Health insurers and health insurance agents may have a few stories to tell about health insurance special enrollment period fraud, but not all that many they want to share with the government.

The Centers for Medicare & Medicaid Services recently included tougher SEP verification rules in a new package of draft regulations. CMS officials say they hope the regulations will help stabilize the individual major medical market, and persuade insurers to stay in the market for the rest of this year and all of 2018.

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CMS added the SEP rules in response to complaints from insurance company executives and others that some consumers are gaming the system, by using loopholes in the SEP rules and the SEP verification process to wait until they get sick to pay for coverage.

Many insurers and insurer groups have submitted comments praising the new SEP verification rules, but a scan of the 4,017 comments submitted suggests that only a few comments from insurers and agents mention first-hand encounters with individual health enrollment problems.

The ACA eliminated most of the defenses health insurers once used to manage health risk. One of the few defenses insurers can still use is to allow easy access to health coverage only during a limited open enrollment period. (The open enrollment period for 2017 ran from Nov. 1 through Jan. 31.)

Consumers who want to buy individual major medical coverage at other times of the year are supposed to show they have a good excuse, such as loss of access to employer-sponsored coverage, to qualify for a SEP.

The idea is that healthy consumers will shrug and buy coverage during the open enrollment period, for fear of getting sick or hurt and running up big bills during other times of the year, when they can’t buy health coverage.

But health insurers have reported seeing signs that consumers have been defeating even that flimsy defense, by lying about whether or not they qualify for SEPs. Some insurers have suggested that claims for SEP enrollees are much higher than claims for other enrollees. CMS responded has responded by proposing a number of changes in SEP rules, such a requirement that all SEP applicants provide some kind of documentation for SEP requests.

Many patients, patient advocacy groups and provider groups have questioned whether SEP abuse is common. The American Cancer Society Cancer Action Network and Consumers Union are just two groups that have asked for evidence documenting that SEP abuse is common.

Just how devious are SEP applicants? For the CMS regulation drafters, that may still be an open question. (Image: Thinkstock)

Just how devious are SEP applicants? For the CMS regulation drafters, that may still be an open question. (Image: Thinkstock)

The comments

“SEP-qualifying individuals are naturally going to generate new costs, but it does not mean they are intentionally abusing the SEP system,” Christopher Hansen, president of the American Cancer Society Cancer Action Network writes in that group’s letter.

Some organizations have written to express concerns about the mechanics of administering SEP rule changes.

Allison O’Toole, the chief executive officer of the St. Paul, Minnesota-based MNsure ACA exchange, has written to ask CMS for flexibility in administering any new document verification requirements.

At this point, O’Toole writes, “MNsure has no system support for processing SEPs. The entire process is manual.”

But Wesley Sanders, a Georgia insurance company worker who wrote a comment presenting his own personal views, writes that he has seen “numerous cases of SEPs that were improperly used to obtain coverage when a person became ill but not actually have a qualifying life event, and these scenarios have led to extremely high claims costs. These outlier cases distort the risk pool and make it difficult for issuers to price accurately.”

An anonymous Texas insurance agent says, “The ACA program is wrought with fraud and waste.”

“Requiring SEP verification will address only a small percentage of the reparation,” the agent writes. “Most fraud occurs at sale during [the open enrollment period], and, since many sales occur through non-licensed bodies, it would be difficult to resolve.”

An anonymous Kentucky agent says the ACA cost-sharing subsidy program, which helps the lowest-income ACA public exchange premium tax credit subsidy users pay their deductibles and co-payments, is “a big incentive for some taxpayers to purposely lower down taxable income when they foresee a large amount of medical services.

“I encountered multiple consumers like this,” the agent writes. “As more and more consumers are getting familiar with the ACA, laws, there is more chance consumers will game the system. People may just give up some income to take advantage of the very low cost-sharing in silver plans.”

Margaret Murray, chief executive officer of the Association for Community Affiliated Plans, a group for nonprofit safety-net plans, said most of the enrollment fraud ACAP members actually comes in the form of fraudulent verification documents submitted during the open enrollment period, not SEP fraud.

Many commenters asked CMS to allow for some flexibility in any SEP verification system.

Janet Stokes Trautwein, chief executive officer of the National Association of Health Underwriters, asked CMS to provide special-circumstances reviews for consumers who are unable to provide the required documents due to extraordinary circumstances beyond their control.

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