Three ways to make health insurance auto-enrollment work

A group of Doctors meet in the cardiac step-down area of the University of Mississippi Medical Center in Jackson, Mississippi
Editor's note:

This analysis is part of the USC-Brookings Schaeffer Initiative for Health Policy, which is a partnership between Economic Studies at Brookings and the University of Southern California Schaeffer Center for Health Policy & Economics. The Initiative aims to inform the national health care debate with rigorous, evidence-based analysis leading to practical recommendations using the collaborative strengths of USC and Brookings. 

The Affordable Care Act has dramatically reduced the number of uninsured Americans, but millions of people still remain without coverage. Policies that help the uninsured gain coverage are likely to improve access to care and financial protection for those individuals, reduce uncompensated care burdens for providers, and, because the remaining uninsured are relatively younger and healthier than the population as a whole, lower overall per-capita premiums.

One attractive tool to build on the ACA and achieve coverage gains is “auto-enrollment”–that is, policies that enroll people in coverage without requiring them to actively seek out or submit an initial application. This term can include both “true” auto-enrollment, in which a consumer seamlessly and automatically obtains coverage, and approaches that take steps toward making enrollment automatic while still requiring some affirmative action from the potential enrollee.

Any auto-enrollment proposal requires policymakers to solve four distinct policy problems:

  • Obtaining eligibility information. Currently uninsured people are eligible for different programs with different amounts of financial assistance. Policymakers must find a way to determine who is uninsured, what coverage they could be enrolled into, and at what price.
  • Collecting a premium. Many (though certainly not all) uninsured people will owe a premium if they become enrolled in coverage. To auto-enroll such a person the policy needs a way to collect premiums.
  • Selecting an insurance plan. If the individual would have a choice of insurance plan if they actively enrolled, auto-enrollment needs to assign them to a plan.
  • Managing false positives and false negatives. Sometimes, auto-enrollment will get it wrong, and a person will become enrolled into coverage for which they are not eligible or remain uninsured despite having reason to believe they were covered. Policymakers need a fair approach to resolve these problems.

Under current law, each of these four problems is hard to solve. First, existing coverage programs have a patchwork of eligibility rules, and determining what program a person is eligible for requires a great deal of information–about income, family composition, and employer health plan, if any – that is not always available in government datasets. Second, premiums for many people are large, must be paid monthly, and generally must start at the end of the calendar year. Third, in the individual market, insurance carriers offer a wide variety of plans at different prices, and there is no obvious “default” option. And fourth, current rules place an especially high price on getting things wrong: individuals must themselves repay much of any financial assistance that is wrongly received, and, conversely, there is no mechanism to cover someone who was initially overlooked.

Despite these obstacles, new federal legislation to address the difficulties and move towards auto-enrollment is possible. There are a number of tools that policymakers could use. Most fundamentally, successful auto-enrollment likely requires changes to the way we determine eligibility for Medicaid and Marketplace financial assistance, to make the system easier to navigate and more generous. That is, using data to estimate eligibility is easier to achieve when eligibility criteria are designed to better fit the available data. This can include:

  • Eliminating reconciliation and converting Marketplace financial assistance to a prospective award,
  • Broader use of continuous eligibility, where eligibility is “locked” based on a prior point in time,
  • Greater flexibility about who can conduct an eligibility determination,
  • Eliminating the employer coverage firewall, and
  • Improving subsidy generosity.

Policymakers can also consider retroactive approaches to enrollment, where individuals are considered “covered” during a period of uninsurance and charged a premium after the fact. The tax system can be leveraged to better facilitate enrollment, and policymakers should be realistic about what actions consumers themselves will need to take.

This paper describes three different proposals that would make some form of automatic enrollment possible. The analysis generally focuses on policies that could be enacted through new federal legislation, though some of the concepts discussed could be adapted to administrative actions or to state government.

Option 1: A Retroactive Coverage Backstop

If policymakers want to achieve “true” auto-enrollment that is seamless for the consumer, they should pursue an approach where consumers are automatically enrolled in coverage that is retroactively accounted for at tax filing. Consumers who are otherwise uninsured (and are not eligible for Medicaid) would be treated as if they were covered by a “backstop plan” for each month they did not have other coverage. If they received health care services in that time, the backstop plan would pay claims, just like other forms of insurance. At tax filing, individuals covered by the backstop would be retroactively charged a premium for the plan. This premium would be charged regardless of whether or not the individual used health care services in their months of backstop coverage, and would be income-adjusted to mirror Marketplace financial assistance.

Determining what plan will serve as the backstop is complex. One option is for the backstop coverage to be provided by a public plan in the individual market. Alternatively, a privately-operated backstop could provide temporary coverage, and then individuals would transition into traditional individual market plans. Regardless, backstop coverage would be “activated” during the year when an individual accesses care, enabling the consumer, health care providers, and the backstop plan to coordinate care delivery. The backstop should be designed and priced at the level of a bronze plan (or whatever the lowest cost individual market option is).

Coverage for Medicaid-eligible individuals would be handled outside this system, largely following current law: people would become enrolled in Medicaid when they accessed care, and Medicaid would cover their services prospectively and through the retroactive coverage period.

Such an approach could effectively create universal coverage for the eligible population, since any time an individual lacked another source of coverage, they would be covered by the backstop plan. If policymakers wanted to create a process by which individuals could opt-out of the backstop coverage, they could–but at the cost of forfeiting some of the backstop’s benefits, including its ability to ensure universal (or near-universal) coverage.

Option 2: Assessment at Tax Filing

An alternative approach would stop short of enrolling individuals into a coverage product, but would take aggressive steps to connect likely-eligible individuals to coverage and encourage enrollment. Specifically, at tax filing, individuals who have indicated on their tax return that they are uninsured would be matched to a likely source of coverage (e.g. an individual market plan or Medicaid). Targeted outreach would encourage them to enroll.

Though not strictly necessary, this approach will be more successful if combined with efforts to dramatically simplify the eligibility determination process. However, it will not represent a truly universal approach to enrollment, leaving out individuals who experience changes in coverage status or income or who fail to take the action required to begin coverage. While it could achieve some coverage gains, they are likely to be much smaller than a truly automatic system could achieve.

Option 3: Targeting Specific Populations

A third option for policymakers to consider would be to target a few specific populations at times of coverage transitions. Specifically, targeting individuals who would otherwise lose coverage when churning between Medicaid and the individual market can produce some coverage gains, especially in states where the same issuers participate in both markets. Issuers could become responsible for retaining individuals through these coverage transitions. Another potential target would be individuals claiming Unemployment Insurance (UI) benefits. UI applicants could be asked questions to determine their coverage eligibility, and if uninsured they could be directly enrolled into coverage–with premiums automatically deducted from their UI benefits. These are limited-scope activities and not a population-wide approach to enrollment, but they could still bring new people into coverage.

Read the full report here.