they could be, or should be, because there are too few younger and healthier enrollees. Automatic enrollment would boost enrollment into insurance among this group of potential customers, and thus help create a more balanced risk pool.
We believe that automatically enrolling Americans eligible for tax credits into no-premium health plans should be an important component of a renewed effort at health reform. Many of the uninsured who do not make plan selections on their own can be enrolled into plans that provide true insurance against significant or catastrophic health events. Individuals who are auto-enrolled will have the opportunity to opt-out of that coverage if they prefer; they will also be given the opportunity to switch to a different plan during the next available open enrollment period.
Building an automatic enrollment system will be complex and will require the cooperation of state governments, providers of medical services, and insurers, if it is to be successful. Here, we seek to address some of the administrative and related issues regarding how such a system might be built and implemented.
Operationalizing the Idea
We believe a viable approach to automatic enrollment requires a strong federal-state partnership, with the following key characteristics:
Make State Participation a Condition of Federal Funding Under Reform, and Provide Separate Funding for Administrative Costs
The AHCA creates a new Patient Safety and Stability Fund (PSSF) to help states stabilize the individual insurance market with arrangements to finance care for high-cost cases. These federal funds (or a similar funding stream that is sure to be a part of any Senate bill too) could be made available only to states that agree to cooperate in the administration of an automatic enrollment program. States would have reasons to want this kind of program to work, in part to stabilize their markets. Moreover, the primary cost of the program—the refundable tax credits—would come entirely out of federal funds. To cover state administrative costs, the legislation authorizing the automatic enrollment program should include separate funding for the states to defray expenses associated with implementing the program.
Require Insurers to Offer Default Insurance Products in the Individual Insurance Market
States would need to require insurers participating in the individual insurance market to make available to all customers default insurance plans with premiums equal to benchmark tax credit amounts (these products should be made available to all potential customers in the state, even to customers who are not targeted in the automatic enrollment process). States should have the option of using a competitive process to select a smaller number of insurers to provide default plans, based on the value of the insurance product they would make available to the people who would be enrolled into the product. States also should be allowed to waive the requirement that the default plan offering from insurers be made available to consumers throughout the entire state, so long as every resident has access to a default plan.
Establish Parameters for Default Insurance Plans
The plans into which enrollees would be enrolled should be standardized, and vary only by the amount of the deductible owed by the enrollee. Insurers would be allowed to adjust the deductibles as necessary to ensure premiums for the default plans they offer exactly equal the benchmark credit amounts. The default plans should provide some pre-deductible coverage for basic and cost-effective medical services, including coverage for a few primary care visits annually, generic prescriptions, as well as preventive and wellness benefits. This kind of up-front coverage should make the default insurance somewhat attractive to the enrollees. If the GOP reform legislation ends up including tax credit amounts that vary by income (either as a means for increasing the credits for lower-income households or to decrease and phase them out for upper income households), then insurers will need to offer default plan options that vary based on combinations of the age and income of the enrollee. One approach might be to allow insurers to establish different default plans for every $500 or $1,000 variation in the amount of the tax credits, and to establish a minimum credit below which a no-premium option would not be available. A minimum tax credit amount is needed to ensure the deductibles attached to the default plans will be viewed as providing some level of protection by the consumers who are placed into them.
Establish a Target Population for Automatic Enrollment Into No-Premium Coverage
Automatic enrollment can boost coverage levels substantially under various approaches to reform, but it may not be appropriate for all consumers in all circumstances. For instance, the AHCA provides tax credits that are only means-tested for taxpayers with incomes above $75,000 annually ($150,000 for joint filers). For persons who are below those income thresholds, the credits vary only based on age. We envision automatic enrollment as a means of getting people into coverage that requires no premium beyond the value of the refundable tax credits for which the consumers are eligible. In the AHCA context, that would mean that a default plan would be an appropriate option for all persons living in households with incomes below the thresholds established for income-testing. Above those thresholds, some households may also be good candidates for automatic enrollment if the credits for which they are eligible are above the minimum needed to get a plan with an acceptable deductible. For people who are eligible for credits that are below this minimum amount, automatic enrollment is not ideal because the beneficiary will need to pay a premium to supplement the credit.
