NOTE: This blog was originally published in Health Affairs on August 17th, 2020.
The COVID-19 pandemic is exposing the vulnerability of working Americans to loss of their health insurance. Employer-sponsored insurance (ESI) is the primary source of coverage for US workers and their dependents, and when unemployment rises, so too does the uninsured rate. The recession gripping the nation has upended existing insurance arrangements for millions of working families. A recent analysis estimated that 26.8 million Americans may have lost their job-based coverage from March 1 to May 2. Past experience suggests that a large proportion of these workers will become uninsured, even though nearly 80 percent are likely to be eligible for free or subsidized coverage.
In this post, we explain how gaps in eligibility for federal assistance programs, perceptions of affordability, and administrative complexity create barriers that prevent millions of Americans from obtaining affordable coverage. We propose three interventions that merit bipartisan support that can help redress these issues.
Many Americans Who Qualify For Coverage Fall Through the Cracks
Millions of Americans who lose ESI during the recession are likely to remain uninsured despite being eligible for affordable or no-cost coverage. According to the most recent analysis by the Kaiser Family Foundation, 58% of the 27.3 million uninsured in 2018 were eligible for subsidized insurance coverage:
- 4.3 million were adults with incomes that would have allowed enrollment into Medicaid;
- 2.4 million were children living in households eligible for the Children’s Health Insurance Program (CHIP) or Medicaid; and
- 9.2 million lived in households eligible for subsidized premiums in the individual insurance market through the ACA exchanges.
A glaring inequity in current law is the coverage gap between Medicaid and the ACA exchanges. Some 2.3 million adults with incomes below the poverty line were uninsured in 2018 because they had incomes that were too low for ACA subsidies and too high for enrollment into Medicaid in their states. As of June 2020, 12 states had not expanded Medicaid. New opportunities for states to expand Medicaid eligibility to at least the poverty line should be a priority, as Americans in non-expansion states with incomes below poverty currently do not have realistic options for affordable coverage.
Barriers To Enrollment
People eligible for health coverage may remain uninsured for a variety of reasons. We believe that two significant enrollment obstacles can be addressed effectively through federal and state policy intervention: perceived affordability of coverage and the complexity of the enrollment landscape.
Consumer surveys have shown that the uninsured–even those eligible for generous subsidies or free coverage through Medicaid– believe that they cannot afford health insurance. This perception sometimes reflects a lack of information. Prior to the open enrollment period for 2020 ACA Marketplace coverage, one survey found that 58 percent of the exchange-eligible uninsured did not think they would have access to affordable health plans through the exchanges. In this survey, 83 percent of the uninsured said a plan with a premium of less than $100 per month would be affordable. Even though most of these respondents likely had access to exchange coverage that met these criteria, only 46 percent believed that they did. Several small surveys of uninsured consumers have found the same pattern: at one free clinic, 51 percent of the uninsured reported that the primary reason they lacked coverage was that health insurance was “too expensive,” even though most qualified for Medicaid, which costs little or nothing. Similarly, a large national consumer survey recently found that the most common reason uninsured people did not seek coverage was the belief that they could not afford it.
Many factors may affect consumers’ perceptions of affordability. The “high cost of health care” is a familiar theme in public conversations about policy, politics, and household expenses. People losing job-based insurance may have recently received information that demonstrates these high costs, such as a notice of the opportunity to enroll in COBRA coverage, which costs an average of $610 per month. Further, only 12 percent of all uninsured eligible for exchange coverage report knowing about the available tax credits for premium subsidies. On the other hand, leading economists report that very small premium increases can reduce enrollment significantly among low- to moderate-income adults, especially those who are relatively healthy. Taken together, these results suggest that while some uninsured consumers do not have affordable coverage options, others are deterred from enrolling by a belief that coverage will be more expensive than it is.
The health insurance enrollment process places significant burdens on eligible individuals, who must navigate a complex range of options and successfully connect to coverage. For people losing job-based insurance, these burdens come at a time when families may face significant stress and uncertainty associated with job transitions and/or loss of income. Research has shown that scarcity of time, money, or other resources taxes an individual’s mental bandwidth and makes it harder to complete the complex tasks required for health insurance enrollment. As a result, many who are eligible for health coverage may remain uninsured because they are unable to overcome the challenges of the enrollment process.
Certain features of the enrollment landscape exacerbate this burden. First, the two forms of coverage for which individuals may qualify–Medicaid and financial assistance through the exchanges–use different measures of income. For most eligibility categories in most states, Medicaid relies on current monthly income with eligibility extending only to months in which income remains below a specified threshold. The exchanges, on the other hand, assess projected annual income and require a full reconciliation on the enrollee’s tax return. Individuals whose incomes rise above the levels projected at enrollment must repay some of the assistance they received at tax time, and people whose incomes fall below the projected levels receive additional premium assistance through their tax refunds.
