In a move that Popeye's Wimpy would love, America's Health Insurance Plans, the nation's largest industry trade group, announced that its members will allow consumers to pay for their insurance on Jan. 10 while still having their insurance kick in on Jan. 1.
The voluntary move comes after the Obama administration encouraged insurers to extend payment terms given the issues consumers have had with signing up on the health-care exchanges. Some insurers had already said they'd be flexible -- Aetna (NYSE: AET ) previously said it would accept payments until Jan. 8 -- but the AHIP announcement now extends to the vast majority of plans offered by the trade group's members. If you miss either deadline, the earliest insurance can begin is Feb. 1, potentially leaving a gap in coverage for people that had their policies cancelled because of the new Obamacare requirements for what insurers must cover. Under the current rules for Obamacare, to get covered on Jan 1, consumers had to sign up by Dec. 23 and pay their bill by Jan. 1. Under the new delay, you'll still have to sign up by Dec. 23, but the insurers will allow you to pay by Jan. 10 and get your coverage retroactive to Jan. 1.
The delayed payments will cut into insurers' profits. Part of the way insurers make money is by investing the premium payments between when they're collected and when the insurer has to make payments for medical services the customer receives. Investment income was 12% of UnitedHealth Group's (NYSE: UNH ) profits last year. For WellPoint (NYSE: WLP ) , which doesn't have ancillary businesses like UnitedHealth, investment income made up a whopping 37% if net income.
Of course, it's only a 10-day delay, so we're talking about a fraction of percentage point, and only a fraction of the premiums will come in that late.
In theory, consumers could use the delayed payment to get 10 free days of insurance, but again, it's not likely to cost the insurance companies all that much.
The COBRA insurance coverage that people get after leaving a job is much more costly. Individuals have 60 days to decide whether to elect coverage and then 45 days after electing coverage to pay the initial premium. But the coverage is retroactive to the date the insurance was lost, essentially giving people months of free coverage that they only have to pay for if they end up with medical bills that exceed the premium payments.
Given how much work it is to get signed up, I doubt many people are going to go through the hassle of signing up for insurance on the exchanges for 10 free days of insurance. Even people as cheap as Wimpy.
In the end, insurers get to look like Popeye saving Olive Oyl from Bluto without having it cost them too much.
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