- Issue: Consumers’ concerns about affordability limit participation in ACA marketplaces. Funded by local hospital systems and run by independent nonprofits, third-party payment (TPP) programs improve affordability for low-income consumers by paying premium costs not covered by tax credits.
- Goal: To assess the potential of TPP to make marketplace coverage more affordable, without harming insurance risk pools.
- Methods: Interviews in May and June 2016 with program administrators, hospital systems, carriers, and consumer groups in five localities and the Washington State marketplace.
- Key Findings: The most effective local program reached 1,148 people, or 25 percent of all eligible marketplace enrollees. Other local programs served between 202 and 934 consumers; the Washington State program reached 1,133. Findings suggest that without TPP, numerous beneficiaries would have remained uninsured. Hospitals funding these programs reported net financial benefits, with declines in uncompensated care exceeding program costs. Carriers reported no adverse selection in these carefully designed programs. Conclusions: Widespread adoption of TPP could help additional low-income consumers obtain marketplace coverage. Hospitals’ financial gains from TPP programs make replication more feasible. However, broader policies, such as increased premium tax credits and cost-sharing reductions, are likely needed for major nationwide improvements to affordability.
With roughly 20 million Americans gaining coverage under the Affordable Care Act (ACA), the United States has made enormous progress in reducing the number of uninsured.1 Nevertheless, 28.6 million people remained without health coverage in 2016,2 of whom an estimated 62 percent qualified for Medicaid or marketplace coverage.3 As of June 2015, only 35 percent of consumers eligible for advance premium tax credits — which lower monthly health insurance payments — had enrolled in marketplace plans.4 Research suggests that the most important obstacle to increased enrollment has been consumers’ belief that coverage is unaffordable.5
Currently, the future of the ACA remains unresolved, but the basic framework of the legislation could well remain intact. If so, stakeholders and policymakers will need to revisit these affordability concerns. A fully effective solution would likely include higher premium tax credits and cost-sharing reductions. Until such a solution is considered, more incremental strategies may be needed, like third-party payment (TPP) programs, through which health care providers pay low-income consumers’ share of enrollment costs.
History suggests that TPP programs can address low-income consumers’ affordability concerns on a large scale. Long before the ACA, Washington State’s Basic Health Program let nonprofit organizations pay the premium charges of eligible consumers using donations from safety-net providers. The state stopped most new enrollment in the early 2000s. Before then, this TPP initiative achieved significant gains, enrolling nearly a quarter of all 133,000 consumers who received subsidized coverage when the state’s Basic Health Program reached its high-water mark in 2001.6
Some carriers have expressed concerns that TPP programs could skew risk pools by triggering “adverse selection,” or disproportionately high enrollment of consumers with serious health problems. For example, carriers have raised concerns about health care providers increasing their payments for kidney dialysis and other high-cost conditions by steering patients who qualify for Medicaid or Medicare to nonprofit organizations, which in turn enroll the patients into marketplace plans that pay higher reimbursement rates.7 After seeing “problematic” effects on consumers and risk pools, the Centers for Medicare and Medicaid Services (CMS) circulated regulations in late 2016 limiting TPP programs that focus on dialysis patients.8 Those regulations soon became the subject of litigation,9 and a broader policy debate continues around TPP programs that serve patients with specific diagnoses.10
This issue brief focuses on different TPP programs: those that base eligibility on income rather than the presence of particular health conditions. Based on interviews conducted in May and June 2016 with nonprofit program administrators, hospital systems, carriers, and consumer groups in five localities and the Washington State marketplace, we examine whether income-based TPP programs can improve enrollment and retention without triggering harmful adverse selection.11 We also explore whether income-based TPP programs could be implemented on a much larger scale. For detailed information on our methods, see How We Conducted This Study.
Federal Legal Framework for Third-Party Payment Programs
According to regulations governing health insurance marketplaces, qualified health plans (QHPs) must accept payments made by governmental and tribal TPP programs.a To avoid adverse selection, QHPs are discouraged from participating in TPP programs administered by providers, which could primarily enroll the providers’ patients who have health problems.b On the other hand, private nonprofit organizations can make payments “on behalf of QHP enrollees who satisfy defined criteria that are based on financial status and do not consider enrollees’ health status,” so long as payments continue through the end of the plan year.c
A long-standing federal law that limits provider self-referral — the “anti-kickback” statute — does not apply to marketplace coverage, according to letters from the secretary of the U.S. Department of Health and Human Services. The secretary ruled that marketplace coverage is not a “federal health care program” and so is not subject to the law.d Nevertheless, since a future secretary could conceivably change this interpretation, some legal observers urge nonprofits that administer TPP programs to take additional steps to protect themselves from potential liability.e
For a more detailed description of how policy evolved in this area, see Timothy S. Jost, “Implementing Health Reform: Third-Party Payments and Reference Pricing,” Health Affairs Blog, May 22, 2014, https://www.healthaffairs.org/do/10.1377/hblog20140522.039182/full/.
