Hospitals figure out their own way to game Obamacare's tax subsidies

December 6, 2013
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Hospitals were alarmed this fall when they learned that Anthem Blue Cross and Blue Shield was going to promote “zero-premium plans” to low-income Hoosiers, which would give them insurance for free but leave them with massive deductibles when they it came to paying hospital bills.
The strategy essentially allows Anthem to rake the Obamacare tax subsidies these low-income buyers will receive over to its side of the table, leaving the hospitals to do the dirty work of collecting bills from hard-up patients.
“It’s a scam,” one hospital industry official told me.
But hospitals have figured out a way to keep Anthem and other insurers paying the bills on their most expensive patients. They are going to pay the premiums for some of their low-income patients, so the patients’ insurance coverage stays in effect.
This wouldn't apply to the zero-premium plans, which will have the premiums covered entirely by federal tax subsidies. But the hospitals could help patients who opt for other kinds of insurance plans in the exchanges, which do require them to pay some of the premiums out of pocket in exchange for lower deductibles and co-pays.

For instance: a cancer patient in the middle of chemotherapy who falls behind on paying his or her premiums and is at risk of losing health coverage. If the patient fails to pay the premiums for 90 days, his or her insurer can cancel the coverage and even try to "claw back" some of the medical bills it paid during the time the patient was not paying premiums.

But the hospital could pick up the premium payments so an insurer doesn’t cancel the policy, which means the insurer must keep paying the big bills.
No local hospital has said this publicly. And I don’t expect them to ever start advertising about it.
But local health care executives tell me that, when it comes to a patient being insured or not, hospitals are ready to pay premiums on the patient’s behalf to make sure he or she is insured.
This could become a problem for insurers like Anthem, which is one of four insurers offering policies for sale in the Obamacare exchange in Indiana. That’s because hospitals aren’t likely to pay premiums for patients that aren’t racking up any bills. They’ll most likely pay premiums when they have patients in significant need of care.
After all, what’s a few thousand dollars in premium payments compared with hundreds of thousands of dollars for expensive surgeries and high-priced treatments for cancer and chronic diseases?
The Obama administration’s Department of Health and Human Services acknowledged this very problem a month ago when it sent out a Q&A document threatening hospitals not to do this.
“HHS has significant concerns with this practice because it could skew the insurance risk pool and create an unlevel field in the [exchanges]. HHS discourages this practice and encourages issuers to reject such third party payments," stated the Q&A document.
Perhaps health insurers will reject such payments. They had few qualms about rescinding coverage on people in need before Obamacare said they could not longer do that. But I’d like to see them explain to their own customers that they can’t get their next chemotherapy treatment, not because the premiums aren't being paid, but because it might upset the balance of the insurance risk pool.
After the Obama administration’s Q&A statement, the American Hospital Association quickly fired back with a “legal advisory” asserting that hospitals have every right to pay their patients’ insurance premiums and the Obama administration's Q&A statement is "unenforceable."

"While it undoubtedly was intended to have a chilling effect on the willingness of hospitals to provide insurance subsidies for individuals in need, the Q&A appears to have no legal force or effect on hospitals (or insurers) and to be unenforceable," the advisory stated, adding, "And the regulations implementing the federal premium tax credit clearly allow for another person or organization to pay the insurance premium for the enrolling individual."

The American Hospital Association also noted that the Obama administration had previously indicated that these payments were OK. In a Oct. 30 letter to a Congressman, Health and Human Services Secretary Kathleen Sebelius said  the health insurance sold in the Obamacare exchanges is not a federal health care program. That meant that hospitals would not run afoul of federal anti-kickback laws, which prevent them from paying to help a patient obtain a service or items that are paid for primarily by a federal health care program.

In Indiana, the Indiana Hospital Association would still like to see more clarification on the issue before its members are absolutely comfortable making these payments.

"I know that hospitals are anxious to get clarification before proceeding with plans to pay part of any premiums," Brian Tabor, vice president of government relations for the Indiana Hospital Association, wrote in an e-mail. "I can't put a number on it, but I would say there is significant interest in looking at this option."

  • Free Market
    Incredible. How are private healthcare provider coming up with a solution without government involvement. Do people understand this is a market decision driven by market forcesot government mandate. It illustrates if ACA never happened but a confluence of market demands for consumers and servicers occurs, change would happen anyway. If this country wants to chang(notice I did not say fix) healthcare then it should get out of the way and let market forces and consumers create change on there own. This is a perfect example.
  • Could it already be occurring?
    J.K. hasn't the incentive always been there for hospitals to pay these premiums? The ACA doesn't really create a "loophole" to do this - right?
    • To CK
      Good question. I kind of skated over this issue in the post. Hospitals could do this in the past. And some, through their foundations, have done made contributions to the POWER accounts used by participants in the Healthy Indiana Plan. The difference now for private insurance plans is that in 2014 they won't be able to reject or non-renew a patient who is sick. So hospitals may be able to get years of paid bills by helping a patient with premiums, versus just months before. Also, I think this is getting more attention now because there will likely be far more people buying coverage in the exchange (more than 500,000 Hoosiers, by some estimates) compared with just 180,000 in the individual market currently.
      • Unintended Consequences
        It's always the unintended consequences that blows these programs up. Mostly smart people working the system to their advantage.
      • A Miracle!
        I bet this was never seen coming. This is almost Christmas in itself. All the republican malarkey aside, this shows just how God has his very hand all over this situation. Wow! its a miracle.
      • Clear Nor Transparent
        Obamacare is neither Clear or Transparent and we are already seeing scheems to keep the money flowing but the service and patient are at risk. I see no improvment to the system just higher costs, and different rules.
      • Conflicts Galore
        Even though the practice of hospitals and other medical and healthcare professionals fronting premium payments may not be knew hardly makes it right. If we were discussing securities we would label the "maybe" practice insider trading. In this case hospitals, physicians and others are in a position to know how they, their institution or their colleagues will benefit from maintaining insurance for the patients. If I pay $x, I stand to reap huge multiples of the $x premium and while the ethics may stink the law is porous.If this practice becomes common, insurers will have little recourse but to raise their follow on year premiums commensurate with the costs incurred by this not so altruistic practice.

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