Smart default policy helps lower-income enrollees avoid inferior health plans

An analysis of individual enrollment and premium data from California’s marketplace and the American Rescue Plan premium tax credit subsidy schedule has concluded that a smart default policy avoids defaulting lower-income marketplace enrollees to objectively inferior health care insurance plans and leads to large reductions in lower-income enrollees’ deductibles, copayments, and maximum out-of-pocket amounts.

The authors of the study in JAMA Health Forum had previously observed that individuals who automatically re-enrolled in Covered California (the health insurance marketplace for the state of California) were far more likely to be placed into a dominated plan than individuals who had made a choice.

“A short study we conducted also found automatic re-enrollment was very supportive of retention in the Affordable Care Act (ACA) markets,” said senior author David Anderson, MS, a research associate at Duke University Margolis Center for Health Policy in Durham, North Carolina.

When the Biden Administration’s desire for larger subsidies for ACA buyers first surfaced, “we realized that our previous research was immediately relevant because there would likely be more people placed into dominated plans than otherwise, and we wanted to know the scale and scope of this potential problem,” Anderson told Contemporary OB/GYN®.

The current study in JAMA Health Forumassessed individual enrollment data from 2018 for 748,087 Covered California enrollees, with a mean age of 44.8 years and 54.6% women.

Premium data from California’s marketplace and the American Rescue Plan premium tax credit subsidy schedule for 2021 revealed that 5.8% of sample enrollees defaulted into dominated health plans.

Of these enrollees, 98% had incomes below 250% of the Federal Poverty Level (FPL).

A smart default policy resulted in a mean $102.47 decrease in monthly premiums, a mean $1960 reduction in individual annual medical deductibles, and a mean $49.56 reduction in specialty prescription copays.

“We were not surprised that automatic re-enrollment led to some people being placed into dominated plans,” Anderson said. “We were slightly surprised, however, at the magnitude of the costs incurred by individuals who would be defaulted to dominated plans: $1,200 in additional average annual premium and over $1,900 in extra deductibles.”

For the over 90% of individuals who are placed into a strictly dominated plan due to earning under 250% of the FPL, the premium component of a bad default is 4% to 6% of income, or 2 to 3 weeks of pre-tax pay.

“Other studies have found that cost-sharing is a significant barrier to care,” Anderson said. “Patients as consumers are not discerning shoppers who will buy high value and effective care while foregoing low-value care. Most often, patients as consumers will just stop getting care. Our study illustrates a potential cost-barrier to care that may have clinical impacts.”

For the 2022 open enrollment period, the biggest challenge to implementing the study’s proposed smart default policy is time, according to Anderson. “Insurers, regulators and exchange operators have, at best, a miniscule window to implement any new operational changes, while also attempting to respond to COVID and other American Rescue Plan components, such as unemployment insurance for individuals earning 133% of the FPL.”

Some states also may have legal barriers to implementation, including legislative directives on automatic re-enrollment hierarchies.

“Nonetheless, we believe that our general proposal can be enacted for the 2023 open enrollment period,” Anderson said.

Anderson noted that choosing insurance is a challenge in the best of circumstances and choice environments. “The ACA marketplaces are not the best choice environment,” he said. “When there are steps that can be taken to provide enrollees an improved choice situation by removing objectively bad choices from the default, exchanges should take steps to help improve the quality of choice.”

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Disclosure

Anderson reports no relevant financial disclosures.

Reference

Anderson DM, Rasmussen PW, Drake C. Estimated plan enrollment outcomes after changes to US health insurance marketplace automatic renewal rules. JAMA Health Forum. 2021;2(7):e211642. doi:10.1001/jamahealthforum.2021.1642