What Happens When You Can't Afford Your Health Insurance

Getting health insurance is one thing; paying premiums month after month to keep it is another.

If you have health insurance through your job, your premium comes out of your paycheck automatically, and unless you have a qualifying life event -- like marriage -- you're stuck with that policy until open enrollment.

But if you make monthly payments for private health insurance purchased on the federal marketplace or state exchanges, a dip in income or unexpected expenses can make that recurring bill unmanageable, and losing coverage is a possibility.

Approximately 11.7 million Americans enrolled in health insurance during the latest open enrollment period for 2015 coverage, according to the Department of Health and Human Services. But by March 31, about 13 percent had fallen off the books for not paying their first month's premium. For an unknown number of people, the difficulty in maintaining health insurance comes later in the year, when a late payment has the potential to turn into canceled coverage. If you find yourself in this predicament, it pays to know what you can expect and how to soften the blow.

What You Can Expect

If you stop making monthly payments on your health insurance, you will eventually lose coverage. How long it takes for that to happen depends on whether you're eligible for tax credits on your premiums, which are designed to make this expense more affordable.

If you qualified for assistance on your premiums -- and an estimated 87 percent of people did for 2015, according to HHS -- you're afforded a 90-day grace period to catch up. The clock begins ticking on your due date. If you fail to catch up on payments during that time, your policy will be canceled.

Within that 90-day grace period are some other important time frames:

-- For the first 30 days, your insurer must continue to pay claims on your medical expenses.

-- On days 31 to 90, your insurer can withhold payment on claims until you catch up on your premiums. If you manage to get up to date by the end of the grace period, your claims will be paid. If not, they'll be sent back to the medical provider and will become your responsibility.

-- After that initial 30 days, insurers are required to inform medical providers that you owe money. As a result, some providers may refuse to accept your in-limbo health policy, requiring cash payment in the meantime.

If you didn't qualify for the premium tax credit and miss your monthly payment, you aren't afforded the same flexibility -- your policy will be canceled after just 30 days.

Watch Out for the ACA Penalty

If you don't have insurance, you may not have a monthly premium to budget for, but you could wind up having to pay handsomely for going without coverage.

You are required to pay the shared responsibility payment (also referred to as the Affordable Care Act penalty fee) if you go without coverage for three or more months of the year, unless you qualify for an exemption. In general, that fee is 2 percent of your annual household income or $325 per person (and $162.50 per child), whichever is greater. You'll pay this penalty when you file your 2015 tax returns.

Exemptions to this payment are designed to help people for whom health insurance is simply unaffordable. To qualify, the lowest-priced Bronze plan (lowest level coverage) on the marketplace must be more than 8.05 percent of your household income, or your income must be so low that you aren't required to file a tax return.

You could also qualify for an exemption if you were evicted, filed for bankruptcy over the past six months, incurred significant medical debt, were deemed ineligible for Medicaid because your state didn't expand it or experienced any other "hardships" as defined by the federal government. You can apply for exemptions on Healthcare.gov.

What You Can Do

Apply for assistance. If your inability to pay is due to a significant drop in your income or a change in your family situation, you may be eligible for Medicaid, or your children may be eligible for the federal Children's Health Insurance Program. The federal marketplace, your state exchange or local Medicaid office can help you determine your eligibility.

Prepare. Going without health insurance is a gamble, but sometimes money is tight and sacrifices have to be made. If you don't qualify for Medicaid and know you'll have to go without coverage, prepare for the coming lapse by getting planned medical services before you miss your premium or within that initial 30-day window.

Plan for open enrollment. If you'd like to select a more affordable plan, you'll have to wait. Losing coverage due to nonpayment of premiums is not considered a qualifying event. This means you can't choose a different policy immediately -- you'll have to hold tight until open enrollment. At that time, consider a plan with lower monthly premiums and higher out-of-pocket costs, such as a high deductible. With these plans, you'll pay more when you need medical care, but your monthly payments will be more manageable.

The Bottom Line

If you have health insurance through your employer, you'll be covered even though money may be tight until you can choose a different plan during open enrollment.

But if you're paying for private insurance, knowing what to expect when you can't make your payment due date will help minimize the potential fallout of going without coverage.