Churn, churn, churn

The individual market, both pre-Exchange and Exchange, are volatile markets.  People move onto individual plans and then mvoe off of them.  Traditionally, pre-Exchange, most people kept their individual plan just long enough until something better came along.  Something better was usually employer sponsored group health care or eligiblity for CHIP if the policy was for a kid, or Medicare/Medicaid if the policy was for an adult. 

KQED looks at some reasons why people aren’t paying premiums, and they are finding churn in the Exchange markets:

Researchers at the U.C. Berkeley Labor Center released estimates Wednesday showing that about 20 percent of Covered California enrollees are expected to leave the program because they found a job that offers health insurance. Another 20 percent will see their incomes fall and become eligible for Medi-Cal, the state’s insurance program for people who are low income….

Jacobs’ team also estimated churn in the Medi-Cal program. They predict nearly 75 percent of enrollees will stay in Medi-Cal for a 12-month period; about 16 percent will become eligible for Covered California due to an increase in income; and about 10 percent will land jobs that offer health insurance.

Life happens and the individual market churns around the sun. 

In any given month, we should expect a couple percentage points of people not paying for their previously selected policy because the situation between selection and the due date changed.  People get married, they get divorced, they have babies, they change jobs, they move across the state or across the country.  A policy that was good for a family of three in Southern California would be absolutely useless to that family of now four in the Bay Area.  A family in that situation, if they had not gotten group sponsored health insurance through a job, would terminate their old, Southern California policy and get a policy for Northern California. 

In the pre-PPACA individual market 8% to 10% of all premiums were never paid. 

Exchange payment procedures will create an incentive for short term option taking.  Previously, most insurance companies would terminate a policy if payment had not been received prior to the month of coverage.  Most companies would allow a single “catch-up” payment during the month.  The catch-up zero balance payment would allow for coverage to be retroactively reinstated to the first of the month.  This created a short option where if someone had a job offer with insurance coverage that started on the 17th of the month, to not pay the last month of premium on the individual policy unless they got hit by a bus.  If they got hit by a bus, they paid, if not, they effectively had free coverage for most of a month. 

PPACA lengthened the option period.  Currently, an individual who has made the first payment has a three month grace period of non-payment before the policy is retroactively terminated to the last day of the paid covered month.  The first month the insurance company is on the hook for the bills.  The providers will eat the cost, or send to collections any bills unpaid during the second and third months.  This again create an option for people who know that their life situation is dramatically changing in a short period of time.  They can pay the first month, and take advantage of the grace period as an option.  If they don’t need any services, they’re in the clear.  If they need a service in Month 3, they make a catch-up payment. 

Because of this option value, I would expect premium payment rates to be slightly lower in the Exchange/PPACA market than the pre-PPACA market.

15 replies
  1. 1
    mai naem says:

    What’s this churn you talk about? Dude, everything was purrfect before the PPACA. Everybody(white males) had full time jobs with great affordable insurance. Nobody had part time jobs unless it was their second or third job on top of their first full time job. Nobody was ever denied insurance based on preexisting conditions because everybody was on group employer sponsored insurance. Nobody got dropped from their insurance. In fact COBRA was a waste of legislation.

  2. 2
    aimai says:

    Fascinating! thanks so much for this, Richard. Your series is a godsend.

  3. 3
    alce_y_ardilla says:

    I read the title as “chum,chum,chum” which seems oddly appropriate

  4. 4
    Higgs Boson's Mate says:

    @mai naem:
    You’re forgetting that the election of the Kenyan Usurper ended the Golden Age which was begun by St. Ronaldus of the Immovable Hair.

  5. 5
    rikyrah says:

    You have been such a blessing. Thank you for this series.

  6. 6
    mm says:

    My girlfriend is in this situation — changing policies.

    She was laid off January 1 and started a new job March 31. I got her onto subsidized Obamacare in February. Her new benefits won’t start for 90 days. She will definitely be moving off the Obamacare policy, but I’m not sure what she’s supposed to do until then.

    Obviously her income has gone up from straight unemployment, but what happens now? How do I figure out the premium and who do I tell?

