By Merrill Matthews
The White House has proudly announced that 4 million Americans are now enrolled in Obamacare. More astute analysts rightly point out that being “enrolled” doesn’t mean enrollees have made their first premium payment, which could be a big hurdle. But the even bigger question is: In the volatile individual health insurance market, how many will continue to pay their premiums? Since its inception, the Obama administration has repeatedly misled the public about Obamacare’s progress. Those deceptions have forced health policy analysts to speculate about the real enrollment number. Estimates about how many have actually paid their premium have ranged between 50 percent and 80 percent of the enrolled figure. However, making the first monthly payment isn’t the same as making 12 of them. Lost in the discussion is that the individual health insurance market is very volatile, for several reasons. People who buy individual coverage tend to have lower incomes, and so a major car-repair bill or some other unexpected expense can cause them to miss their premium payments. People purchasing individual coverage historically have been healthy, because insurers in most states could turn down applicants if they had a major medical condition. Healthy people are more likely to drop coverage because they aren’t facing high medical bills. Of course, people often drop their individual coverage for non-financial reasons, such as a spouse or the individual getting employer-based coverage; the individual turned 65 and joined Medicare; lost a job and qualified for Medicaid; or found a better deal and switched plans. Insurers and actuaries interviewed for this piece say that the individual market turnover rate can vary based on company policies, and companies don’t always know why a person drops coverage, but a 30 percent to 50 percent lapse rate within 12 months seems to be pretty common. Of those who drop their coverage, perhaps half of them did it for financial reasons. Thus, perhaps 15 percent to 25 percent of those getting an individual health insurance policy would drop it during the year because of the cost. Will the Obamacare individual market follow a similar pattern? One mitigating factor is that many people will be getting taxpayer-funded subsidies, which lower their cost of coverage and could encourage them to keep it. And there is the penalty (or is it a tax?) for not having coverage, which could discourage some people from dropping it. On the other hand, premiums will be much more expensive for millions of people, even after the subsidies, making it harder for them to continue paying them. And that could be especially true for people who have been uninsured for years. They weren’t spending anything on health insurance, so making 12 monthly premium payments is a major new financial commitment. And there is another factor: Obamacare requires insurers to carry a policyholder for 90 days before canceling the policy for not paying the premiums. That’s significantly longer than most insurance company grace periods. The provision allows people to sign up for coverage, pay the first month’s premium, and get major surgery and the needed follow-up care over the next three months without paying any premiums. When a law financially benefits people for gaming the system, don’t be surprised when people game the system. If the Obamacare individual market lapse rate mirrors or exceeds the pre-Obamacare lapse rate, it will further destabilize the insurance pool and make it even more likely that the government will have to come to the rescue with an insurance company bailout. Merrill Matthews is a Resident Scholar with the Institute for Policy Innovation. Read more at www.ipi.org.