Lapse rate of Obamacare policies

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February 28, 2015 by Tony Novak

The lapse rate of individual Obamacare health insurance policies was estimated at 16.5% last year by HHS. The lapse rate will almost certainly be higher this year but by how much? This estimate will be important for business planning of firms like Freedom Benefits that provide advice for the temporarily or chronically uninsured.

The factors that may play a role in the lapse rate are:

1) the portion of policyholders who are penalized for an over-payment of insurance premium credit for 2014. (Some estimates are more than 50% of policyholders who received the credit).

2) regular rate increases by insurers.

3) King v. Burwell case before the Supreme Court. The case may have an f even before a decision is announced. Projections are available about the impact of a decision for the plaintiffs.

4) that speed at which exchanges reduce the premium subsidies for those charged with premium subsidy repayments in #1 above.

5) Consumer reaction to their future experience with high out-of-pocket costs of Obamacare policies.

6) Ongoing political efforts to dismantle and defend Obamacare.

I’ve net seen any published estimates of lapse rates but would not be surprised if 1/3 of all people covered by Obamacare who pay for a significant portion of their premiums drop their insurance coverage by 2016. The overall lapse rate may be mitigated by an increased number covered under Medicaid programs.

 

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