Wednesday, October 30, 2013

Open enrollment must be limited, or ...

...healthy people will wait until they are sick to enroll.  This is a type of moral hazard.

“If you can enroll at any point in the year, then you can just wait until you get sick,” Brian Wright, an analyst with Monness Crespi Hardt in New York, said in a telephone interview. “This isn’t the industry crying foul and exaggerating the issue, this is actually one of those issues where there is a well-grounded reason for the concerns.”

President Obama's extension of the open enrollment period would make insurance more expensive, as insurers anticipate this reaction from a long open enrollment season. 


  1. Need a little help here with Brian's quote. Is he saying that it would be better if more people signed up right away? Basically, will the premiums for 2015 be thrown off if people wait to sign up on the healthcare website? Could use some help with this thanks!

  2. If you are young, would you rather pay a $95 fine for not having insurance or pay over $1000 to have insurance you probably won't use. If something happens, open enrollment allows you to sign-up after something happens, but before care/bills--thus, the moral hazard.

  3. I can definitely see how a longer open enrollment will cause insurance premiums to go up. Couldn't the insurance companies sign people into a year contract? This would alleviate some of the pain.

  4. It isn't the longer enrollment period, by itself, that causes premia to increase. It is the insurance company's uncertainty as to the actual risk that it will be required to cover, and pricing premia to adequately finance that risk, that is the cause of the increase. The requirement to include people with pre-existing conditions in the same risk pools with people who are healthy will also cause a premia increase.

  5. David is exactly right, and this is why the ACA is pushing our health "insurance" market even farther from a true insurance system. When the insurance companies can not exclude people based on pre-existing conditions or risk-adjust premia based on individual risk factors, they have no choice but to raise premia to ensure they can cover the most expensive patients.

    From an individual standpoint, there is no risk of waiting to buy insurance since insurance companies can not turn people away once someone gets sick. As long as the penalty for not buying insurance stays lower than the expected cost of buying insurance, insurance companies will suffer from adverse selection because only sicker patients will enroll. This is what we have seen since Oct 1, and it is going to continue to drive up premia, drive down enrollment, and cause an insurance "death spiral." Once that happens, perhaps we will be able to craft an economically sound health insurance system.