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The Senate bill’s new health coverage penalty is a throwback

Key Points
  • The Senate unveiled a new penalty in its Obamacare repeal bill.
  • The penalty says those who lapse their health coverage for more than two months in any given year will be locked out of the market for six months.
  • The penalty draws from provisions in several Medicaid programs in Republican-led states such as Indiana, Arizona and Kentucky.
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The Senate unveiled a new penalty in its Obamacare repeal bill that would punish people who lapsed in health coverage for more than two months in any given year, by making them wait to be eligible to enroll for a new plan.

The new language released by the Senate Budget Committee on Monday would require insurers to lock out people with lapsed coverage starting in 2019. The insurers in the individual market "shall impose a 6 month waiting period" for anyone who "cannot demonstrate 12 months of continuous creditable coverage."

"This new provision would certainly encourage people to purchase insurance, and is an improvement over the base bill filed last week — which lacked any provisions discouraging people from waiting until they were sick before they purchased insurance," said Dan Mendelson, CEO of health-care consultancy Avalere Health.

Insurers have been concerned that the repeal of the individual mandate to buy insurance under the Affordable Care Act would mean that fewer healthy people would feel compelled to buy coverage, if there were no financial incentive.

The House bill imposes a 30-percent premium penalty for one year when someone re-enrolls, which critics say would create a high bar for those who are sick to regain coverage.

The Senate's six-month lockout period appears to be modeled on similar provisions in Medicaid programs in Republican-led states like Indiana, Arizona and Kentucky.

"We are glad senators see the importance of improving the risk pool through broad participation," said Ceci Connolly, president and CEO of the industry group Alliance of Community Health Plans, but she did not endorse a full lockout period.

"In the absence of a mandate, a better option might be limiting individuals who delay enrollment to a lower level of coverage. In that way, they would be in the system and be protected in case of serious illness or injury," she said.

Proof of continuous coverage

Requirements for insurers to issue certificates of continuous coverage are a health regulation requirement that existed before the Obamacare insurance mandates for people in employer group plans.

"People leaving job-based coverage were guaranteed (coverage) in the individual market plans, so long as they had this certificate of creditable coverage," said Sabrina Corlette, researcher at Georgetown University's Health Policy Institute, adding that under the Senate plan the guarantee would be especially important for individuals.

"The certificate is a really important consumer protection, because it enables the consumer to verify or really prove that they did have coverage," said Corlette.

Under Obamacare, individuals have to provide proof of continuous coverage with a 1095 form when they file their taxes in order to avoid the individual mandate penalty.

If the Senate bill were passed, it's not clear how the process of showing proof of coverage would be administered. The language in the bill leaves the administration a lot of leeway, saying that the Health and Human Services Secretary "may require health insurance issuers to provide written certification" that a person has been covered "in a manner prescribed by the secretary."

"It leaves a lot of discretion to the secretary, and so it is hard to evaluate thoroughly, without additional detail on implementation," said Mendelson.

The bill appears to give new parents even less time than adults to gain coverage. Newborns and children who are adopted have to be enrolled in coverage within 30 days of birth or the date of the adoption.

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