Extending Obamacare's Deadline Might Backfire

The window to buy Obamacare insurance closed on Feb. 15—except where it didn't. Many consumers stymied by website glitches at the deadline will get an extra week to enroll. In Washington state, officials announced on Monday that people will have an extra two months to sign up for health plans, through April 17. That gives uninsured people who learn about the tax penalties of skipping coverage between now and the April 15 tax deadline a chance to sign up.

A group of Democratic senators is urging the Obama administration to extend the deadline nationwide, and Health and Human Services Secretary Sylvia Matthews Burwell told Bloomberg last week that she's considering it. The 2014 tax year is the first time people will be fined for not having insurance. As many as 6 million people may have to pay $95 or 1 percent of income, whichever is higher. Those who don't have coverage for 2015 will face greater penalties next tax season: $325 or 2 percent of income. Americans who don't know about the penalties may have gone without insurance in 2014. By the time they learn about the fines when they file their 2014 tax returns this year, it will be too late to get coverage for 2015 and avoid another penalty next year—unless the administration pushes back this year's enrollment deadline.

Giving people another two months to enroll for coverage would raise the risk for insurance companies that some people will wait to buy insurance until they need it. That's called adverse selection, and it's why health plans have limited open enrollment windows to begin with. If you could buy coverage all year round, some people would wait until they get sick to sign up, and there might not be enough healthy people paying into the risk pool to cover the costs.

"It takes somewhere from three to seven healthy people to make up for one unhealthy person when it comes to cost," says Jim O'Connor, principal and consulting actuary at Milliman. There's no telling what mix of sick and healthy people would sign up if the deadline were extended. While extra time raises the risk of adverse selection, O'Connor says, the tax penalty "might shake up some of the healthy people" who would have otherwise not enrolled. "It does have some potential for increasing costs," he says, though it would likely be a "manageable change."

Clare Krusing, a spokeswoman for the industry group America's Health Insurance Plans, said she couldn't comment before seeing a specific proposal from the Obama administration. Supporters of the extension argue that it won't be a big deal. Timothy Jost, a health law professor at Washington and Lee University, argues in a blog post that pushing the deadline back would pull in "a reasonably healthy and inexpensive group," because it's unlikely that people with serious illnesses would have gone without buying insurance for two years in a row. A delay would be good news for procrastinators. What it means for everyone else is hard to predict.