Sunday nibble #49: Adverse selection

If you want to buy most kinds of insurance, you can do it whenever you want. Need to start or change your auto, homeowner’s, renter’s, fire, disaster, liability, or life insurance? You can pretty much do that at any time.

But there’s one huge exception, and that’s health insurance. You can only sign up or change it during certain designated annual or open enrollment periods.

President Biden recently extended the annual enrollment period under the Affordable Care Act (ACA) so that more people could get insured, but you’re probably wondering, “Why do they have these restrictions at all?

On the surface, they do sound stupidly arbitrary. Full disclosure: I work for a broker who only deals with Medicare insurance, it works like this. If you want to change your prescription coverage, you can only do it from October 15 to December 7 every year. You can only change a Medicare Supplement plan from your birthday to 60 days after, and only change MAPDs or dump an MAPD to go back to “original” Medicare (Parts A & B) from January 1 to March 31.

Okay, technically, you can change any of these plans at any time, but outside of these periods, you have to answer health questions and are subject to underwriting, meaning you could wind up paying a lot more if you have a pre-existing condition.

But, as if to emphasize the apparent arbitrariness, some health insurance providers will suddenly say, “Hey, we’re having an underwriting holiday, so you’ve got an extra three months to switch your Part D, or you can change your supplement no matter when your birthday is!”

So… it’s clearly not a hard and fast Medicare rule. In effect, it’s a system to confuse the hell out of people, and every commercial you see on TV referring to Medicare exploits that big time. For example, when it’s only the time to change your prescription coverage (Part D), you’ll be bombarded with commercials trying to sell you Medicare Supplement Plans.

These unscrupulous advertisers also like to pitch the idea that “You, yes, you, can get $144 back every month  (hey, that’s four bucks less than the whole Part B premium!) if you call now.

Except, you can’t, unless you qualify for Medicaid/MediCal, meaning you have no assets and earn a ridiculously tiny amount each month.

These ads are designed one goal in mind, because they’re not selling you a product, they’re looking to turn you into the product.

You (i.e. being Boomer over 65) call the number on the screen. You give them info and then they lower the boom, based on your birthday. If it’s in the 60 day window, great — they’re going to hard sell you a supplement plan, but it’s going to be the one plan from the one carrier the company who ran the commercial represents.

And that is not necessarily the best option, since the specifics of coverage can vary.

Now, if it’s not within 60 days after your birthday, congrats. After the person on the phone takes down enough info to be able to contact you again, you become a “prospect,” and you are going to get pounded with ad material, again trying to sell you that one plan that may or may not be the best for you.

Are there differences? Oh, you betcha, and my boss bases his entire business on it, especially when it comes to Part D coverage. He’s one of, if not the only, agent who makes it a point to annually review the current coverage and updated prescriptions of each of his clients to find out whether they’re on the best plan or not — and this can make a huge difference.

Why? Because different insurance providers offer different rates for the same medications. Company A might consider all of your meds to be Tier 1, which are pretty much mostly covered with little or no copay. Company B might put one or two of them on higher Tiers, which cost more. And beware the company that declares one of your meds not covered, because then you get to pay full retail.

In the case of you being stuck with a brand name drug that has no generic, this can get really pricey. Since I’m the one who runs those drug comparisons in Medicare, I’ve seen nightmare situations in which somebody with a couple of not covered meds could have prescription insurance, and yet still pay more than $50K per year out of pocket just for the drugs, not including the monthly premium for the insurance.

Yeah, it’s nuts. But this does circle us around to why enrollment periods exist, and why getting us to Medicare-for-All or a Single Payer plan is so important.

Here’s an analogy. You decide that you don’t need car insurance, and you drive around without it. Then, one day, you get in an accident that’s decidedly your fault. So you call up an insurance broker on your phone to buy insurance. Yeah, sure, they’ll sell it to you, but good luck with that claim.

Why? Because the loss clearly predated the coverage, so you’re SOL.

This is also why most jurisdictions require people to have auto insurance as a condition of being a licensed driver. Those other forms of insurance from the first graf, not so much.

Why? Because you can do a lot of damage to someone else or to property as a driver getting into an accident, and that asset called your car isn’t going to cover it. On the other hand, homeowner’s insurance isn’t required (although it’s a damn good idea) because the equity in your home would probably cover anything. Just too bad, so sad, if you have to dip into it when somebody trips and breaks their ankle on your badly maintained front walk.

But here is the really logical reason that there are set periods during which people can change their particular health insurance plans, and it’s a statistics game, really.

In the business, allowing health insurance without underwriting at any time is called Adverse Selection, and it goes like this.

You’re generally healthy, so you think, “Why do I need to pay a ton of money for insurance I don’t need?” So you don’t, and you slide without it, and then one day your doctor says, “Hey, you’ve got cancer!”

So you run to the nearest broker and say, “I need health insurance,” but you’re not lucky enough for it to be during an enrollment period. So, he can get you insurance, but you have to answer health questions, and one of those is going to ask whether you’ve been diagnosed with cancer.

Oops. You can get insurance, but you’re going to pay premiums out your ass. in America, cancer be costly.

Not to play devil’s advocate, but the entire point of insurance companies is that they gamble the premiums of people who will never make claims in order to cover the costs of people who do. It’s why auto insurers give good driver discounts.

There’s also an entire skilled profession of people called actuaries, who make it their business to calculate exact risks. So they will tell the insurance company, “In order to not lose money because X% of people will develop conditions that will cost you $Y per year in benefits, you need to have Z many people likely to have no claims signed up and paying premiums as well.”

Hence, enrollment periods. They are designed to greatly reduce the odds that people who are going to suck more out of the system than they pay in are able to sign up.

Side note: This does not explain at all why young, healthy people pay so goddamn much for health insurance. Given their numbers and their health, they should be paying practically nothing. That’s not what I’ve seen or experienced first hand.

The good news? I’ve seen some really lucky people come through our system, like the ones who are diagnosed with cancer a week before Annual Enrollment, or develop some chronic condition with expensive meds right after their birthday.

But those are rare, and probably factored into the system.

Here’s the deal, though. Single-payer eliminates all that shit for one simple reason. If every single citizen were signed up for healthcare, with most of that being covered by a combination of employer contributions and employee deductions, with children under 26 and non-working spouses also being covered, there would be no need to worry about Adverse Selection. Everybody is already covered. Boom. Done.

It’s called Economy of Scale. If everyone is covered, no one becomes a suck on the system. Everyone benefits. Ooh… scary Socialism. Although that’s exactly what Socialism is.

Hey — driven on an Interstate lately? Or, more to the point, have auto insurance in a state that requires it? That’s exactly why it’s fairly cheap, and you can change your coverage at any time. When everybody has it, everybody pays less.