In 2009, prominent Republicans, skeptical of requiring people to buy health insurance under the legislation that became Obamacare, proposed an alternative approach: making large employers automatically sign employees up for health insurance, while also allowing them to opt out.
A version of this idea made its way into the Affordable Care Act. But as a result of this week’s budget deal, it is now out — and Republicans are celebrating. How come? The answers shed new light on some thorny issues in behavioral economics, and also on contemporary politics.
During the early health reform debates, right after Barack Obama was elected president, Republican enthusiasm for automatic enrollment was spurred by the analogy to 401(k) plans. A lot of research shows that if workers are automatically signed up for such plans, participation increases significantly, even if it is easy to opt out. The saving grace of this approach is that people remain free to choose: If they need the money now, they can choose to stop contributing.
For health insurance, you might embrace the same policy: Assume that people want it, but allow them to go their own way. Nudges are fine, but coercion is not.
Of course, the Obama administration and Democrats in Congress made a different choice, in part on the theory that the whole system of health-care reform could unravel without the broad participation that a mandate would promote. Even so, Obamacare included an automatic enrollment provision, designed to complement, rather than replace, the individual mandate.
Under that provision, employers with more than 200 full-time employees must automatically enroll new, full-time workers in one of the employer’s health insurance plans, from which they could opt out. The Department of Labor said it would issue regulations to implement the requirement by the end of 2014 — but failed to do so.
It’s unclear why the department stalled, but any such regulations would not be simple to write. The first problem is that many employees already have health insurance from other sources (typically spouses and parents); for them, automatic enrollment is a waste. True, they can opt out, but behavioral science shows that default rules tend to stick. There’s a real risk that even with a right to opt out, a lot of employees would end up in plans they don’t need.
The second problem involves this question: What’s the right default plan? Employees have different situations and values. In any large company, what works for some won’t for others. Can government reduce the risk that employers will automatically enroll workers in plans that don’t suit them?
In principle, these problems should be soluble. To reduce the risk of duplicative coverage, employers could give employees clear notice and simple reminders. To reduce the risk of unsuitable plans, employers could adopt an approach that suits the majority of people, along with clear notice that other plans are available. They could also promote active choosing on the part of employees, to ensure that they don’t get stuck in plans they dislike. But no one should doubt that any rulemaking process would be challenging and that it would run into serious political obstacles, not least from the restaurant industry and from retailers, which want to keep labor costs as low as possible.
Which brings us to this week. Former Speaker John Boehner celebrated the elimination of the automatic enrollment provision, describing it as repealing “another major piece of Obamacare.”
But hold the applause. The Congressional Budget Office projects that as a result of repeal, 750,000 Americans will end up without employment-based health insurance in most years after 2018. Of those, CBO projects that fully 90 percent will remain uninsured. That’s a lot of people.
CBO also expects the repeal to decrease the federal deficit: More people will be paying penalties for not having health insurance, and employee compensation will shift from nontaxable health benefits to taxable wages. Sure, deficit reduction is great, but is it really worth celebrating those consequences?
It’s preferable, of course, for automatic enrollment plans to be adopted voluntarily by the private sector, rather than imposed by the federal government. Many employers don’t use such programs, because an employer’s health-care spending increases when more people sign up for insurance. That’s their right, but elimination of the automatic enrollment provision should be taken as a spur to those employers to find low-cost ways to help hundreds of thousands of Americans who will otherwise go without health insurance.
There are two broader lessons. The first is that in some contexts, automatic enrollment can produce unexpectedly serious challenges; those who don’t opt out might end up in programs that don’t suit their situation. The second is that if an idea is associated with Obamacare, a lot of Republicans are going to hate it — even if it was their idea in the first place.