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Why SEP Enrollment Endangers California Health Insurance Carriers

by John Hansen

Carriers Are Concerned About High Risk Applicants Received During Special Enrollment Period

California health insurance carriers are concerned about acquiring higher risk members who enroll after Open Enrollment is over. Outside of Open Enrollment, some consumers may apply during the Special Enrollment Period (SEP). However, these applicants are required to have a qualifying life event.

Life events include having a baby, losing coverage, moving to California, getting married and more. Many Californian’s have legitimate life events that qualify them to enroll outside of California’s Open Enrollment.

Applicants Falsely Claiming Life Events

However, there is a growing concern that individuals who do not have legitimate life events are enrolling during SEP in order to avoid having to pay for high cost medical care. Carriers like Anthem Blue Cross and Blue Shield of California have noticed a 40% increase in utilization for new members who sign up during the Special Enrollment Period.

So it seems that adverse selection is not an unfounded fear, but a very real concern. Utilization spikes in the first 3 months of enrollment for those who sign up during SEP.

What’s going on? Individuals who weren’t concerned about getting health insurance during the California Open Enrollment Period all of sudden want to get covered. Perhaps they’re dealing with a pregnancy or some newly discovered disease or health defect. Now that they NEED coverage, they want it.

Blue Shield of California got tipped off about 40 high utilization members who were enrolled during SEP. These individuals were awaiting high cost kidney transplants. 

Trying to Catch the Cheaters During SEP

Blue Shield gets around 10,000 applications per month during the Special Enrollment Period. This requires a lot of manpower auditing these enrollments and trying to catch the cheaters who really don’t have legitimate life events.

Recent results suggest that around 30% of Covered California Enrollment during SEP lack legitimate life events. Blue Shield of California is flagging bad addresses and declining 3 out of 10 during the Special Enrollment Period.

However, Blue Shield often finds that many of those they decline come back around and re-enroll through Covered California. At this point the California Exchange does not require submitting documents to prove enrollees have legitimate life events. Those signing up say they have a life event, and Covered California just takes their word for it.

Originally, Anthem Blue Cross followed suite, thinking less strict requirements equals more new members. However, this has begun to haunt Anthem as their SEP pool of enrollees has turned out to be a much higher risk than during Open Enrollment.

Covered California agent, Jacob Hansen, of Santa Rosa Insurance, stated, “There should be less risk for carriers during the Special Enrollment Period because anyone can apply during Open Enrollment.” This is true as long as Covered California is strictly monitoring life events to make sure they are real.

Adverse selection is a very real thing for California health insurance providers. Covered California is expected to start requiring documentation proof in June of 2016 in order to relieve concerns by the carriers.