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.