Grace Period for Marketplace Premiums Strikes Right Balance

Marketplace enrollees can’t “game” health reform’s grace period for premium payments to get 12 months of coverage while paying only nine months of premiums, despite claims at last week’s House hearing. 

The grace period gives an enrollee 90 days to catch up after a missed premium payment or lose his or her marketplace coverage.  It’s an important consumer protection.  People whose coverage ends would likely remain uninsured until the next open enrollment period, which could expose them to high out-of-pocket medical costs or force them to forgo needed care.  Under health reform’s individual mandate, they might also have to pay a penalty for each month they were uninsured when they file their tax return.

But does the grace period mean marketplace enrollees can get three months of free coverage?  No. 

In the first month of nonpayment, an insurer must cover the enrollee’s medical expenses but will still receive the enrollee’s advance premium tax credit for that month to help offset its costs.  The credit covers 73 percent of the premium, on average, so even if the enrollee never pays his or her share of the premium, the insurer gets a large part of the premium it’s owed.

In the second and third months of the grace period, the insurer pays no claims incurred by the enrollee.  Instead, it notifies providers that the enrollee is in a grace period and that claims are “pended,” meaning it’s withholding payment. 

If the enrollee hasn’t paid all premiums owed by the end of the third month, coverage is terminated retroactively, as of the end of the first month of the grace period.  The consumer:

• still owes his or her share of the first month’s premium to the insurer;
• must repay the advance premium tax credit that the insurer received on his or her behalf in the first month;
• will have all medical claims incurred in the second and third months denied and thus owe providers for any expenses incurred; and
• will likely have to pay an individual mandate payment for any months he or she was uninsured.

If people don’t pay their premiums, it’s often because they have other pressing family expenses.  More than 80 percent of marketplace enrollees in the most recent open enrollment period had incomes below 250 percent of the poverty line.  These families are often at risk of financial hardship from one missed paycheck or an unanticipated expense.  Two-thirds of enrollees in the non-group market reported in a recent survey that they can’t meet basic expenses, barely meet basic expenses, or meet basic expenses with only a little left over; one-third reported difficulty paying for food, housing, or utilities. 

Shortening the premium grace period to only 30 days would leave well-intentioned consumers with too little time to catch up on premiums when other basic expenses cause them to fall behind and lock people out of coverage for the rest of the year.  The current 90-day grace period strikes the right balance by giving people who fall behind on premiums extra time while limiting the financial liability for insurers, providers, and the federal government.