What is a binder payment?

Imagine you’re shopping for health insurance on the individual market for the first time. You’ve filled out your application, chosen your policy, and now you’re ready to enroll. But just when you think you’re done until your coverage starts you see something called a “binder payment.” What is it? And what happens if you don’t pay it? Overlooking this crucial step could leave you unexpectedly uninsured.

Think of a binder payment as the final step to securing health coverage. Without it, your policy won’t take effect, and you’ll be on the hook for expensive out-of-pocket medical costs.

In this blog post, you’ll learn:

• What a binder payment is in health insurance.
• How and when to make a binder payment.
• What happens after you pay (or don’t pay) your first month’s premium.

What is the binder payment for health insurance?

A binder payment is the first month's premium you pay to your insurance company after you select and enroll in a new health plan.

Many health plans require a binder payment, including:

• Individual health insurance plans, such as self-only and family coverage
• Supplemental health plans, like dental and vision coverage
• Medigap policies

You must pay the binder payment for your policy to take effect (known as effectuation). For example, if your policy starts in January, your first month’s premium is typically due by January 1 to begin coverage. However, your health insurance company and state can set their own deadlines.

Making this payment is the critical last step of the enrollment process. If you fail to pay or don’t pay by the deadline, your insurance company will cancel your application and won’t start your coverage.

How do I make a binder payment?

Once you buy a new individual health insurance plan, you’ll submit your first payment and subsequent premiums directly to your insurer. The most common ways insurers accept premium payments are online, by phone, or by mail.

You don’t need to make a binder payment when renewing your existing coverage at the end of the plan year. Insurers only require this one-time payment when enrolling in a new health plan.

By law, all insurance companies in the federal Marketplace must offer the following payment methods:

• Check
• Money order
• Pre-paid debit card
• Electronic funds transfer

Some states require insurers to allow additional payment methods, like credit cards, debit cards, or cash. Even if a state doesn’t demand these additional methods, an insurer can choose to accept them.

Here are the deadlines if you’re buying a qualified health plan on a Federally-Facilitated Marketplace¹:

• You must make the binder payment by the effective date of coverage. Insurers can extend the payment deadline to no later than 30 days after the coverage effective date.
• If you’re in a special enrollment period (SEP), the payment is due on or no later than 30 days after your plan effective date. For retroactive health coverage, you must also pay the premium for all months of retroactive coverage within 30 days after plan selection.

State-based marketplaces can set their own rules on how and when to pay your first month’s premium. Check your state’s marketplace for detailed guidelines about payment details.

How long does a binder payment last?

The binder only covers the cost of one month of your policy. If you don’t make the payment but it’s still Open Enrollment Period (or you’re still in a SEP), you can enroll in another health plan. Just be sure you pay your premium by the plan effective date to begin coverage.

You can't enroll in a new policy if Open Enrollment or your SEP has ended. You must wait until the next open enrollment period or qualify for another SEP.

What happens after I make my binder payment?

After you pay, your insurer will enroll you in coverage, and your policy will become active on its effective date. You’ll also receive a membership packet, which includes your health insurance card, provider directory, and health plan benefits. These materials typically come by mail. You can also find digital copies by logging into your insurer’s website. If you bought coverage on the federal or state exchanges, the insurer will also tell the Marketplace that your coverage is active.

Your benefit details will also include your monthly premium amount and its due date. Paying your premium on time is essential to keeping your health coverage active. Many insurers have automatic payment capabilities, so you never miss a bill and experience a gap in coverage.

What happens if I fail to make my premium payments?

If you don’t pay your premiums on time, your insurance company will place your account in a grace period. A grace period gives individuals with active health coverage extra time to pay their missed premiums before their insurer cancels their policy due to non-payment².

The length of the grace period depends on whether you receive advance premium tax credits (APTCs) to help you pay for your health plan. You can only receive premium tax credits and APTCs if you buy coverage on a public exchange, such as the federal Health Insurance Marketplace or a state-based marketplace.

Here’s how it works:

• If you receive APTC, you have a 90-day grace period. The grace period begins the first month you miss a payment.
• If you don’t receive APTC, your state’s laws determine the length of your grace period. In many states, it’s a 30-day grace period. Contact your state Department of Insurance for specific information about late payments.

Your insurer must keep paying your medical claims for the first 30 days of the grace period. After 30 days, they can stop paying your claims.

You can resume full coverage if you pay your outstanding premium amounts to your insurer before your grace period ends. For those with APTC, once you pay the full amount, your insurer will retroactively cover any covered medical care you received during the three-month grace period.

Your insurer will cancel your plan if you don’t pay your past-due payments. This means you’ll have to pay any out-of-pocket cost for the medical care you received during the grace period. Policy cancellations due to non-payment aren’t a qualifying life event either. So, you’ll have to wait until Open Enrollment or qualify for a SEP to enroll in a new health plan.

Conclusion

Knowing how binder payments work is key to ensuring your new individual health plan starts smoothly. This first payment may seem like another hurdle within the enrollment process, but it has an important purpose. By making your first month’s premium payment on time, you can avoid gaps in coverage and secure the policy you need to improve your health and well-being.

1. KFF - Health Insurance Marketplace Types

2. Health plan grace periods