Special Enrollment Periods and Risk Adjustment

Millions of uninsured Americans do not sign up for available coverage despite job loss or other eligibility for special enrollment periods (SEPs). Such periods let nongroup insurance begin outside the usual open enrollment period. Among more than 30 million people who are estimated to experience spells of uninsurance each year for reasons that qualify for SEPs, fewer than 5 percent use SEPs to obtain coverage. One important reason is carrier resistance to enrolling SEP members. Concerned that risk adjustment underpays for the risks associated with SEP enrollees, carriers rarely market to them, and many do not pay agents and brokers for enrolling them. Many insurance carriers cited losses on Special Enrollment Period (SEP) members as important factors leading them to exit health insurance marketplaces.

To address this apparent underpayment, federal officials added enrollment duration factors that, starting in 2017, increased risk scores for SEP members and other part-year enrollees. These new adjustment factors apply on top of existing adjustments for age, gender, and health condition category to compensate for the additional expected costs of part-year members net of what the other factors predict. The enrollment duration factors vary based on length of enrollment and metal-level, but they are the same for part-year members who sign up during SEPs and open enrollment periods (OEPs).

In this study, we examine 2015 data for individual-market enrollees of two large insurance carriers. Analyzing risk scores, medical-loss ratios, and paid claims, we find that: (1) in 2015, risk adjustment underpaid part-year enrollees, relative to full-year members; (2) such underpayment is much larger for SEP members than for part-year OEP enrollees; (3) the new enrollment duration factors end relative underpayment for part-year OEP members in the data we examine, but leave SEP members substantially underpaid; and (4) future changes in risk adjustment methodologies, e.g., adding prescription drug factors to the risk model, are unlikely to alleviate current underpayment for SEP members.

Near-term, urgent health problems appear to drive enrollment more for SEP members than for part-year members signing up during open enrollment based on our findings. Recent policy changes take important steps that partially rectify the underpayment for SEP members by risk adjustment. Policymakers should consider revising the enrollment duration factors to provide additional compensation when part-year members enroll later during the year. Such additional adjustment to compensate for the higher costs of SEP members are likely needed for carriers to compete by offering value to all eligible consumers, throughout the year, rather than by avoiding the many uninsured consumers who qualify for SEPs.