The Pros and Cons of Health Insurance Automatic Renewal

Open Enrollment is the Safest Bet

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Automatic renewal will keep you from being uninsured if you forget to renew, but it has drawbacks, too. Image © Jose Luis Pelaez Inc/Blend Images/Getty Images

With health insurance automatic renewal, if you don’t actively renew, cancel, or change your health plan during the yearly open enrollment period, you’re automatically re-enrolled with the same health plan you’re currently in. Automatically renewal of your health insurance can make life easier for you, but it can also cause problems. If you’re subject to it, you need to understand the pros and cons of health insurance automatic renewal so you can benefit from the advantages and avoid the disadvantages.

The Pros of Automatic Renewal of Health Insurance

Health insurance automatic renewal prevents you from being accidentally uninsured because you failed to renew or change your health insurance during open enrollment. Automatic renewal provides a safety net so you don’t lose health insurance coverage.

It’s easy to forget about open enrollment if you’re on vacation, out of town, or traveling out of the country when open enrollment comes around. If you’re hospitalized, ill, or stretched thin by taking care of an ill family member, even important details like renewing your health plan can slip by unnoticed while you’re maxed-out coping with other things.

In addition to providing a safety net, health insurance automatic renewal eases the administrative burden for consumers, health insurance exchanges, large employers, and health insurance companies. Consumers happy with their current plan can simply do nothing and they’ll be renewed.

For folks who buy their health insurance through an Affordable Care Act health insurance exchange, that means fewer people using the health insurance exchange website during open enrollment. For those who get their insurance through their job, it means fewer enrollment forms for employers to process.

For health insurance companies, it means less churning of their membership. A more stable membership makes it easier to predict how much money will come in as premiums and how much money will be spent paying for members’ health care expenses.

For society as a whole, health insurance automatic renewal results in more people having health insurance coverage. With automatic renewal, once a person signs up for health insurance, she has to actively opt-out of coverage (or stop paying for it) if she wants to be uninsured. It’s difficult to become uninsured again through inaction, so, over time, more people have coverage.

The Cons of Automatic Renewal of Health Insurance: Why To Beware

For all the advantages of automatic renewal, there are at least as many disadvantages.

For you, the health insurance consumer, it could mean paying more than you were prepared to pay for health insurance. It could mean unwittingly renewing health coverage that no longer meets your needs.

Health plans change their premiums each year.

Suppose your health plan’s monthly premium is $400 this year. If it increases to $650 next year and your health plan is automatically renewed because you didn’t actively participate in open enrollment, you’ll be stuck paying $250 per month more than you anticipated or signed up for.

It’s not just premiums that change each year. Deductibles, copayments, and out-of-pocket maximums all change every year. If you’re automatically renewed and you aren’t aware that your health plan’s deductible changed from $1,000 to $2,000, you might not have enough money available to pay your deductible.

Even health plan drug formularies and provider networks change each year. If your health plan changes its drug formulary to exclude your expensive prescription drug and you’re automatically renewed, you could be stuck paying out-of-pocket for that drug for an entire year before you have an opportunity to change to a health plan that includes your drug in its formulary.

Problems With Subsidies

If you’re getting a health insurance subsidy to help pay for insurance you buy through an Affordable Care Act health insurance exchange, automatic renewal can cause even more problems. Because your subsidy amount is based on your income, family size, and the cost of the “benchmark plan” in your area, your subsidy amount will change each year. (Learn more about how your health insurance subsidy amount is determined in “How Does the Health Insurance Subsidy Work?”)  However, if you do nothing during open enrollment, counting on automatic renewal to just renew your current health plan and subsidy, you could be setting yourself up for some nasty financial surprises.

If you don’t update your income and family size information with your health insurance exchange, you may get the wrong subsidy amount when your health insurance is automatically renewed. If you’re given too little subsidy money, you’ll be paying more than you have to each month for health insurance, but you’ll get the difference back when you file your taxes. However, if you’re given too large a subsidy, you’ll have to pay the difference back when you file your taxes. For some people, this could literally be thousands of dollars they didn’t expect to owe on April 15th. Read more about how this works in “How a Health Insurance Subsidy Could Cost You Big-Time” and how to avoid it in “Avoid Having to Pay Back Your Health Insurance Subsidy.”

Think this shouldn’t be a problem for you since your income and family size are the same this year as they were last year? Think again. Your subsidy amount is partially determined by the cost of the benchmark plan, the second-cheapest silver plan sold on the exchange in your area. Even if your income and family size don’t change, your subsidy amount will change because the cost of the benchmark plan in your area will change.

How To Avoid Problems Caused By Automatic Renewal

If you don’t want nasty surprises like finding out too late that your prescription drug isn’t covered by your health plan this year, or that your premiums went up by $200 a month, it’s simple to avoid them. All you have to do is participate in open enrollment each year.

Even if you like your current plan and you want to keep it, you should still check the following things:

  • Is your monthly premium still acceptable and competitive?
  • Is your yearly deductible still manageable?
  • Are your copays manageable?
  • Are your prescription drugs still listed on the plan’s formulary?
  • Does your doctor still participate in your plan’s provider network?
  • Is your plan’s provider network still robust enough that you could find a specialist, hospital, imaging facility, lab, or physical therapy center you’d like if you needed to? Or, has the network been downsized so much that your choices are too limited?

If you’re getting a subsidy to help pay for your health insurance, you should update your income and family size information with your health insurance exchange. In fact, you should do this whenever you have a change in income or family size. You don’t have to wait for open enrollment. If you feel comfortable with it, you can check a box on your health insurance exchange application allowing the exchange to access your federal income tax records and obtain information about your income and family size. However, even if you permit this, you should still notify the exchange immediately with income or family size changes that will affect your health insurance subsidy amount. The sooner you notify the exchange, the sooner your subsidy can be updated.

By actively participating in open enrollment each year, you’re taking charge of both your health care and your finances. You won’t allow yourself to pay more than you should for health insurance. You’ll notice if your premiums go up more than average each year, if your deductible is higher than average, or if your provider network is smaller than it should be. You won’t have to pay back your subsidy because you’ll get the right subsidy amount to begin with.

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