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Why Is There Open Enrollment for Health Insurance?

The health system put the open enrollment period to discourage adverse selection – which happens when sick people sign up for health insurance and healthy people don’t. It reduces the financial risk a health plan takes when insuring individuals or small businesses.

It also helps protect you from not having health insurance when you incur expensive, unexpected medical care or have an existing chronic condition. You are eligible for ACA-compliant health insurance during an open enrollment period regardless of your health status.

What Is Open Enrollment?

Were you healthy when you first bought health insurance? You pay your health insurer a little bit every month, and they give back a lot when you need care. If everyone waited until they were sick to buy insurance, there would be no money for insurers to give back.

The Affordable Care Act created the national Open Enrollment Period to solve this enrollment problem. During this annual health insurance open enrollment, everyone is supposed to buy or re-enroll in health insurance all at once. Outside of this Open Enrollment Period, buying healthcare becomes difficult.

How Adverse Selection Works

A health insurance company can only exist if it takes in more premiums each year than it pays out in claims. For this to happen, it needs more healthy members than sick members.

Here’s a simplified example. Each health plan member pays $6,000 per year for health insurance. For each member who needs a $400,000 bone marrow transplant that year, there must be 67 members who pay their premiums all year long without having a single claim. (67 X $6,000 = $402,000.) The health insurance company uses the premiums from the 67 members who didn’t need any care to pay the medical bills for the one member that needed a lot of care.

Why Adverse Selection Is Bad for Everyone

The whole system would fall apart if all healthy people thought to themselves, “Why should I pay $6,000 per year for health insurance? I’m healthy. I’ll just save that $6,000 and wait until I’m sick to buy health insurance.”

Then, only the sick people—the people whose claims total more than their premiums—would enroll in health insurance. The health plan wouldn’t take in enough money in premiums to pay all the claims. If this happened, the health plan would have two options: go out of business or raise premiums.

If it goes out of business, that’s bad for everyone. We’d all have fewer options when shopping for health insurance, and there would be less competition. Fewer health insurance companies competing for business means there’s less incentive for health plans to provide good customer service and less incentive to keep premiums low to attract customers.

If it raises premiums, that’s also bad for everyone. We’d all have to pay more for health insurance. As premiums increased, healthy people would be even more likely to think, “Why pay that much for health insurance? I’ll just wait until I’m sick and then enroll in a health plan.” It would cause premium rates to spiral upwards until nobody could afford health insurance. It is known as a death spiral, and it’s a situation that the industry needs to avoid.

How Health Insurers Prevent Adverse Selection

Health insurers can’t prevent adverse selection, but they can make it less likely by limiting when you can sign up for health insurance to just once per year. An open enrollment period allows everyone who wants to enroll in a health plan to do so but also prevents the healthy people from thinking, “I’ll just wait until I’m sick to buy health insurance.” Unless they just happen to get sick during the annual open enrollment period, they’ll be out of luck and not able to sign up for health insurance when they’re sick.

Another technique that discourages adverse selection is the short waiting period between open enrollment and the date health insurance coverage begins. For example, if you sign up for health insurance during the open autumn enrollment, your coverage usually begins on January 1st. It prevents people from enrolling in health insurance on the way to the hospital, hoping that their new health plan will foot the bill for their hospitalization.

When Is the Annual Open Enrollment Period?

The federal open enrollment period runs from November 1, 2021, through January 15, 2022, for health insurance coverage beginning in 2022. To get coverage starting January 1, 2022, you will need to sign up by December 15, 2021. Also, check out open enrollment period dates in your specific state.

Some states have state-run health insurance marketplaces instead of the federally run marketplace. These states have the power to extend open enrollment for a longer time. In the recent past, several states announced extended open enrollment periods to accommodate complications arising during the COVID-19 pandemic. It’s worthwhile to keep up to date on health insurance news if you live in a state with a state-run marketplace.

COVID Special Enrollment Period

The American Rescue Plan reopened the federal and state Health Insurance Marketplaces for enrollment. The Special Enrollment Period lasted from February 15, 2021, through August 15, 2021. You did not need to qualify for a specific life event to recently enroll in or change an existing plan. Residents in the following states can still buy policies until the following dates:

  • California: December 31, 2021
  • Connecticut: October 31, 2021
  • Washington, D.C.: through the end of the public health emergency
  • New Jersey: November 30, 2021
  • New York: December 31, 2021
  • Vermont: October 1, 2021

Contact Insurance Enterprise for Premier Health Insurance

If you have questions about group or individual health insurance and need health insurance quotes, contact Insurance Enterprise at 888-350-6605. Speak to a licensed agent and find out more about how you can get an affordable health insurance plan.