Insurers’ Arguments for Shortening Grace Period Don’t Withstand Scrutiny
As part of their bill to fund the government into January, renew the
Hundreds of Thousands Would Lose Coverage
Insurers argue that reducing the grace period would affect few people, but
As CBO explains, the proposal's
Our estimate of people who would lose coverage is an extrapolation of data from
People Are Using Grace Periods as Intended
Insurers claim consumers are gaming the system by intentionally falling behind on premiums and catching up only if they have medical claims during the grace period. But there are already strong disincentives for consumers to take this approach. The "clawback" of advance premium tax credits (APTC) on the tax return makes it potentially very expensive for a person to let the grace period expire. If a person's coverage is terminated after three months of non-payment, the person must repay the APTC the insurer received on their behalf in the first month at the time of tax filing.
For the average enrollee, repaying one month of APTC costs three times what it would have cost to pay their share of the premium to the insurer for that month of coverage.(4) For example, an enrollee who receives
As evidence that enrollees are gaming the grace period, insurers cite the fact that in 2015 only 40 percent of people covered through HealthCare.gov had coverage for 12 months. But the marketplace is, intentionally, coverage of last resort. Given that many enrollees use the marketplace as a source of transitional coverage -- an affordable option when someone is between jobs, for example -- it's not surprising that many people are insured by the marketplace for less than a full year.
Rather than widespread consumer gaming, it is much more likely that people fall behind on premiums because they simply can't afford to pay during periods of extreme financial stress. At least 7 in 10 marketplace enrollees have income below 250 percent of the poverty line(6) and many of them barely make ends meet, according to the
No Precipitous Drop in Coverage at Year's End
Insurers theorize that people drop coverage toward the end of the year and use the grace period to preserve the option of coverage, should they have claims. Contrary to these assertions, there is no evidence that people drop coverage at the end of September because they plan to rely on the grace period for the rest of the year.(9) Comprehensive administrative data directly contradict the claim that coverage loss accelerates at the end of the year.(10) Moreover, the three-month grace period is not three months of free care. As noted, medical claims and premium tax credits are paid only in the first month of the grace period.(11) Insurers have no responsibility for claims in the second and third months, unless the enrollee catches up on all premiums within 90 days.
Furthermore, a regulatory change urged by insurers and recently implemented by the
Data Don't Show People Gaming Grace Periods
Insurers have pointed to a
Insurers also imply that the McKinsey data show people who have used grace periods have worse health risks than other marketplace enrollees. In fact, people who stop repaying in one year and re-enroll the next have similar health risks as other people who renew their coverage, the data show. The most significant difference between these individuals and other groups of enrollees is that they're younger. If anything, that suggests making it harder for people to recover from periods of non-payment could end up hurting the risk pool, rather than helping it.
Conclusion
Keeping more people insured is worth the cost of administering the grace period policy. It's true that the three-month grace period is unique to the premium tax credit system. Because the marketplace population is disproportionately low-income and therefore more likely to face tough financial periods -- and because once out of coverage, enrollment would be closed for most people until the following year -- lawmakers deemed additional leniency was appropriate and important to achieving the goal of expanding coverage.
Shortening 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. The
Footnotes:
(1)
(2)
(3) Washington Health Benefit Exchange, "Annual Grace Period Report: Subsidized Qualified Health Plan Enrollees,"
(4)
(5) These are the 2017 averages for states using the HealthCare.gov platform.
(6)Ibid.
(7)
(8) Washington Health Benefit Exchange, op. cit.
(9)
(10) Keri Apostle, "Key Findings from the Health Insurance Marketplaces," AcademyHealth Annual Research Meeting,
(11) Straw, "Marketplace Grace Periods Working as Intended," op. cit.
(12)
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