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Normally with health insurance in the United States, you can only change the coverage you're getting during a single multi-week period in the year. That is unless there's a life qualifying event such as a marriage or a birth or something. This, I believe, is known as the annual enrollment period.

My question is... why is that the case? Why can't you change your coverage whenever you see fit?

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Insurance provided by companies on a pre-tax basis must follow IRS regulations. Insurance is part of a "cafeteria plan" and they must limit your ability to change the items in the plan except during an annual open season, or after an IRS defined life event.

The Affordable Care Act also has the concept of open season, to minimize the ability to wait until a person is sick before enrolling for coverage. There will be a annual open season, and there will be an ability to make changes after a life event.

Even without the IRS regulations and the Affordable Care Act law insurance companies would want to minimize your ability to switch coverage levels. If you could add orthodontics coverage after your dentist tells you your child needs braces; and then drop it after they are put on; they would never be able to collect enough money to fairly price it. Therefore they limit your ability to make changes to open season/life events.

  • ACA does require open enrollment, for the reason you explained in the last paragraph. IRS regulations re cafeteria plan require it to avoid shifting of pre-tax income to tax-exempt tracks, but essentially - it is to protect the insurance companies (boils down, again, to what you wrote in the last paragraph). – littleadv Nov 22 '13 at 7:03
  • See also: en.wikipedia.org/wiki/Adverse_selection – fennec Nov 25 '13 at 22:40
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    That last paragraph is spot on, and is probably the reason for the IRS rules. – Andy Feb 21 '15 at 13:45

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