Many insurance policies offer grace periods to give policyholders time to make past-due premium payments before their coverage lapses. This article will discuss what happens if health insurance lapses as a result of missed payments, and how you can prevent another lapse by making timely payments.
Life happens, and sometimes it can be challenging to keep track of monthly payments. Thankfully, most private health insurance plans include a grace period before their plans terminate.
1. You lose coverage
If you fail to pay your premiums on time, your private health insurance could lapse and you won’t have coverage anymore. This can be disastrous if a major claim arises imminently; but even forgetting one payment could prove troublesome. In most instances, insurers will give you one to three months before your policy terminates. For example, if you enroll in Obamacare with subsidies and miss paying premiums in January through March without payment being received as promised – your coverage will expire by the end of July. Any healthcare services received during the month-long grace period are your responsibility, and any future claims filed could be denied if insurers discover your previous policy is no longer active.
If your insurance lapses, the next open enrollment period will allow you to sign up for another plan either through the marketplace (or off-exchange). Therefore, it’s vital that you monitor payment dates so that coverage doesn’t slip away unexpectedly.
Most insurers are required by law to grant you a grace period before your policy lapses; typically this means allowing a 30-day grace period after missing your premium payment deadline before cancelling it altogether.
Even with a grace period in place, if your policy lapses you must pay an IRS penalty each month that it remains uninsured. Furthermore, any premium tax credit paid out must also be reimbursed back into your account.
However, if other life changes make your monthly premiums harder to afford – such as job loss or significant fluctuations in income level – they may allow for a special enrollment period on the marketplace/exchange. At that point, a 90-day window opens for enrolling into an affordable plan through this portal and avoiding lapsed status; failing this, finding affordable plans later may become increasingly challenging.
2. You have to pay out-of-pocket
Some health insurance policies require you to pay an out-of-pocket deductible before their plan begins covering costs; this amount varies between $10 and $500 or more, depending on the type of care received and plan coverage. Copays vary as well, which are set amounts you pay when visiting doctors, specialists, emergency rooms etc; copays do not count toward your deductible but do count toward the maximum out-of-pocket limit set annually by each plan.
A lapse in coverage means that you no longer have health insurance and must cover your care out-of-pocket – an extremely costly proposition if your healthcare expenses are considerable.
Individual health coverage can be purchased directly from an insurer or through the Health Insurance Marketplace (also known as an Exchange). The Marketplace provides “one-stop shopping,” helping you compare private health insurance options and identify whether financial assistance may reduce costs. Its Cost Estimator feature helps users see what their premium, deductible, and out-of-pocket expenses would be before enrolling.
Health insurance providers could cancel your coverage if there was a mistake on your application form; however, new rules protect consumers. Insurance providers can still cancel policies if premium payments are missed, but must give prior notice and allow for appeal of this decision.
Even if your policy has been cancelled, qualifying events like losing your job or becoming a parent may allow you to extend it temporarily. Otherwise, an Open Enrollment Period allows for purchasing new health coverage should income levels change dramatically and force cancellation of current plans.
If you decide not to have healthcare coverage, it is still important to pay your healthcare bills on time. Many providers will work with you if payment becomes difficult – this may prevent collection agencies from seizing on your account and save a great deal of money in the long run.
3. You’re no longer eligible for a subsidy
A lapse in your health insurance means that it has ended and any services received during that month won’t be paid for by insurance. If you receive premium subsidies, your ACA-compliant plan will terminate if payments are more than 31 days late; for non-subsidized plans on marketplace exchanges such as Medicare Part D plans there will be a grace period of one month before termination; you’ll then have to wait for open enrollment again before selecting another plan.
Though this might sound drastic, there are steps you can take to prevent a lapse in coverage and the associated consequences. Staying current with your payments may help avoid them being terminated; but if monthly payments become an obstacle for you, reach out to your insurer to see if they offer payment plans that suit your circumstances.
Insurance providers frequently offer grace periods so that policies don’t immediately end after their premium due date, understanding that unexpected expenses may arise and giving people extra time to make payments before terminating coverage.
Unless the grace period expires and you catch up with your premium payments by then, insurers can charge only up to one month’s past-due premiums (if receiving premium subsidies) from when your ACA-compliant plan was terminated – any claims filed during that month of late payment would likely be denied since coverage lapsed upon receipt.
If your income changes significantly between filing your tax return and enrolling in your marketplace plan during open enrollment, your eligibility for subsidies could change accordingly. It’s important to notify the exchange/marketplace about these changes to make sure you continue receiving an adequate subsidy amount for health insurance going forward.
4. You can’t enroll in a Marketplace plan
If your Affordable Care Act-compliant health plan has lapsed due to nonpayment, you can still enroll in a Marketplace plan during the Special Enrollment Period that’s triggered by its loss (provided you apply prior to the day that your old coverage will end) during an SEP that’s been set off by this. However, any premium subsidies won’t apply until all back premiums you owe have been paid in full.
HHS released new rules in 2024 to address the dilemma of people losing subsidized coverage mid-month. At an exchange’s discretion (this option may be unavailable for state-run exchanges), these new regulations allow individuals to enroll in new plans with an effective date that falls on or before the first of each month following their current coverage’s termination, thus avoiding gaps in insurance.
For this option to work, it is necessary to contact the exchange/marketplace directly and inquire as to its process for reinstating lapsed policies. Keep in mind that reinstatement processes vary by insurer; yours may also require you to pay any outstanding premiums and fees before reinstating coverage.
Make sure that the right plan fits with your income level and circumstances, including any income changes that no longer qualify you for the same subsidy; otherwise it could result in reduced value for your dollar. If this becomes an issue for you, switching plans might provide better returns – be sure to get maximum value from every investment!
Make sure that you’re aware of how much your previous health insurance plan cost and of any upcoming premiums, so that you have an accurate picture of how much can afford towards monthly premium payments.
If you’re uncertain of whether your previous health plan meets ACA-compliant requirements, visit this link and review its details. To determine your upcoming premiums or ask any questions directly of your provider. However, keep in mind that eligibility could change depending on details of your individual situation; should that occur, renewal may no longer be an option for that plan.