No Easy Fix for One of Obamacare's Hardest Problems

Health and Human Services has some ideas for dealing with rate shock, but they have their own risks.

The Health and Human Services Department wants to fix one of the Affordable Care Act's most difficult problems—but the potential fix raises new questions of its own.

The issue arises when people automatically renew coverage they've purchased through Obamacare's insurance exchanges. Many consumers who auto-renew are at risk for especially large premium hikes, some of which might not become apparent until tax season.

In a 324-page regulation released Friday evening, HHS said it's considering new policies for auto-renewal, to help consumers easily keep their coverage while attempting to protect them from major premium hikes.

Auto-renewal has always been tricky for HHS: The department has an obvious incentive to keep people covered, and thus to make it easy to renew a plan. Enrollees who bought a plan for 2014 and don't make any changes during the current open-enrollment period will be automatically renewed in the plan they already have.

But because auto-renewal is so easy, there's a risk some consumers might not notice that their premiums are going up. And due to the complex way the law's insurance subsidies are calculated, people who auto-renew might be eligible for a smaller subsidy—meaning their out-of-pocket costs would increase even more than any increase in their premiums.

To tackle this problem, HHS said it's considering offering a menu of new options when people sign up for the first time.

Instead of being automatically renewed for their existing plan, consumers could ask to be switched into the cheapest plan with comparable benefits. Or, if their plans' premiums rise by more than a certain amount—say, 5 or 10 percent—they could be automatically assigned to one of the three cheapest plans with similar benefits.

Those options would shield enrollees from unexpected cuts to their insurance subsidies, and from most premium increases.

But there's a catch: Switching insurance plans means switching to a new network of doctors and other providers. It's not hard to imagine someone choosing to automatically move into a lower-cost plan, then being surprised a year later when they can't go to the same doctor they've been seeing. Switching plans—especially in search of a lower premium—can also mean higher co-pays and cost-sharing.

HHS is asking for comments on those issues as it weighs its options for refining the auto-renewal process.

The department said it's not planning to make any changes in the 36 federally run exchanges until next year, and might give states the flexibility to test out their own alternatives.