A series of complex “gap filling” rules are intended to ensure that individuals will be technically eligible for either Medicaid or Marketplace coverage (except for the coverage gap described above), but taking advantage of those rules may require submitting multiple applications over several months.
The process of health insurance enrollment is complex and difficult in normal times, and special rules associated with COVID-19 have further complicated the process by varying the approach to unemployment insurance compensation based on the type of compensation and whether eligibility for Medicaid or for financial assistance in exchanges is being determined. In addition, both Medicaid and exchange income methodologies have important drawbacks. Monthly income can be volatile, causing changes in eligibility and complicating annual income projections. And households experiencing particular kinds of changes – like unemployment or temporarily reduced hours – will have an especially difficult time predicting annual income. These complex methods of calculating income might be justified if they resulted in especially accurate assessments of a household’s ability to afford insurance, but they do not. Monthly income methods penalize people for a short increase in income that does not necessarily make a household able to pay more for coverage. Conversely, after a loss of income, the predicted annual income method requires averaging together past higher earnings with lower earnings, such that it may not accurately reflect a household’s current ability to pay. This complexity is not only burdensome for individuals seeking coverage; it also frustrates efforts to simplify or automatize enrollment, as discussed further below.
Three Ways To Improve Health Insurance Enrollment
To simplify the process of health insurance enrollment for all Americans, which is an urgent priority as millions of people lose health coverage during the country’s worst public health crisis in more than a century, Congress should enact three incremental but important changes to federal law:
Simplified Income Rules
Under the ACA, lower income households qualify for premium tax credits and cost-sharing assistance in the exchanges based on their projected (and then reconciled) incomes in the coverage year for which they enroll. Instead, eligibility should be based on applicants’ incomes in the prior year. This change would eliminate the need for people to provide estimates of their expected annual incomes for the coming year. It also would avoid the need for applicants to pay back excess subsidy payments through federal income tax filing if their income estimates for the coming year were too low.
Using prior year income levels will make it easier for exchange applicants to budget for their coverage during annual enrollment. Open enrollment in the exchanges could take place on the current cycle, or could shift to the Spring, with income data based on individuals’ recently filed tax returns. In either case, consumers who experience a large drop in income relative to the prior year should be allowed to apply for additional assistance.
Congress also should use individuals’ prior-year income to establish Medicaid eligibility. Enrollment in Medicaid is notoriously unstable because of job status changes and month-to-month income fluctuations that can alter eligibility. States are allowed under current law to provide children with 12-month continuous eligibility for the CHIP and Medicaid programs, but they generally do not offer this option for adults. Congress could improve the stability of Medicaid by offering a financial incentive for states to provide continuous eligibility for all enrollees and use it in conjunction with prior-year income.
Prior-year income is commonly used to determine eligibility for other federal programs. The federal student aid programs provide financial assistance based on parental income for two years prior to application. That allows for streamlined reporting based on automated federal tax data. Similarly, income-related premiums for Medicare Parts B and D are based on two years of prior income, based on enrollees’ tax returns.
The somewhat less precise real-time targeting of resources is outweighed by a simpler process that increases enrollment and simplifies the programs.
State Flexibility to Experiment with Automatic Enrollment
States should be encouraged to reduce administrative complexity of health insurance enrollment processes by experimenting with automatic enrollment. Data limitations and existing eligibility rules make it difficult for states to act creatively, and both federal and state agencies generally lack the resources necessary for these initiatives. Therefore, new federal policy is needed to provide a framework for state experimentation in this area. State-sponsored automatic enrollment would place uninsured individuals into health plans and let them opt-out if they wish. An opt-out approach would provide coverage to consumers who otherwise would not enroll because of cost concerns, difficulty navigating the complicated application process, or other factors.
Automatic enrollment improves program participation by simplifying the process for consumers and reducing the number of decision points. For instance, enrollment in Medicare Part B is voluntary but occurs automatically for individuals who start collecting Social Security benefits before they turn age 65. Newly eligible enrollees can opt out, but most do not. Automatic enrollment in 401(k) retirement plans has greatly increased participation in employer-sponsored schemes. And automatic enrollment into Medicare Part D low-income subsidies (LIS), based on past eligibility determinations made by Medicaid and the Social Security Administration, has long been responsible for most LIS program enrollment.
Federal Funding: Congress should provide HHS with funding for the IT and programmatic changes needed to run state-administered automatic enrollment systems within a federal structure. To secure federal support, states should be required to submit applications that address several key questions:
- What IT infrastructure and data will the state use to facilitate automatic enrollment?
