On July 16, the Obama Administration issued guidance for insurers in the federally facilitated marketplaces (FFMs), clarifying a requirement to provide policyholders receiving premium subsidies with a grace period of up to 90 days if they fail to pay their premiums.

How does the grace period work?

Under federal rules, insurance companies participating on the FFMs can drop policyholders if they don’t pay their monthly premiums. However, for policyholders receiving advance payment of premium tax credits (APTCs) and who have paid at least one month’s premium, insurers have to provide a 3-month grace period. If that 3-month period goes by without the consumer paying all of their outstanding premiums, then the insurer is required to cancel their coverage, retroactive to the last day of the first month of the grace period. In other words, if you don’t pay your premium for July, your grace period would last through the end of September. If you don’t pay all your unpaid premiums by the end of September, your coverage could be cancelled effective the last day of July. So if you obtained any medical care in July, the insurer would have to pay those claims. But the insurer would not have to pay any claims submitted in August or September.

Once you’ve had your coverage terminated, you have to wait until the next open enrollment period to shop for and enroll in a new plan (termination for failure to pay premiums does not qualify you for a special enrollment period). However, if you sign up for a new plan during the 2015 open enrollment, under the ACA’s guaranteed issue provisions, the insurer can’t deny you a plan because you failed to pay premiums under your old plan. Insurers also can’t use the premium payments for your 2015 plan to pay down any unpaid premiums from your 2014 plan.

What about grace periods that span two benefit years?

The guidance notes that some people may fail to pay their premium in November or December, meaning that the grace period will extend into January of the following year. In such a case, if the policyholder is auto-renewed or actively selects a new plan for the next benefit year, the insurer cannot deny them coverage outright and the following rules apply:

• If a policyholder doesn’t pay all their premiums by the end of the grace period and they were auto-renewed, then the insurer can terminate their new coverage for the next benefit year (and their prior coverage as of the last day of the first month of the grace period).
• If a policyholder doesn’t pay all their outstanding premiums by the end of the grace period but actively selects a plan for the new benefit year, then the insurer cannot terminate their coverage in the new plan. And if a policyholder receiving an APTC once again stops paying premiums, insurers must provide a new 90-day grace period.

Insurer reactions

Some insurers have expressed concerns that consumers will try to game the system by not paying their last month’s premium in December and then enrolling in a new plan, and insurers will be prohibited from trying to collect on the unpaid premium. However, given the literacy gap on health insurance, the odds that more than a tiny number of consumers will be aware of this possibility are very slim.

What do consumers need to know?

First, consumers have to pay their portion of their premium every month. If they don’t pay, insurers could terminate their coverage. Also, even though consumers receiving APTCs get a grace period of 90 days, they have to pay the entire amount of any owed premiums before the end of the grace period to avoid having their coverage cancelled.

Second, we’ve learned that some providers will refuse to provide medical care to people in the second and third month of the grace period. And if someone does receive medical care during that second and third month and their coverage is ultimately cancelled, they will be responsible for paying for that care.

Third, consumers whose coverage is cancelled for not paying their premiums do not qualify for a special enrollment period (unless they experience other life changes, such as a move, marriage, or loss of a job). In general, they will have to wait until the next open enrollment period to enroll in a new plan, and until January 1 of the following year for coverage in their new plan to begin.

Fourth, consumers in the grace period or people who have had their coverage terminated for failing to pay premiums cannot be denied under federal rules when applying for a new coverage, and insurers cannot require that their premium payments be used to pay down any unpaid premiums from past plans, even if they’re enrolling in the same plan.

Fifth, everyone – and that means everyone – who wishes to maintain FFM coverage in 2015 should use the open enrollment period to proactively access their account, update their information, and select a plan (even if it’s the same plan). This is true even though the FFM will provide auto-renewal into the same or similar plan. Consumers who are auto-renewed will receive the same APTCs and, if applicable, cost-sharing assistance they did in 2014, even if the prices of their plans or their circumstances change. Consumers must contact the marketplace in order to receive an updated redetermination for financial assistance. Checking your account during open enrollment not only helps to protect you in the grace period from a potential plan cancellation, but you can see how any changes in plans and plan prices affect your eligibility for APTCs.