The Obama administration is floating a proposal to allow “auto-renewal” of ACA insurance plans. This means that the roughly 8 million people that signed up for Obamacare insurance will be automatically renewed in the same insurance plan next year (open enrollment starts again in November) unless they choose a different one.
This would make the experience of Obamacare enrollees similar to most workers “auto-renewed” each year by their employers. When employers auto-renew their workers – it keeps more workers covered, reduces the burden on employees to re-enroll every year, and makes it administratively simple for employers. The same logic holds true for the Obamacare marketplaces. If every consumer had to re-enroll every year, some would forget, many would be annoyed, and the system would be stressed more than it needs to be. Keeping the same plan also makes it easier to keep the same doctor.
But “auto-renewal” has some dangers. First, it makes it less likely consumers will comparison shop the prices of insurance plans each year as premiums change. Less than 3% of people with employer-sponsored insurance choose to change their insurance plan each year. Perhaps many workers are happy with their coverage but it’s also likely many just don’t take the time to consider switching. If consumers don’t’ shop around, it decreases competitive pressures between insurers as the number of “auto-renewals” begins to exceed the number of new enrollees that are actively shopping.
Second, since the federal government is kicking in part of the premium for a majority of Obamacare enrollees, consumers may not pay enough attention to whether they should be switching plans to make better use of that subsidy. The amount of financial help people get to buy insurance is based on their income and the price of the second cheapest “silver” plan where they live. Since premium increases across plans will be different, what happens if a new plan is the second cheapest “silver” plan next year?