- How will consumers be assigned to health plans?
- What options will consumers have to decline or change coverage?
As a matter of fairness, people enrolling through an automatic process should be held harmless for one year for discrepancies between their actual incomes and the income data used for calculating eligibility.
Data sharing: The federal government could support automatic enrollment efforts by making existing data sources used to identify the uninsured more readily and easily available to states. For instance, information about federal employee coverage and enrollment in private employer plans (as indicated in federal tax filings) could be made directly accessible to state agencies. Federal law could also be amended to require self-insured plans operating in a state to provide coverage data directly to state data systems.
Affordability for Enrollees: States should be encouraged to design automatic enrollment programs to minimize costs to plan enrollees. For instance, states could auto-assign the uninsured to plans that require no additional premium payments net of available subsidies. To promote affordability, Congress could loosen restrictions on enrollment in high-deductible coverage through the exchanges.
Alignment with State Income Tax Systems: States with income taxes could build their automatic enrollment processes around tax filing systems. Residents could indicate their insurance status and desire for coverage on their state tax forms, and the uninsured could be enrolled in available insurance plans based on their responses. States should be allowed to align their ACA enrollment periods with tax filing season. This change would allow states to use income reported for the prior calendar year to establish 12-month eligibility as described above.
Maximizing Touch Points for Automatic Enrollment: Vehicle registration, driver’s license applications, local tax registration, and unemployment benefits all provide opportunities for systematic identification and auto-enrollment of the uninsured. States also could coordinate with employers to create systems for automatic enrollment into ESI, with clear options for employees to opt out. Federal law should facilitate such experiments by requiring self-insured plans regulated by ERISA to cooperate with state automatic enrollment efforts.
By taking “hassle factors” out of the equation, consumer assistance can dramatically improve enrollment in health coverage. Evidence shows that participation rates are much higher when assisters have completed and filed application forms for health coverage under the ACA, earlier state-based health programs, and other benefit programs.
Laid-off workers and their families would particularly benefit from such assistance. Job loss can be traumatizing. The newly unemployed often are focused on priorities such as qualifying for unemployment insurance, signing up for the Supplemental Nutrition Assistance Program, and finding new jobs. Mastering the complexities of enrolling in unfamiliar health programs is daunting under those circumstances.
Previous federal efforts to enroll laid-off, newly uninsured workers into health coverage have been disappointing. Health Coverage Tax Credits (HCTCs) under the Trade Act of 2002, COBRA subsidies under 2009 Recovery Act legislation, the ACA’s Medicaid expansion, and premium tax credits for exchange coverage have failed to attract many newly unemployed workers. But HCTC take-up rates more than doubled in places where unions, private community organizations, or state agencies completed enrollment forms and solved administrative problems for uninsured workers. Under a recent Kentucky Medicaid initiative, outreach staff contacted unemployment-insurance recipients by phone and completed applications. This facilitated approach to applying for insurance almost certainly was a major factor contributing to the increase in Medicaid enrollment by more than 130,000 from March to June 2020.
A key advantage of consumer assistance is that it can be launched immediately as part of the next COVID-19 legislative package. Congress should provide significant funding to support consumer assistance programs to enroll the uninsured, including the recently unemployed. Such assistance should direct the uninsured to their best option among many alternatives, including plans on health insurance exchanges, Medicaid, and COBRA coverage. If Congress enacts premium subsidies for COBRA coverage, that option will become more affordable for some laid-off workers.
During the ACA’s first year of operation, consumer assistance programs spent $413 million to help 10.6 million people enroll in coverage. Given the large losses of ESI triggered by the COVID-19 recession, the extra intensity of effort that may be needed to enroll laid-off workers, and the inability of application assisters to work with consumers in person due to social distancing requirements, a higher level of funding may be needed to effectively enroll the uninsured during the current crisis.
The COVID-19 pandemic has precipitated an economic contraction that is sure to separate millions of Americans from their job-based health insurance. Federal laws provide coverage options for the newly uninsured, but past experience indicates that many displaced workers will fail to take advantage of the options currently available to them.
Simplified income rules, a federal structure to create state automatic enrollment systems, and federal funding for consumer assistance programs would lower barriers to coverage. They offer the potential to significantly dampen major losses of health insurance coverage that would otherwise occur.
The US has a complex, enrollment-based health insurance system. It is not easy to navigate in the best of times; in a pandemic, the challenge is compounded. The practical steps recommended here would allow more Americans to get and keep health insurance as they cope with difficult transitions during the recession. Those who need help and qualify for it should obtain it. That’s something lawmakers from both parties should find appealing.