What happens if I don’t make my premium payment by the end of the grace period?

Q. What happens if I don’t make my premium payment by the end of the grace period??

A: If you fail to pay your premiums and exhaust the grace period for plans offered in a health insurance marketplace, you will lose your insurance coverage. The grace period is either one month or three months long, depending on whether or not you’re receiving subsidies and whether or not you’ve paid at least one premium so far during the year.

The three month grace period applies to those who receive federal subsidy assistance in the form of an advanced premium tax credit and who have paid at least one full month’s premium within the benefit year. For those without a subsidy the grace period is one month (the one-month grace period also applies to plans purchased outside the exchange, since none of those plans qualify for subsidies).

For enrollees who are not receiving subsidies, if payment is not made prior to the end of the one-month grace period, coverage will be retroactively terminated to the end of the month for which premium was last paid.

For enrollees who are receiving subsidies (and who have paid at least one month’s premium), if their premiums go past three months overdue, the coverage will be terminated retroactive to the end of the first month of the grace period. So if a subsidized enrollee pays the January premium but then doesn’t pay February, March or April, the coverage would then be terminated as of the end of February.

But it’s important to note that you’re not eligible for a premium tax credit (subsidy) for that first month of the grace period if your plan ultimately ends up being terminated back to the end of that month due to non-payment of premiums. New York State of Health explains this with an example in question 12 of their FAQs about Form 1095-A. So the premium tax credit that was paid on your behalf for the first month of the grace period will need to be paid back when you file your taxes, even though your coverage didn’t terminate until the end of that first month of the grace period (ie, claims incurred during that month would have been paid by your carrier).

The IRS has also prepared FAQs about Form 1095-A, and notes that it’s common for people to receive an incorrect Form 1095-A if their coverage was cancelled retroactively due to non-payment of premiums; in that case, the exchange will issue a corrected Form 1095-A. If in doubt, contact the exchange and/or your tax adviser.

Individuals who lose coverage in the marketplace due to non-payment of premium will not be able to rejoin a marketplace health plan until there is a new open enrollment period or qualifying event such as a marriage or divorce. In those cases you will be responsible to pay any medical bills you incur. You may also have to pay a penalty when you file your taxes next year if you go without qualifying coverage for three or more months during the year.

Although open enrollment allows people a chance to start over each year with new coverage (regardless of whether the prior year’s coverage was terminated for non-payment), Healthcare.gov does require enrollees whose premiums are past-due (ie, they’re in the grace period at the end of the year) to get them paid up before being able to renew the same coverage for the coming year.