If you’re like many people, open enrollment periods for health insurance might seem arbitrary and unnecessary to you, especially since there are exceptions to the rule. As such, it might surprise you to learn that there’s nothing arbitrary about open enrollment.
There’s a strategic reason that health insurance companies require you to sign up for health insurance during one specific time of the year. The goal is to keep health insurance companies in business, seeing that you have access to health insurance in your area and keeping down the cost of what you pay for coverage.
Open enrollment for health insurance applies whether you get group insurance through your job, purchase it on the federal Health Insurance Marketplace, or shop for a policy on the private market, such as from a health insurance agency like Garrett Insurance.
Keeping insurance companies in business isn’t the only reason behind open enrollment for health insurance. Learn more about why open enrollment periods exist for health insurance.
What Is Open Enrollment?
Open enrollment refers to a period — typically a few weeks during the fall — when you can sign up for health insurance, change your coverage, or cancel your policy. Your health insurance coverage may kick in at the beginning of the month following open enrollment or the beginning of the next calendar year.
If you fail to sign up for health insurance during this window, you may have to go without until the next window of open enrollment starts the following year. However, there are a few exceptions to this rule.
What Is Adverse Selection?
Adverse selection is when consumers decline to buy health insurance when they’re healthy, then attempt to purchase it when they fall ill, become injured, or otherwise require medical attention.
Adverse selection is disadvantageous for both health insurance companies and consumers).
These companies need a balance of healthy and sick people paying into the insurance pool to afford to pay claims and earn a profit to stay in business. If only sick people took out policies, health insurance companies wouldn’t have enough money to pay for claims or would need to increase the premiums of those who buy coverage.
The Reasoning Behind Open Enrollment
If it seems like some of the risk involved in health insurance is being placed on you, you’re right.
Any type of insurance, such as homeowner’s insurance or auto insurance, is designed to safeguard policyholders against some kind of loss. Insurance companies benefit from spreading the risk among many covered individuals. By sharing some of the risk, you help maintain the entire system.
With that in mind, here are a few of the reasons health insurance has open enrollment:
Stabilize Health Insurance Costs
Having both healthy and sick people pay into the healthcare system at the same time creates a balanced risk pool. This allows the health insurance system to offer lower rates than would be possible if it were just sick people paying for insurance.
Keep Health Insurance Accessible
Without open enrollment, fewer people are likely to pay into the insurance system, and health insurance companies would have to raise rates.
That outcome would discourage even more healthy people from buying insurance, possibly forcing companies to shut down. Many insurers operate regionally, which means you could be left without affordable coverage in your area.
Allow Insurance to Be Reassessed
Open enrollment is a time when health insurance companies can reassess their rates and change health plan prices for the upcoming year. It also gives you the opportunity to evaluate your insurance plan and healthcare costs.
Offer Financial Assistance for Health Insurance
If you purchase insurance through the federal Health Insurance Marketplace, you may qualify for a subsidy or tax credit to help pay for your coverage during open enrollment. This period starts on November 1 and ends on December 15 for coverage beginning January 1.
Open enrollment encourages healthy people to pay premiums year-round so as not to be stuck without coverage when they need it. This, in turn, results in a larger pool of funds that gives insurance companies enough to pay out claims.
What if You Miss Open Enrollment for Health Insurance?
As mentioned, there are exceptions to the annual open enrollment period for health insurance. Major life changes, known as qualifying events, could permit you to purchase, change, or cancel your plan. They include:
- Change or loss of a job
- Marriage or divorce
- Death of a child or other dependent
- A move away from your plan’s coverage area
- Eligibility for Medicare, Medicaid, or the Children’s Health Insurance Program
If you don’t qualify under any of these events, you also can consider buying short-term insurance through a health insurance agent. Short-term or temporary health insurance can provide medical benefits to fill your gap in coverage for less than a year, although some short-term plans can be extended up to three years.
Short-term health insurance typically costs less than traditional health plans but provides less coverage. Federal requirements don’t apply to these plans, so they often don’t cover pre-existing conditions.
Find a Health Insurance Agency Today
Are you looking for a new health policy and need to talk to an insurance agent? Garrett Insurance is an independent agency that can help you meet your healthcare and other insurance needs. Contact us today for assistance.