Repurpose and Supplement the IRS’ Income and Insurance Enrollment Data
The foundation for an effective automatic enrollment program is data on income and insurance enrollment. Fortunately, the ACA already established a process for collecting and compiling this data in the federal income tax system to determine compliance with the law’s individual mandate. The IRS’ data can be repurposed for identifying households eligible for automatic enrollment into insurance. Legislation should authorize using this data to build a database that can serve as the repository of information states use to enroll persons into default insurance plans. Other parties (states, employers) should be brought into a process of maintaining and updating this database. States, for instance, can collect data on insurance enrollment through driver’s license, car registration, and tax collection systems, which could then be used to verify, cross-check, and update the federal database. Insurers should also be able to verify the government’s data with their own. There are existing databases through which insurers can verify coverage (or, in some cases, determine primary coverage where an individual is dually enrolled). These databases can be used to supplement government sources of information on coverage.
Establish a Process for Assigning Beneficiaries to Default Plans
Unless it chooses otherwise, a state should place persons eligible for automatic enrollment into the various participating default insurance plans on a randomized basis, so that all participating insurers would end up with roughly equal numbers of automatically enrolled customers. Persons should be placed into plans with premiums that are equal to or below the amount of the tax credit for which they are eligible. The risk adjustment system used to stabilize the entire individual insurance market should include the automatically enrolled in its calculations of risk levels by insurance plan.
Provide Notification to Beneficiaries
States would be required to communicate with beneficiaries about their insurance enrollment, and provide them with ample opportunity to opt out of coverage entirely. The process should be automated to facilitate communication with the beneficiaries and reduce errors.
Recruit Hospital and Physician Cooperation
Ideally, hospitals and physicians will assist states in identifying persons who are uninsured and possibly eligible for a tax credit and thus also automatic enrollment into a no-premium plan. In addition, community health centers could serve an important role in helping to identify good candidates for automatic enrollment into coverage. Outside of the health sector, other state agencies, such as Departments of Motor Vehicles, could be asked to help identify uninsured residents who would likely qualify for coverage. States would be required to establish a system for receiving this information and using it to cross-check the insurance status of people for possible placement into default plans.
A Hypothetical Initial Timeline
It will take some time to build a system of automatic enrollment, and it is to be expected that the first year of implementation would come with some mistakes and errors needing correction. Refinements to the system over time would improve the targeting of the program and the quality of the data used to run it.
The House-passed AHCA would make substantial changes to the refundable tax credits of the ACA and to Medicaid financing beginning in 2020. It would make sense, therefore, to begin an automatic enrollment program also in 2020. The following is a hypothetical sequence of administrative steps based on that timeline:
January to April 2019
Households file income taxes for calendar year 2018 and identify their health insurance enrollment status, as required under the ACA.
Using federal tax data, the government would identify taxpayers who are good candidates for the automatic enrollment program, based on their incomes and whether or not they were enrolled in coverage in 2018. The target population should be uninsured persons who would be eligible for a tax credit under the new legislation.
States oversee an enrollment system for the individual insurance market, as changed in the new legislation. States will notify those who are eligible for automatic enrollment that they will be enrolled into a plan if they do not select one on their own, and that they will have the option to opt-out or select an alternate plan during open enrollment.
States identify residents who were uninsured as of 2018 and who did not select insurance during the fall open enrollment process. Persons with incomes in the target range (based on their federal tax filing) would be placed into a default insurance plan, effective January 1, 2020. At the same time, the federal government begins sending monthly refundable tax credit amounts to state-designated default insurance plans on behalf of the individuals automatically enrolled into plans.
The federal government, working with states, will use 2019 tax data to cross-check against the automatic enrollment population. Persons found to have insurance at the end of 2019 on their own would be removed from the automatic enrollment insurance. In addition, persons found to have income substantially different in 2019 than in 2018, thus also entitling them to different tax credit amounts, might be moved from one default plan to another to reflect the updated estimates of their incomes and tax credit amounts.
