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Analyst: PPACA enrollment extension could hurt insurers

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The recent Centers for Medicare & Medicaid Services (CMS) decision to create a broad individual health insurance special enrollment period (SEP) is a bad sign, a rating analyst says.

Steve Zaharuk, a senior vice president at Moody’s, pans the CMS tax season SEP in a new commentary.

CMS, an arm of the U.S. Department of Health and Human Services (HHS), announced Friday that taxpayers who pay a tax penalty for not having adequate health coverage in 2014 can get a SEP that will last from March 15 through April 30. The CMS tax season SEP will apply directly only to consumers who use the HHS-run Patient Protection and Affordable Care Act (PPACA) exchanges, but managers of some state-based PPACA exchanges, including Covered California, have announced similar tax season SEPs.

The ordinary 2015 open enrollment period started Nov. 15, was supposed to end Feb. 15, and is now winding down as short-term enrollment period extensions expire.

CMS announced the tax season SEP after analysts at think tanks that support PPACA reported that many consumers are unaware of the tax penalty that PPACA is supposed to impose on many consumers who fail to have major medical coverage throughout the year. For most people who owe the penalty for 2014, the penalty rate will be 1 percent of income. For 2015, PPACA calls for the penalty rate to rise to 2 percent of income.

Many issuers of PPACA-compliant individual major medical coverage will be reporting losses on that business for 2014, in part because of Obama administration decisions to push back enrollment deadlines, create many exemptions from the PPACA individual coverage mandate, and let people keep pre-PPACA policies much longer than insurers had expected, Zaharuk writes.

The changes “effectively siphoned a significant number of healthy lives that insurance companies had hoped to capture from the pool of potential ACA customers,” Zaharuk says.

Last year, exchange enrollment system glitches may have justified enrollment deadline changes, but, this year, enrollment proceeded fairly smoothly, Zaharuk says.

“The administration’s ad-hoc decision to re-open enrollment this year, without a compelling reason tied to the operation of the exchanges, fuels fears of additional changes without regard to the financial effect on health insurers,” Zaharuk writes.

See also: 2016 HHS exchange plan applications: Due May 15

Meanwhile, another analyst David Paul of ALIRT Research, says he sees signs that PPACA exchange plan issuers may already be somewhat weaker, on average, than traditional health insurers.

About 15 percent of the 248 public exchange plan issuers ALIRT analyzed have four or fewer years of operating history. In 2010, before PPACA came along, only 9 percent of all U.S. health insurers had four or fewer years of operating history.

ALIRT has developed its own system for scoring the financial performance of insurers. Before PPACA came along, typical scores ranged from 35 to 55. About 17 percent of the insurer scores were lower than 35, and 17 percent were higher than 55 percent.

For the latest scoring period, only 9 percent of the public exchange plan issuers assessed earned scores over 55, and 28 percent came out with scores under 35, Paul says.

See also: Dire PPACA predictions: A look back