BEYOND THE NUMBERS
Despite claims by insurers and critics, people who receive subsidies to help pay for coverage in health insurance marketplaces aren’t abusing their three-month grace period for paying overdue premiums, as I explain in a new paper.
Those who receive such subsidies have three months to pay overdue premiums before insurers can end their coverage. That helps keep enrollees who miss a payment from quickly losing their insurance.
Critics assert that enrollees are using the grace period to get 12 months of coverage for nine months of premium payments. But that reflects a misunderstanding of how grace periods work.
Marketplace enrollees owe monthly insurance premiums by the due date that the insurer establishes, often the first day of the month. Health reform gives people who are eligible for and receive an advance premium tax credit for the insurance they buy in state or federal marketplaces a three-month grace period for nonpayment.
If a person doesn’t catch up on all overdue premiums by the end of the grace period, his or her coverage ends retroactively to the end of the first month of the grace period. The enrollee (1) must repay the premium tax credit that the insurer received for the first month of the grace period, (2) owes the insurer the outstanding premium for that month, (3) is responsible for the full cost for any medical bills incurred in months two and three, and (4) may owe health reform’s financial penalty for not having insurance for the second and third months and any subsequent months he or she was uninsured. That’s far from a free ride for an enrollee losing coverage for nonpayment.
Enrollment data refute the notion that lots of people drop coverage late in the year to take advantage of three “free” months of care in the grace period, then immediately reenroll the following year. Rather, enrollment falls gradually throughout the year, according to Centers for Medicare and Medicaid Services data and as the graphic below illustrates. That’s because enrollees leave the market during the year for many reasons, including obtaining other coverage, while entry is restricted to people who qualify for special enrollment periods.
Insurers have called for changing the law to reduce the grace period to the time otherwise specified in each state’s health insurance laws, generally 30 days or less. That would hurt low- and moderate-income individuals and families who miss a payment or even part of a payment for any reason, such as a costly home or car repair. Shortening the grace period to only 30 days would leave well-intentioned consumers with too little time to catch up on premiums when they fall behind and lock people out of coverage for the rest of the year, raising the number of uninsured.