The Patient Protection and Affordable Care Act, commonly known as the ACA or Obamacare, extends a grace period to help health insurance policyholders who are having trouble keeping up with payments. The ACA grace period allows policyholders to miss about 90 days of coverage without incurring a penalty. This may be beneficial for some policyholders, but can leave insurance companies and providers struggling.

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How does the ACA grace period work?

Policyholders who receive a premium tax credit are eligible for the ACA grace period. After paying at least the first month’s premium, policyholders can miss one month without any changes in their coverage or the way that claims are processed. If the policyholder still has not paid the monthly premium by the end of the second month, the insurance company may hold off on paying claims submitted during the second month.

If the premium is not paid by the end of the third month, the insurance company can legally cancel the policy and deny claims filed in the second or third months. In this case, the policyholder would be responsible for the entire cost of medical services performed during this period. If the policyholder pays the entire premium amount by the end of the third month, however, the policy stays active and the insurance company pays the claims that were on hold.

The purpose of the ACA grace period is to protect patients, allowing them to receive necessary services and avoid health insurance policy cancellations due to missed payments.

The purpose of the ACA grace period is to protect patients, allowing them to receive necessary services and avoid health insurance policy cancellations due to missed payments. (Photo: iStock)

What is the purpose of the grace period?

The grace period is designed to help policyholders who are unused to having health insurance make the transition to paying a monthly premium and helping policyholders who simply forgot to pay the premium catch up without repercussion. The grace period can help to keep patients from moving in and out of the health insurance system quickly.

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How does the grace period harm insurers?

The ACA grace period may give policyholders a little time, but that time can be detrimental to insurance companies. Insurance companies still have to put labor hours toward processing claims, whether they are paid or put on hold. Claims paid during the first 30 days of the grace period may not be recouped if the policyholder fails to catch up and the policy is ultimately cancelled.

Providers may suffer from having health insurance claims put on hold or denied after services have been provided.

Providers may suffer from having health insurance claims put on hold or denied after services have been provided. (Photo: iStock)

How might the grace period harm providers?

If a patient has not paid their insurance premium, they are unlikely to have the money to pay for medical services out of pocket. For this reason, the volume of patients receiving medical services that are never paid for may increase.

How might the grace period harm policyholders?

The grace period may help some policyholders, but may end up harming all policyholders in the long run. When patients essentially receive 12 months of insurance coverage while only paying for nine months of coverage, premiums will inevitably go up as health insurance agencies struggle to cover payout costs. If insurance companies go under because of financial burdens related to the grace period, policyholders may also have to suffer with fewer health insurance options.

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