a. 45 CFR 156.1250.
b. Centers for Medicare and Medicaid Services, Third Party Payments of Premiums for Qualified Health Plans in the Marketplaces (CMS, Nov. 4, 2013), https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/third-party-qa-11-04-2013.pdf.
c. Centers for Medicare and Medicaid Services, Third Party Payments of Premiums for Qualified Health Plans in the Marketplaces (CMS, Feb. 7, 2014), https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/third-party-payments-of-premiums-for-qualified-health-plans-in-the-marketplaces-2-7-14.pdf, cited with approval in Centers for Medicare and Medicaid Services, “Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2017; Final Rule,” Federal Register 81, no. 45 (Mar. 8, 2016): 12204–352, https://www.gpo.gov/fdsys/pkg/FR-2016-03-08/pdf/2016-04439.pdf.
d. See, for example, Letter from HHS Secretary Sebelius to Member of Congress Jim McDermott (U.S. Department of Health and Human Services, Oct. 30, 2013), https://www.hlregulation.com/files/2013/10/The-Honorable-Jim-McDermott.pdf.
e. See the discussion in the end notes that cite Catherine E. Livingston, Gerald M. Griffith, and Rebekah N. Plowman, “Third-Party Payment of Premiums for Private Health Insurance Offered on the Exchanges,” Journal of Health & Life Sciences Law 8, no. 2 (Feb. 2015): 1–44. A version of the paper, which includes all of the material quoted in this issue brief, is posted online at https://www.healthlawyers.org/Events/Programs/Materials/Documents/IHC14/c_livingston.pdf.
How the Programs Developed
The five local programs we studied began when community groups and providers worried that the ACA’s premium tax credits might not be sufficient to make coverage affordable for many low-income consumers. To reduce uncompensated care amounts and improve population health, area hospitals decided to fund efforts by independent community groups to pay the remaining premium costs for low-income, uninsured residents who qualified for tax credits. By requiring the receipt of tax credits as a condition of eligibility, hospital funding leveraged much larger premium payments from the federal government. The resulting reduction in uncompensated care, compared to hospital payments — in other words, the financial return on investment — seemed particularly promising for TPP programs serving the lowest-income consumers, who qualify for the largest credits, and who receive coverage with especially low deductibles.12
Proponents of TPP programs had to overcome carriers’ concerns about adverse selection. Insurers also were concerned about the administrative cost of changing payment-processing systems to accept funds from local nonprofits, not just from members.
The local TPP programs we examined are funded by hospital systems. In some areas, all hospital systems jointly fund the program. Each program is administered by a preexisting local nonprofit organization, with all administrative costs paid by the funding hospital systems. The nonprofits, rather than the hospitals, set program rules and determine individual consumers’ eligibility.
To qualify, people must: have incomes below a specified percentage of the federal poverty level, reside in particular counties, have already qualified for advance premium tax credits, and have used their tax credits to enroll in silver-level qualified health plans. Generally, the maximum income threshold is 200 percent of poverty. After consumers choose a qualified health plan (QHP) and the marketplace determines household income and tax credit eligibility, the TPP programs determine if the consumers qualify for TPP assistance. Such leveraging of tax credit eligibility determinations protects program integrity while limiting TPP programs’ administrative costs. It also ensures that TPP beneficiaries have been found ineligible for Medicare and Medicaid, thus preventing practices like those described earlier involving kidney-dialysis providers.
Programs directly pay carriers all premiums not covered by tax credits, from the time of enrollment through the end of the plan year. They do not help with out-of-pocket cost-sharing, as a general rule. TPP programs tell carriers which members they are assisting. In most programs, multiple QHPs accept TPP payment.
The most significant differences between programs are in outreach and referral. Only one program that we examined conducts broad outreach throughout the community. On the other end of the spectrum, we saw that one program handled concerns about adverse selection by prohibiting any mention of the TPP until after a consumer selects a QHP that participates in the program. Other localities require referrals from funding hospital systems or other partners, like community health centers.13 See Exhibit 1 for additional information on program features.
