Association for Public Policy Analysis & Management

Many insurance carriers cited losses on Special Enrollment Period (SEP) members as important factors leading them to exit health insurance marketplaces. 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, which includes many insurers’ decisions not to pay brokers or agents for SEP enrollees.

To address the perceived underpayment of members who receive coverage for less than a full year, beginning in 2017 the Centers for Consumer Information and Insurance Oversight (CCIIO) pays extra risk adjustment (RA) for part-year enrollees. These enrollment duration (ED) factors vary based on length of enrollment and metal-level. They are the same for 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) RA underpays part-year enrollees, relative to full-year members; (2) such underpayment is much larger for SEP members than for part-year OEP enrollees; (3) CCIIO’s ED factors would end relative underpayment for OEP members in the data we examine, but leave SEP members substantially underpaid; and (4) CCIIO’s proposed future changes in RA methodologies are unlikely to alleviate current underpayment for SEP members. To address this RA shortfall, CCIIO could consider adding risk adjustment factors that provide additional compensation when part-year members enroll later during the year.