No evidence consumers abuse grace period for overdue premiums

Person offering money

Insurers and health reform critics have no basis for their argument that consumers receiving subsidies are abusing their three-month grace period for catching up on overdue premiums, according to a new paper.

Some insurance carriers have advocated a reduction in the grace period to 30 days or shorter based on the belief that the three-month grace period effectively allows consumers to purchase a year’s worth of insurance for only nine months’ worth of premium payments. Such claims “reflect a serious misunderstanding of how the marketplace grace periods work and enrollees’ financial obligations,” writes Tara Straw, a senior policy analyst with the Center on Budget and Policy Priorities.

Straw points out that the grace periods don’t offer much incentive for enrollees to miss premiums, as the cost to an enrollee who fails to catch up on premiums and loses coverage during the grace period often exceeds the amount of missed premium payments. Given that incentive structure, “the available data do not substantiate the contention that people are abusing grace periods,” Straw writes.

In addition, she says, enrollees can miss premiums for any number of legitimate reasons, including confusion about the proper way to terminate a plan due to a change in eligibility or a temporary liquidity crunch. Furthermore, loss of coverage due to a late premium payment can damage the risk pool. Sicker and younger individuals would be more likely to exit a marketplace due to nonpayment, Straw argues, making the risk pool’s composition older and sicker, and therefore more costly overall.

Insurers have also criticized what they say is consumer abuse of special enrollment periods (SEPs), leading the Centers for Medicare & Medicaid Services to tighten its eligibility criteria for such sign-ups.