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Can Hospitals Pay Patients' Health Insurance Premiums?

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   September 30, 2013

It's not clear whether hospitals can legally advance patients premium money for coverage obtained from health insurance exchange markets. But the potential for conflict is apparent.

What if hospitals covered monthly premium payments to encourage patients to enroll in the new health insurance exchange markets, especially for people with higher risks of hospitalization in the coming year? What could be wrong with that?

That's the essence of the question American Hospital Association president Rich Umbdenstock asked Mandy Cohen, MD, senior advisor to the Centers for Medicare & Medicaid Services administrator, during a Sept. 16 webinar on what hospitals might do to get more of their otherwise uninsured patients enrolled.

"One of the questions that several of our members have asked us before," Umbdenstock said, "and I see it's in here again, is the question, 'If the patient qualifies in the exchange, but still doesn't feel as though they have the money after the subsidy to buy a plan, can the hospital do that for them?'"

"Can the hospital buy the plan on their behalf?" Cohen stated, as if she wasn't sure she heard correctly. "You know, I don't know the answer to that question…It's a good question. I'd like to say yes. But let me check with people like lawyers."

"That's a very complicated one, I know," Umbdenstock replied.

After all, without health insurance, many patients—especially those with a history of frequent hospitalizations—would otherwise end up as expensive charity care, forcing hospitals to absorb more uncompensated care expense. And this is coming at a time when federal disproportionate share funding is diminishing and charitable care deduction definitions for hospitals are getting narrower.

Patients might also end up sicker, and more likely to use the emergency room instead of a primary care provider. Coverage can secure medication and other services these patients need to keep them out of acute care settings, not to mention provide them healthier quality of life. And hospitals already discount charges for the uninsured through their financial assistance programs.

A CMS spokesperson on Friday said via e-mail that the agency has not released guidance on third-party payers.

Mollie Drake, senior director for Scripps Health's Corporate Access Management, says that if a hospital is thinking about advancing patients' premium money to encourage coverage, they might be envisioning a scenario like this:

Many patients might enroll in the exchange, but they don't pay up on time, voiding their policies.

"There's a 90-day grace period," Drake says. "A patient may not pay their premiums for 90 days, and the healthcare providers won't realize it [because] we're able to bill and receive reimbursement. But then if [the patient] goes into default, [the plan or payer] has the right to come back and take the money back," Drake says.

"So this may be a circumstance where a provider might say, 'Well, I'd much rather pay this $300 premium for the patient rather than have a $6,000 payment revoked."

Jim Lott, former vice president of the Hospital Association of Southern California and now executive vice president for COPE Health Solutions, says the question is tricky, but that such financial assistance is very plausible.

The pitfalls include the chance that the practice violates federal anti-kickback rules, because it could be seen as a quid pro quo for a patient to sign up for a particular plan with a network that includes one hospital, especially if the plan and the hospital are integrated and have the same name.

"That would raise some eyebrows," Lott says. And of course, there could be no stated or implied expectation that the patient would only get care from the benefactor healthcare system.

Another issue might be that the practice would encourage a kind of adverse selection, weighting health plans down with the costliest, sickest patients in these products; hospitals aren't likely to pay these premiums for so-called "healthy young invincibles."

"You would want to target high-risk patients, those with chronic diseases, and those on the very, very high end of the subsidy program. Those are the people you would want to cover," Lott says.

But there are ways it might be done to benefit both the hospital and the patient, Lott says.

The hospital, or even a group of hospitals, could contribute to a scholarship fund for certain high risk patients, those whose hospitalization probability might be determined by traditional actuarial calculations. "You'd basically be establishing a profile, and that would be easy to do," Lott says.

County health departments know who those individuals are, especially in counties that operate safety net hospitals, and could work with exchanges to determine which patients might receive this financial boost, he says.

"This has to be a true charitable transaction, counting toward a hospital's charitable contribution," he adds.

If there are confidentiality issues, or someone thinks this might violate the Health Insurance Portability and Accountability Act's privacy rules, Congress and federal agencies that oversee that law such as the Office of Civil Rights can write an exception or an exemption to allow that, Lott says.

On the issue of adverse selection weighting down these insurance exchange products, Lott says it "absolutely is an adverse selection process. This doesn't work at all well for the pool mix. But the point is, so what?" he says.

"The adverse selection problem is going to occur under Obamacare anyway. I mean, what healthy person is going to be motivated to pay whatever the premium would be per month rather than the $95-per-year penalty?"

Lott says that he believes insurance companies have already thought of that and have factored those costs into the rates for each type of plan.

There's a huge opportunity here. According to the Congressional Budget Office, some 25 million uninsured Americans are expected to qualify for the health insurance exchanges next year, but only 6 million or 7 million are expected to buy in. And many of those who don't are probably the patients who need it the most.

Many hospitals, especially those already serving the uninsured or people who will become uninsured when their employers cancel company coverage, are already training their staff to become certified application counselors. Some are sponsoring health fairs to advertise the benefits of the exchanges and Medicaid, especially in states like Michigan where state just agreed to expand eligibility.

Some hospitals are establishing enrollment desks to catch patients on exit from their emergency department episode, during what might be a teachable moment about the importance of having health coverage.

But how much push hospitals should give them, and at what points in their medical journey, remain to be seen.

Lott notes that "it's not in the culture of a hospital to think that it ought to do this kind of outreach for a government program. I'm not saying that's a good thing. I'm just saying that's not normal, unless (hospitals) are asked to do this. You're going to find very few of them motivated to just go do that because it's a good thing to do. It's just not in their thinking."

Cynthia Taueg, vice president of ambulatory and community health services at St. John Providence Health System in Detroit, says "there's a great potential for conflict, that's for sure. And for anti-trust issues. The potential is there."

She adds that at St. John Providence, "We don't pay for anybody's premium now, and it's not anything we're considering. But if the feds make it allowable, then we'll look at it at that time."

Legal minds at CMS will decide. During the hospital webcast Sept. 16, CMS' Cohen said hospitals have a lot of power to influence how patients respond to the new exchanges.

"They trust you," she told webcast listeners. "They trust doctors, pharmacists, nurses. They trust their healthcare providers in their community. "

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