Three Month Grace Period Mandated for Delinquent Consumers Who Receive Obamacare Subsidies

    Though the Obama administration has been promoting the benefits of Obamacare for several years now, one perk of coverage through the exchanges that has gone largely unnoticed is a mandated three-month grace period for unpaid premiums.  The rule, however, only applies to those receiving subsidies via tax credits advanced to the insurers by the government (§155.430 and §156.270 of the Code of Federal Regulations.)

    Perhaps most notable about the rule is that, as long as a consumer has paid at least one full month's premium during the year, the insurer must continue to pay claims for services rendered during the first month of the grace period after a premium goes unpaid.  Further, even if coverage is eventually terminated, the effective date must be the last day of the first month of the grace period. The consumer thus receives a free month of coverage for which no direct premium was paid.  The insurer is compensated only to the extent of the advance payment of the tax credit for that month.  The tax credits for the second and third months of the grace period, which the insurer is mandated to continue to collect from the government, must be returned to the government if coverage is ultimately cut off.

    Other burdens relative to delinquencies are placed on the insurers as well.  The insurer must notify not only the consumer of past due status, but HHS as well.  Also, while any claims submitted during the second and third month of the aforementioned grace period may be held by the insurer pending payment from the consumer, the insurer is required to notify providers that claims may be ultimately denied if the grace period expires.

    The regulations do not specify a minimum subsidy required for this regulation to take effect, so even a consumer whose subsidy represents only a small portion of the monthly premium may benefit from the extended grace period.  Also not spelled out in the rules is whether the insurer has any legal recourse for the unpaid premium for the month during which coverage was extended.  Nor is it clear if HHS has recourse against the consumer for the tax credit paid to the insurer for that same month.

    The implementation of the advance payments of tax credits to insurers on behalf of consumers is one of the tasks of Obamacare's financial management system, which is still under development as Deputy Chief Information Officer Henry Chao for the Centers for Medicare and Medicaid Services (CMS) told Congress on Tuesday.  Chao testified the system was approximately 60% complete.  However, as we reported on Thursday, the contract for the financial management system was just awarded this past August on a no-bid, emergency basis.  At the time of the award, CMS admitted that its acquisition of "contractor financial services to assist CMS in developing and testing its Marketplace financial activity implementation solution is already minimally two months overdue[.]"  It is not clear if the 60% figure Chao used on Tuesday includes the testing of the system or simply the development phase.

    Less than six weeks remain before the system will need to go live and, among a multitude of other financial tasks, begin remitting funds to insurers on behalf of consumer who purchase coverage through the exchanges.  CMS does not appear to have an alternative if the system is not ready.  In CMS's own words from the August contract award notification, the consequences, "financial and other," of such a failure would be "severe."


Note: A version of this article first appeared at The Weekly Standard.

UPDATE:  After I wrote my article for The Weekly Standard, I found that Reason had already covered this topic earlier in November.