Making automatic renewal of Obamacare insurance work

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? 

Let’s take the example of Hillary.  She is 35 years old, makes $30,000 a year, and lives in Philadelphia.  This year, she was eligible for a $77 per month subsidy.  She chose the second cheapest silver plan, and pays about $210 per month.  She could have also used that same $77 subsidy to buy a cheaper or more expensive plan.  When Hillary re-enrolls next year, the price of the second cheapest plan will change and which plan is second cheapest may also change.  So Hillary’s subsidy will change as will the difference in prices between the plans.  So if Hillary doesn’t shop around again, she might end up paying a lot more than she was this year.

Staying in the same plan, even if it is a little more expensive, can have some perks.  For Hillary, it means she will most likely be able to keep the same doctor.  And that continuity is valuable.  But there are some things consumers will need to help them make the best choices.  First, they need a clear and simple description of changes to their plan for the next year.  Second, they need to see how prices will change next year for all plans with their subsidy (assuming their income is stable), not just the one they are enrolled in.  Finally, they need accurate and comprehensive information about which providers and doctors are in and out of each plan’s network.  The Marketplaces need to do a much better job of communicating that information. 

In the long run, the Marketplaces need to go a step further and begin to recommend plans by asking consumers what is important to them in choosing an insurance plan (e.g. premium, network size, cost sharing).   This is how the best consumer websites work.  They simplify the choices in a world where there are too many choices.   But we will leave that conversation for another day.

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Editor's Note: Cross-posted on the Voices@LDI blog of the Leonard Davis Institute of Health Economics of the University of Pennsylvania.

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