  7. 7
    Fred says:

    I’m so thankful that I don’t have to deal with any of this (knocks wood). I don’t understand any of this jargon. It sounds to me that buying health insurance is a full time job requiring a masters degree in some obscure field of study.
    Wouldn’t it be great if there were one kind of policy that just paid for health care? That’s what I have here in the Socialist Paradise of Sweden. Everybody who lives here has the same plan. If you need a doctor you go to the clinic/hospital/therapist and the bill gets paid. Broken finger to heart surgery, it is paid for. And gosh, there are jobs and businesses are making lots of money and we still get six weeks of paid vacation and free education. Amazing what a country can do when they choose not to carry around a huge military and prison system. But hey, somebody has to be poor so the rich can get richer. Right?
    Got off on a tangent there. Ooops.

  8. 8
    cckids says:

    And then you have fabulous state exchanges like here in NV.

    But Nevada clearly hired the wrong company to do the job. Xerox has badly bungled Nevada Health Link, leaving thousands of Nevadans in health insurance limbo. As reported Friday by the Review-Journal’s Jennifer Robison, 10,520 of the 33,053 consumers who have chosen a plan are on Nevada Health Link’s “pends” list. The list is a roster of people who have attempted to buy an insurance plan through but who still have no insurer weeks or even months later. And the state can’t identify all of them. A letter from the Nevada Health CO-OP says the pends list is “so inaccurate, incomplete and unworkable that it has become an enrollment graveyard.”

    The primary cause of that massive problem, Ms. Robison noted, is the Nevada exchange’s use of premium aggregation, in which the exchange and Xerox collect payments and forward them to insurers. Nevada is the only state exchange that follows this practice; . . . Some consumers on the pends list have paid thousands of dollars in premiums to get health insurance, money that is now just floating around in the ether, and they have no idea whether they’re actually insured.

    This is where my family is now. I was thrilled to finally get the state website to let us choose a plan & thought we were signed up, now, who knows? The idea that all this money is floating around between Xerox and ??? makes me crazy.

    Single payer, Medicare for all, PLEASE GOD & FSM. Cannot come fast enough.

  9. 9
    Richard Mayhew says:

    @mm: Keep her on the Exchange policy until her employee sponsored policy becomes effective. Also go back to the Exchange you bought the policy from (state or Federal) and update her income information as she is now working and presumably making more money. This will change her subsidy eligibility and increase her out of pocket premium payment but it avoids a big payment due next year when she does her taxes.

  10. 10
    Richard Mayhew says:

    @mm: Also, mind if I use this comment on a post tomorrow?

  11. 11
    Mnemosyne says:


    Ah, the laboratories of democracy that are our states. Hopefully your gov will pick up the phone and call our gov in California to find out who our contractor was. We had a few glitches along the way, but nothing that disastrous as far as we know.

    ETA: Also, too, check with your state department of insurance, but if an urgent situation comes up, you may be able to get healthcare while the whole mess gets straightened out. I think there are some provisions in the PPACA that allow for patients to get care despite state and/or insurance company screw-ups.

  12. 12
    mm says:

    @Richard Mayhew

    No problem using my comment. The more information I have and everybody else has the better.

    Your series has been a great service and a fascinating look into the innards of health insurance.

  13. 13
    cckids says:

    @Mnemosyne: Well, so far, people are getting bills as though they aren’t insured – one guy from the original story is getting dunned for $400K.

    BTW, the quotes are from the LV paper’s editorial here.

    and the original horror story here.

    Though of course after the paper’s coverage, “his” insurance company has agreed to cover his expenses, though they are going to go after Xerox in a big way.

    This, of course, sidesteps the question of how a heart bypass costs $400,000, when in many countries it is around $20K.

  14. 14
    mm says:

    @Richard Mayhew:

    No problem using my comment. The more information I have and everybody else has the better.

    Your series has been a great service and a fascinating look into the innards of health insurance.

    Even though I started out with a Kaypro II in 1983 I’ll get the hang of this computer stuff yet. (The link to your name in the reply).

  15. 15
    Mnemosyne says:


    Holy crap, was that article slanted. Really, the fault is with “Obamacare” and not with Xerox, the company that screwed up the poor guy’s enrollment?

    I honestly have no idea how Xerox thinks they would be able to win a lawsuit. They took his money. Where did it go? Who did they send it to?

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