Among TPP programs we analyzed, the Dane County program in Wisconsin — the one program engaging in broad, communitywide outreach — achieved the highest enrollment levels. The program reported that 1,148 Dane County residents participated in June 2015,14 representing 25 percent of marketplace enrollees with incomes low enough to qualify.15 Other local programs reached between 202 and 934 people.16 As of June 2016, the Washington State marketplace had 1,133 sponsored enrollees.17
Nearly all interviewees reported that without TPP many participating consumers would be uninsured. One program asked beneficiaries how they would have obtained health care if not for the TPP program. Fifty-three percent said they would have been uninsured, 29 percent said they would have bought more limited insurance, and 16 percent did not know what they would have done; only 2 percent said their coverage would have been unaffected.18
A natural experiment occurred in Dane County when the program decided, starting in 2015, to deny TPP payment of premium surcharges for smokers — a form of risk-rating allowed in Wisconsin. The median smoker surcharge was $70 a month.19 Among enrollees who had surcharges imposed at renewal, 59 percent continued their coverage. Among nonsmoking enrollees who were unaffected by surcharges, 89 percent renewed. In other words, renewal rates were 51 percent higher when TPP covered all premium costs than when consumers had to pay roughly $70 a month.
Outcomes for Other Stakeholders
Funding hospitals. Hospital system interviewees reported that their funding of TPP programs generated a positive financial return on investment. The program caused reductions in uncompensated care that exceeded hospitals’ TPP sponsorship costs. Additional benefits were generated — to both hospitals and consumers — when the receipt of health insurance allowed consumers to obtain treatment earlier in the course of disease development, preventing health problems from becoming medical emergencies that generated significant uncompensated costs. In addition, hospitals that were part of integrated health plans gained members. Many sponsoring hospitals saw their support of TPP programs as part of their community service mission; nonprofit hospitals could potentially consider their support as meeting community benefit obligations.20 After observing TPP programs’ initial results, all funding hospital systems renewed, and in some cases increased, their financial commitments.
Carriers. Carriers reported that their initial concerns about adverse selection proved unfounded, as TPP consumers did not present a different risk profile than other QHP members.21 Sponsors and carriers worked together to address carriers’ concerns about administrative burdens. By 2016, data-sharing and enrollment systems operated smoothly and imposed minimal ongoing burdens, according to health plan interviewees.22
Nonprofit organizations administering TPP programs. Organizations reported that after start-up, ongoing administrative costs, which were paid by the funding hospitals, were manageable.23 Most nonprofit interviewees believed that TPP programs aided their organizations by raising their community profiles and helping achieve core organizational missions.
How It Works in Washington State: Marketplace-Based TPP
The Washington Health Benefit Exchange (WAHBE) is the country’s only state-based marketplace that facilitates and oversees local TPP programs, which are dubbed “sponsors.” State lawa requires all QHPs to accept premium payments from sponsorship programs registered with WAHBE — a step that spreads risks among carriers.b Sponsors, rather than the marketplace, must decide whether federal law permits them to pay premiums.c
After providing WAHBE with eligibility requirements and lists showing which TPP beneficiaries are enrolled with which QHP, the sponsor pays the carrier each consumer’s share of premium not covered by tax credits.d The sponsor may not restrict the consumer’s choice of plan or prevent the consumer from seeing all available options. However, a sponsor may limit the use of TPP to particular metal levels, carriers, or plans. While enrolling through WAHBE, consumers inform the marketplace if they are sponsored.
WAHBE facilitates the program’s smooth operation by conveying information between sponsors and carriers, establishing program rules, and holding monthly meetings between sponsors and carriers.e
a. RCW 43.71.030 (3).
b. Washington Health Benefit Exchange, WAHBE Premium Sponsorship Program for 2017 Coverage Year (WAHBE, 2016), http://www.wahbexchange.org/wp-content/uploads/2013/05/HBE_POL_2017_Premium_Sponsorship_Program.pdf.
c. For example, employers cannot pay their employees’ premiums on the marketplace if such employees also claim PTCs. Sponsors are responsible for preventing violations of this prohibition and other applicable limits.
d. Exceptions to this durational requirement — for example, if a sponsor experiences a sudden financial shortfall — are considered on a case-by-case basis.
e. For example, as a condition of offering QHPs, carriers must provide sponsors with a list of payments owed on behalf of each sponsored member, including past-due amounts. Unless the carrier and sponsor agree on a different process that is communicated, in writing, to WAHBE, the carrier must provide this information at least seven days before each month’s payment deadline. Also, once a consumer identifies him/herself as sponsored, WAHBE informs the affected carriers of the consumer’s sponsorship. In addition, the sponsoring program gives carriers a list of sponsored members. In some cases, WAHBE directly sends eligibility and enrollment correspondence to consumers and their authorized representatives.
