February 20, 2015 | Rosemarie Day

Open Enrollment #2: It’s Not Over Yet!

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It’s not over until it’s over… it turns out that February 15th wasn’t the final deadline for the second open enrollment period for health insurance under the Affordable Care Act after all. In what’s good news for many, the Obama administration just announced a special extension to buy health insurance for tax filers that are facing a penalty for not having it in 2014. And many state exchanges are expected to do the same. Let’s take a look at the decision and the projected impacts.

WHY DID THEY EXTEND THE DEADLINE?

Boosting the numbers: Some will argue that the extension is just a way to boost enrollment numbers. In what’s already “old news,” the administration announced earlier this week that 11.4 million people had signed up for insurance by February 15th. These numbers actually looked pretty good. They beat the administration’s goal of 9 – 9.9 million. But, they didn’t hit CBO’s revised estimate of 12 million. So boosting the numbers is one possible reason.

The politics can be argued, but what’s really important is that there is a basic fairness issue in play here.

Fairness: Open enrollment ended on February 15th, which is two months before the April 15th filing deadline for 2014 tax forms. There were still many people who were not aware of the fact that they would have to pay a tax penalty if they didn’t get insurance coverage in 2014. A recent survey shows that 44% of uninsured people knew nothing or very little about the tax penalty.1 While the penalty is relatively low for 2014 ($95 for individuals), it goes up in 2015. There had not been a great deal of advertising of this aspect of the ACA (who wants to share bad news?). This means that the “wake-up call” comes when people see their tax forms. To be barred from purchasing insurance due to the close of open enrollment (which ended earlier this year than last) would be unfair.

This suggests that the special extension period is a good thing. And it should be considered for future years as well, because there will continue to be people who didn’t “get the message.”

Getting the Message: Even with lots of advertising, people who use tax software packages may not notice some of the finer points of what they owe, particularly if their health insurance tax penalty is netted out of a refund – this was a lesson learned in Massachusetts over the first couple of years of rolling out the tax penalty.

And interestingly, there’s already evidence that when people know there’s a tax penalty, they will buy health insurance. In fact, it turns out that more healthy people will seek coverage. A study conducted of the Massachusetts Health Connector’s initial launch shows just this.

IMPACTS OF THE EXTENSION: THE CASE OF THE MASSACHUSETTS HEALTH CONNECTOR, BEFORE & AFTER TAX PENALTY

When the Connector launched its first program of subsidized health insurance (Commonwealth Care) in 2006, there was no tax penalty in place. The penalty didn’t go into effect until the end of 2007. When the enrollee data was analyzed, it turned out that the initial enrollees were less healthy than those who signed up once the tax penalty was implemented. So when it was “all carrot” (subsidies) and “no stick” (penalties), the healthier people enrolled at a lower rate.

This suggests that the tax penalty actually improves the risk pool, which is a good thing for insurers, who should be able to offer even more affordable coverage as a result.

Screen Shot 2015-02-20 at 1.10.30 PMClick graph to enlarge. “Number of New Enrollees in Commonwealth Care, According to Chronic-Illness Status” (NEJM). The two vertical dashed lines represent the start of the mandate phase-in period (from July through November 2007) and the start of the period when the mandate became fully operational (from December 2007 onward).

 

 

 

1. Urban Institute: Health Reform Monitoring Survey, 2/19/15. “QuickTake: As of December, Many Uninsured Adults Were Not Aware of Tax Penalties for Not Having Coverage, the Marketplaces, or the Open Enrollment Deadline”.