Health Insurance and Open Enrollment

In Newsletter Content by Brandon St. Clair

Why is Open Enrollment so Important for Health Insurance?

Have you ever thought to yourself: “I should be allowed to update or buy health insurance whenever it’s convenient for me? Why do I have to do it only between November 1st – December 15th or only a month during my company’s open enrollment period?

Well, as it turns out, having a limited time window does have its benefits, and it is fairer to all parties. Let’s take a walk down memory lane. A few years ago, Americans could buy health insurance plans whenever they wanted. In order for the insurance companies to stay in business, they would underwrite the application to access the risk.  In some cases, the premium was adjusted up because the individual had a pre-existing condition and would probably experience a claim in the near future.  Or even worse, the risk or pre-existing condition would cause an immediate claim, so the insurance company would decline the policy altogether.  Not a good situation for those with pre-existing conditions.

People with pre-existing conditions had nowhere to turn for insurance and would have to pay all medical costs themselves or experience financial bankruptcy trying to pay for medical treatment without an insurance policy.

To remedy this, the Affordable Care Act was passed, and it sets rules that insurance companies are required follow.  They must accept all the risk with no pre-existing condition rate up or exclusions.  The policies must be guaranteed issued. The guarantee issue law created a dilemma; if plans were guaranteed issued, with no pre-existing condition, what would stop people from signing up for policies only when they need it?  The insurance industry is not sustainable if there are more sick people than healthy people. The cost of the sick must be offset by the healthy people for insurance to be possible – Insurance 101. The insurance company must bring in enough premiums to pay claims and pay the administration costs of distributing the funds.

Without the open enrollment rule, there was no stopping individuals from signing up for insurance only after they knew they were going to have a claim.  This is much like buying insurance for your car after you have been in an accident. Everyone knows it would not be a workable situation. Open enrollment ensures that there is a proper mix of healthy and sick people on the insurance plans.  This ensures that some people are paying premiums while those who need the funds receive it.

Open enrollment is necessary for everyone involved. The open enrollment period allows the insurance companies to project how much premium will be needed to pay future claims, and individuals have a set monthly premium to pay for the next year. The intended goal was to give Individuals guaranteed policies while denying coverage to no one.

Any Downfalls to A Short Open Enrollment Period?

There are those who claim that a short open enrollment period prevents some of the population from signing up. The claims are that the brief period does not give people enough time to decide. But, think about it, if someone has a tendency toward procrastination, then they will procrastinate no matter how long the open enrollment period is.

Some may also ask, what if there is a significant change midyear that is out of my control? Am I stuck on the plan I chose during the open enrollment? To accommodate this situation, the Special Enrollment Period was implemented. If there is a life change, you can still adjust insurance midyear to help with this change. Examples may include marriage, divorce, childbirth, child aging out, loss of income, and termination of employment or commencement of employment.

Open enrollment may not be ideal, but it is necessary. It creates the delicate balance to keep the insurance companies in the business of offering policies and guarantees that we will have plans available when we need it the most.