Obamacare Auto-Renewals Could Deliver Rate Shock
Policy + Politics

Obamacare Auto-Renewals Could Deliver Rate Shock

REUTERS/Kevin Lamarque

Returning Obamacare customers should take a close look at their coverage options for 2015 instead of just automatically re-enrolling in the same policy they had this year, health officials say. Otherwise, some policyholders could find themselves stuck with significantly higher rates.

Earlier this year, officials from the Health and Human Services Department estimated about 5.1 million people on the federal exchange would be re-enrolled automatically in the same health plans they signed up for last year, and those who qualified would again receive subsidies for their coverage, as they did in 2014, without having to lift a finger.

Related: What the Uninsured Need to Know About Obamacare

The whole idea of auto-enrollment was, of course, to make the process easier for consumers. However, that auto-renewal option could come with serious sticker shock since the price of premiums and deductibles on most exchange plans for 2015 have increased. And it’s not just the cost of the plans that could blindside consumers. The amount of subsidies they receive could change too, thanks to the incredibly complex rules used for calculating subsidies.

Under the law, the subsidies eligible enrollees can qualify for depends on the cost of a “benchmark plan” — or the second-cheapest “silver” plan sold in the region where the consumer lives. If that plan changes — as many of them have this year — the subsidy changes as well. Subsidies would also fluctuate depending on whether consumers’ income has changed.

That’s why health officials have repeatedly warned customers to check out their options and update their information on the exchange website instead of simply renewing their plans.

HHS is attempting to address the issue for future years by significantly altering the law’s auto-enrollment function, but the agency’s new proposal could still leave some consumers surprised about the details of their insurance coverage.

In a 300-page regulatory proposal released on Friday, HHS proposed to allow consumers to choose to be automatically enrolled in the lowest cost plans available in the same service tier that they enrolled in last year. Someone who signed up for a “silver” plan one year would be automatically enrolled in the least expensive silver plan the following year, even if that plan comes from a different provider.

“Under current rules, consumers who do not take action during the open enrollment window are re-enrolled in the same plan they were in the previous year, even if that plan experienced significant premium increases. We are considering alternative options for re-enrollment, under which consumers who take no action might be defaulted into a lower cost plan rather than their current plan,” the proposal said.

Related: More Uninsured People Will Reject Obamacare’s Mandate

By having this option, consumers wouldn’t be caught off guard if the costs of their plans changed dramatically.

However, the proposal could also cause potential problems down the road. For example, if consumers’ plans are switched automatically, they might not have a chance to see if the new plan’s network includes their doctors. Another concern is that switching into plans with lower premiums likely means higher out-of pocket costs.

Why This Matters:
Some 5 million people are expected to be auto-enrolled in plans that could potentially blindside them with much higher costs. Although the administration is attempting to address the issue, its proposed fix might also cause more problems down the road.

Right now, the proposal says states could implement the new function next year, and the federal marketplace would likely wait until 2017.

HHS is currently seeking comments from industry and consumers in order to determine if there is a better approach to making annual renewals more consumer-friendly.

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