Dicrepancies on insurance policy lapse data

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December 19, 2014 by Tony Novak

One unexplored issue in the post-ACA environment is the discrepancy between published figures on individual health insurance policy lapses vs. the observations I’ve made here at Freedom Benefits.

The issue

Government (HHS) says that policy lapses – where people drop their coverage on purpose or because of non-payment of the premium – are minimal. I notice that both the deliberate cancellation rate and the rate of unintentional insurance lapse for non-payment of premium are at unprecedented levels.

The numbers

Reliable data is lacking from any source. But clearly the Department of Health and Human Services indicates that first year policy lapse rates are less than 20%. My observation is that is it more like 40%.

Why it matters

Policy lapses affect compliance rates, tax penalties and the long-term cost of keeping people insured. I suspect that the current administrative rates (limed by law as a percentage of premium) for individual health insurance are unsustainable if 40% of customers change insurance in less than 12 months.

Speculation on the reason

I could suggest that there is political motivation to avoid addressing high policy lapse rate. The simple fact that I observe is that too many middle-income people pushed into new insurance coverage do not have $400 (a typical premium) in their checking account when the monthly health insurance premium comes due. I am not clear on whether that reflects more on the affordability issue of the issue of the need for America to shift financial priorities post-ACA.

In any event, I suppose that we will read more on this later.

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