Lessons for Future Programs
Most TPP programs were considering or implementing an expansion in May–June 2016, when this study was conducted.24 All interviewees recommended that other communities implement similar programs, given the substantial benefits for low-income consumers. Because of TPP programs’ positive return for hospitals, informants thought that hospital systems in other areas would be motivated to participate.
Interviewees offered suggestions for stakeholders seeking to develop TPP programs elsewhere in the country:
- Have all local hospital systems share funding responsibilities, thus avoiding “free riders” and increasing the number of consumers who benefit by growing the program’s funding base.
- Require all QHPs to participate in approved TPP programs, thereby spreading risk among carriers. This may be easiest to achieve in states with state-based marketplaces, but other states could pass legislation imposing such a requirement.
- Work with carriers to design policies and procedures that minimize adverse selection and streamline operations. Try to find champions within carriers who will work with their own internal stakeholders. Make sure that carriers and nonprofits each designate point people to handle problems when they arise.
- State-based marketplaces can promote the development and improve the operation of TPP programs by establishing ground rules, conveying data between carriers and TPP programs, holding regular meetings with carriers and TPP programs, and helping resolve disputes.
The affordability problems facing low-income consumers purchasing marketplace coverage are unlikely to be solved on a national scale without major policy changes. Until such changes are made, TPP programs could make a meaningful contribution. Hospitals throughout the country could potentially be motivated to fund such programs, locally or statewide, if they anticipate a resulting drop in uncompensated care that exceeds their initial investment.
The way programs are structured will affect their overall impact and proponents’ ability to address carriers’ concerns. To improve outreach, TPP programs could conduct vigorous education campaigns and partner with community organizations and assisters.25 By supplementing providers in generating TPP referrals, such outreach would guard against adverse selection and give nonprofit administrators additional protection from potential liability under federal anti-kickback rules.26 State-based marketplaces could further boost participation by integrating TPPs into standard procedures to qualify for financial assistance and select a plan.27
To address concerns regarding adverse selection, TPP programs, state officials, or CMS could incorporate some of the following safeguards used by the programs interviewed for this brief:
- Bar TPP enrollment at the sites of funding providers28
- Base eligibility only on income and area of residence29
- Limit TPP to people who qualify for advance payment of premium tax credits and who claim them in full, using them to enroll in silver-level coverage30
- Assure that the administering nonprofit is fully independent of the funding hospital systems31
- Allow carriers to track TPP enrollment by having programs pay carriers directly and by having state-based marketplaces identify sponsored members to their qualified health plans
- Pay consumers’ premium shares from the point of enrollment through the end of the coverage year, thus preventing short-term enrollment that ends once a course of treatment is complete, and
- Require all qualified health plans to accept TPP and let consumers use it with any participating carrier, thereby spreading risks among insurers.
Although TPP programs currently serve relatively few consumers, they could be scaled up to serve more people, since hospital systems have financial incentives to provide funding. Careful program structuring could help prevent adverse selection. Many low-income consumers who earn too much for Medicaid require more help with premiums than tax credits currently provide. But if policymakers want to improve affordability and increase enrollment among relatively healthy, low-income consumers on a national scale, they will need to take steps beyond the broader implementation of TPP programs.32
How We Conducted This Study
In May and June 2016, we conducted more than 20 interviews. Key informants included nonprofit program administrators, funders of TPP programs, carriers, and consumer groups involved with programs operating in Dane County, Wisconsin; the Research Triangle area of North Carolina; Portland, Oregon; and Washington State, including locally sponsored programs based in Seattle and Pierce County.
We also interviewed Washington marketplace officials involved in TPP program administration. Informants were promised confidentiality. Telephone interviews used semistructured protocols to explore program history and structure; effects on consumers and other stakeholders; and possibilities for future expansion. Each interviewee had an opportunity to review and comment on the portions of a draft report that concerned the programs discussed by the interviewee.