Building an automatic enrollment system is bound to raise numerous additional questions; the following are some of the more significant ones that are likely to arise, although there are others that will need to be addressed as the program is refined.
What Happens When the Tax Credits Exceed the Premiums Needed for Default Insurance?
In the event Congress adopts income-adjusted credits, there will be cases when people get placed into default plans with premiums that are less than the value of the credits for which they are eligible. In these cases, the person would forgo the balance of their credit until such time that they make a selection of a plan, or affirm the default option. This approach provides an incentive for persons to affirmatively choose a plan to maximize the value of the credit for which they are eligible.
What Happens When the Credits Fall Short of the Premiums for Default Coverage?
The system for identifying and placing individuals into coverage will be based on income and insurance enrollment data from two years prior to the placement into a plan. There will necessarily be cases when someone gets placed into coverage with a premium than ends up exceeding the value of the credit for which they are eligible. In these cases, the insurance plan receiving the credit, and the individual who was placed into coverage, should be held harmless for misestimated credit amounts. That is, the insurer should not be required to return the difference between the credit received for a default enrollee over the amount of the credit that should have been paid based on the person’s income. Nor should the default insurance enrollee be asked to cover the difference in a payment to the federal government or the insurance plan.
What Happens When a Person Has Had a Break in Coverage and Owes a Premium Surcharge?
In the House-passed AHCA, persons who experience a break in coverage are required to pay a surcharge equal to 30 percent of the premium of the plan which they are seeking to purchase. The main intent of an automatic enrollment process is to help people avoid breaks in coverage, and thus also the penalties associated with trying to re-enter the market. In that context, it would be best to provide some level of accommodation for people who end up being placed into default coverage after a spell of being uninsured. One approach would be to provide everyone who experiences a break in coverage a one-time waiver of the surcharge penalty when they first are placed into a default plan. After that first occasion, however, if someone experienced a break in coverage and then subsequently got placed into a default plan, the person would be required to pay the surcharge or would eventually be disenrolled from coverage.
The Value of High-Deductible Insurance
Critics of this approach to automatically enrolling people into default insurance will argue that the coverage will be inadequate because the deductibles will be too high. It is certainly true that plans which require no premium payment from the enrollees are likely to have deductibles that are even higher than is typical in today’s marketplace. But, despite much criticism of high-deductible insurance from politicians in both parties, such coverage provides what consumers need most from these products, which is protection against major medical expenses. The costs associated with treating costly health conditions or with taking care of major injuries or other emergency situations requiring a stay in a hospital, can quickly reach tens of thousands, and even hundreds of thousands, of dollars. Only the very rich could pay such bills without health insurance, which is why most Americans should stay continuously enrolled in coverage.
An automatic enrollment program that moved the country closer to protection of all Americans from major medical expenses would be a substantial achievement, even if much of that insurance would require more up-front payments from the enrollees than many of them would prefer.
Take-up of health insurance has been below its potential for a long time. Even with the ACA’s penalties for going uninsured, large numbers of Americans are forgoing coverage and either paying additional tax penalties for doing so or applying for an exemption from the law’s individual mandate. The House GOP’s replacement plan for the ACA provides incentives for enrollment and penalties for going uninsured too, but Congressional Budget Office (CBO) believes them to be even weaker than those contained in ACA. If enacted, Congressional Budget Office forecasts there would be much lower take-up of insurance under the GOP’s plan than under the ACA.
A well-designed automatic enrollment program can help boost enrollment into coverage whatever the design of the overall system.
Under automatic enrollment, consumers would not be forced into coverage they do not want, nor would they be forced to pay any premiums for the coverage they are placed into; also, they would be allowed to disenroll at any time, or switch to a different plan during a subsequent open enrollment period. There’s nothing coercive about it.
For the most part, the uninsured do not have principled objections to enrolling in coverage; they remain without insurance out of inertia, or lack of information about their options or the financial assistance available to them. Automatic enrollment can give many of the uninsured coverage at no cost to themselves. Based on previous experience with automatic enrollment into employer retirement security arrangements, it is likely that most of the people placed into health insurance will be happy to have it, and very few of them will choose to opt out.