What is the Point of Open Enrollment?

“Are the insurance companies really going to deny me after the open enrollment period ends?”

I’m often asked this exact question and with good reason.  Consumers just can’t imagine why a company wouldn’t take their money.

Insurance companies spend billions of dollars in advertising and when the time comes to close a deal, they aren’t going to accept it?  They answer is almost always, “No, they aren’t going to accept it”.  When people are told this they are shocked.  Shocked!

Insurance companies are nothing more than well informed gamblers.  They don’t do anything without carefully calculating the results ahead of time so there must be a reason for this strange rule.

Prior to the Affordable Care Act (ACA) passing and creating an open enrollment period, applying for individual health insurance meant you had to go through medical underwriting.

Medical underwriting was a process where the insurance company looked at the applicant’s health history and came to a decision of whether to accept the applicant as is, accept the applicant and apply a surcharge, or deny the applicant altogether.

In those days I saw applicants denied for reasons such as asthma, diabetes, chronic coughing, failing to see a doctor recently, substance abuse, you name it.

For those that were accepted, health insurance was relatively affordable.  For those that were denied, health insurance was very difficult to purchase, no matter the price.  It’s for those people that were denied that the ACA makes the most sense.

When I get asked my opinion of the ACA, I tell people that while it has many flaws, something had to be done for the uninsured.  It was tough telling someone with asthma that they had been denied and now have to purchase insurance for $1,000 a month through the state’s high risk pool if it was even available at all.

So the ACA eliminated medical underwriting altogether and we’re better off for it.  However, allowing sick people to buy health insurance without some concessions would mean financial ruin for the insurance companies.  And no matter how you feel about insurance companies, their demise would be a catastrophe for everyone involved.

What concessions were made?

In order to eliminate medical underwriting and still survive, insurance companies essentially needed two things, the individual mandate and the open enrollment period.

Open enrollment is already a staple with Medicare.  It’s main purpose is to prevent people from buying insurance “from the back of an ambulance”, meaning only when they need it.

Open enrollment spreads risk over time.  In spreading risk over time, insurance companies collect money in the good times to help pay for the bad times.  Open enrollment ensures that happens.  Without open enrollment, there would be far less “good times”.

Imagine a healthy 22 year old who plays soccer on the weekends.  He doesn’t see the need for health insurance because he’s invincible in his mind.  He doesn’t get sick and never goes to the doctor.

However one weekend he tears his ACL during a game.  Knowing that he has a $50,000 surgery in his future, he signs up for health insurance.  Not only does he buy insurance, he buys a Platinum plan because he knows that he’ll have an out of pocket maximum cost of $4,000 instead of $6,350.

Our soccer star then has his surgery, pays $300 for his insurance premium that month and $4,000 for his out of pocket costs.  The insurance company picks up the other $46,000.

4 months later he’s all healed up and back on the pitch.  The leg works better than ever and he’s feeling invincible again.  What do you think he’ll do?

That’s right, he’ll cancel his health insurance and wait for the next time he needs it.  It’s easy to see how an insurance company would go broke doing business this way.

Open enrollment means that our young friend can only purchase his health insurance during a specified time.  He can’t wait for an injury.  If he fails to buy it during that open enrollment period, he will go uninsured the rest of the year and his ACL surgery would be billed 100% to him, likely landing him in bankruptcy court.  On top of that, he’ll also pay a tax penalty for not having insurance.

Potential bankruptcy and tax penalties.  Those are two good motivators to purchase health insurance.  Our government and our health insurance companies are hoping they are motivation enough.  Open enrollment makes sure the insurance companies stay solvent either way.

Open enrollment for 2016 runs from November 1, 2015 through January 31, 2016.

Special enrollment

We shouldn’t leave the discussion about open enrollment without mentioning special enrollment.

Special enrollment is a period of time that allows people to enroll in health insurance during very specific life events such as losing a job or getting married.

Special enrollment runs during the time that open enrollment doesn’t.

Get online quotes now

Whether you are eligible for special enrollment or it’s open enrollment time, you can get an online health insurance quote right now.