Shortening Marketplace Grace Period Would Boost Number of Uninsured

The House Energy and Commerce Committee will mark up legislation today to extend funding for community health centers and other public health programs — but with harmful funding offsets that jeopardize insurance coverage for low- and moderate-income people who fall behind on payments.

People currently receiving subsidies in the health care marketplaces have three months to pay overdue premiums before insurers can end their coverage. The legislation would shorten that grace period to one determined under state law — generally 30 days or less — making it harder for enrollees to catch up on missed payments.

Marketplace grace periods are working as intended and with no evidence of abuse, as we explained last year, despite bill proponents’ claim that marketplace enrollees “game” the three-month grace period to get a full year of coverage while paying only nine months of premiums. That criticism 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. People who are eligible for and receive an advance premium tax credit for the insurance they buy in state or federal marketplaces have a three-month grace period when they miss a payment to catch up before they lose coverage.

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 the Affordable Care Act’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 many 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 & 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 due to the loss of other coverage and other reasons.

The legislation’s proposed shortened grace periods 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. It 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.