One of the themes I am developing in Unraveled is the ad hoc manner in which the law was implemented, with the Administration arbitrarily creating a countless number of exemptions, delays, and carveouts to ensure that the most people are able to sign up. At first blush, this seems like a great idea. What could possibly be the downside to allowing people to sign up at late dates? The more the merrier in the exchanges, right? Wrong.

As I’ve learned the past few years, the actuaries who set insurance premiums are really, really smart people, and they price policies based on precise measurements about who can enroll, and when they can enroll. When the Administration randomly changes those rules–often through what I’ve called “regulation by blog post”–it throws a wrench into these precise calculations. As a result, the calculations are off whack, and the insurers need to raise rates to cover the additional late-comers who often use more care. There is a cost to making it up as you go along.

An article in the Times spells out in the clearest detail I’ve seen the cost to the insurers, and ultimately consumers, when the government has created countless exemptions to the individual mandate penalty.

Eager to maximize coverage under the Affordable Care Act, the Obama administration has allowed large numbers of people to sign up for insurance after the deadlines in the last two years, destabilizing insurance markets and driving up premiums, health insurance companies say. …

Such concerns could portend higher insurance rates broadly. In setting current premiums, insurers say, they did not realize how many people would sign up after the deadline and how much care they would use. That information may affect future rates and benefits. Insurers are supposed to file their proposed rates and benefits for 2017 in April and May this year.

How are the markets being destabilized? The entire purpose of enrollment periods is to make sure that people do not wait till they get sick to buy insurance. But if the enrollment periods are effectively year round, people who need health coverage can buy a policy at any time. They can then use the health care–maybe pay the premiums, or not–and then cancel the policy. This seems to be what savvy consumers are doing to game Obamacare.

The administration has created more than 30 “special enrollment” categories and sent emails to millions of Americans last year urging them to see if they might be able to sign up after the annual open enrollment deadline. But, insurers and state officials said, the federal government did little to verify whether late arrivals were eligible.

That has allowed people to wait until they become ill or need medical services to sign up, driving up costs broadly, insurers have told federal health officials.

“Individuals enrolled through special enrollment periods are utilizing up to 55 percent more services than their open enrollment counterparts” who sign up in the regular period, the Blue Cross and Blue Shield Association, whose local member companies operate in every state, told the administration.

Aetna explains that people who become ill or need care take advantage of an extended enrollment period, and then use significantly more care than those who played by the rules. Afterwards, they quickly drop coverage.

“Many individuals have no incentive to enroll in coverage during open enrollment, but can wait until they are sick or need services before enrolling and drop coverage immediately after receiving services, making the annual open enrollment period meaningless,” Steven B. Kelmar, an executive vice president of Aetna, said in a letter to Sylvia Mathews Burwell, the secretary of health and human services.

A quarter of the applications that Aetna received in the health law’s public insurance marketplace last year came through special enrollment periods, he said.

…

Insurers always knew that consumers would come and go for various reasons, but they have been surprised at the amount of turnover.

“On average,” Aetna said, “special enrollment period enrollees stay with us for less than four months, while enrollees who come to us during the annual open enrollment period maintain their coverage on average for eight to nine months.”

UnitedHealthcare offered similar numbers–and you wonder why they threatened to leave the exchange:

Daniel J. Schumacher, the chief financial officer of UnitedHealthcare, the insurance unit of UnitedHealth Group, said more than 20 percent of its marketplace customers signed up after open enrollment ended last year. And they used 20 percent more health care than people who signed up before the deadline, he said.

Same for Blue Cross Blue Shield:

Greg Thompson, a spokesman for Health Care Service Corporation, which runs Blue Cross Blue Shield plans in Illinois, Montana, New Mexico, Oklahoma and Texas, said one-fourth to one-third of its marketplace customers came in through special enrollment periods. And in their first month of coverage, he said, they were much more likely to generate large claims.

Same for Anthem:

What’s more, said Anthony Mader, a vice president of Anthem, another big insurer, “enrollees coming in through special enrollment periods are more than twice as likely to drop coverage after a short period of time as individuals enrolling during open enrollment.”

“This practice,” he said, “is harming the stability of the exchange markets and resulting in higher premiums.”

This is the proverbial “Order insurance in the ambulance” hypothetical that ACA advocates insisted could not happen with the individual mandate and limited enrollment periods.

What makes matters worse, is that these exemptions were fashioned out of whole cloth, often by “guidance documents,” which are little more than blog posts.

The federal government allows people to sign up or switch health plans outside open enrollment for various reasons. Lawyers said it was not easy to find a complete list of the eligibility criteria, which have been set forth in regulations, bulletins, official policy statements, manuals and informal “guidance documents.”

When you make up the law as you go along, this isn’t surprising. And even those categories can be ascertain ultimately vest complete discretion in CMS.

Some of the reasons are straightforward, like getting married or having a baby. Others are more complicated and less clear-cut. Consumers may, for example, be eligible for a special enrollment period in “exceptional circumstances” and in “other situations determined appropriate” by the Centers for Medicare and Medicaid Services.

Remarkably, one of the reasons for the extension is if a person had a “serious medial condition.”

The circumstances may include “a serious medical condition” that kept a person from enrolling.

That’s the exact reason the enrollment periods were created! To prevent people from waiting till they were sick to sign up.

The National Association of Insurance Commissioners submitted a comment suggesting that the government doesn’t even verify when people assert they meet the qualifications for a late enrollment.

“State regulators are concerned that consumers are not required to provide documentation to substantiate their eligibility for a special enrollment period,” the association said in a letter to the federal Department of Health and Human Services. “We know of many cases where individuals with serious medical conditions purchased coverage midyear by simply checking the right box or using the right language, and their eligibility was not questioned.”

Kaiser Permanente agrees that this possibility of abuse “poses a significant threat” to the markets.

Even companies that strongly support the Affordable Care Act say officials need to do more to check eligibility.

Anthony A. Barrueta, a senior vice president at Kaiser Permanente, a large health plan, said the potential for misuse of special enrollment periods “poses a significant threat to the affordability of coverage, and to the viability” of federal and state exchanges.

The government has acknowledged this problem.

In a typical email in September, federal officials told consumers: “You may still be able to get 2015 coverage. Certain life changes like losing your coverage, having a child, turning 26, moving or getting married may qualify you for a special enrollment period. See if you qualify.”

In a notice published recently in the Federal Register, the administration said it had “heard concerns that these special enrollment periods may be subject to abuse,” and asked for evidence. The insurance companies obliged.

Administration officials said they wanted to prevent any misuse or abuse of special enrollment periods, and they are expected to outline their plans this week. But, they said, people must be able to sign up late when they have a legitimate reason. And many have.

Don’t expect many changes.

Enroll America, a nonprofit group with close ties to the Obama administration, said the government “should not tighten eligibility or verification standards in ways that could place an undue burden on consumers.”

I am going to have to write a third book once we figure out the depths to which this law was whittled away from within. That will likely not happen till there is a change in Administration. Rounding out the Obamacare trilogy will be Undone.