By Shana Bartlett and Ravi Kumrah
As the market for health insurance continues to evolve and become increasingly consumer driven, healthcare providers have the opportunity and challenge to overhaul their self-pay management strategy. Industrywide, providers are looking to reduce lost revenue at risk with continually increasing patient obligations. One strategy is subsidizing patient premiums for insurance plans offered through federal or state insurance exchanges. This strategy should be considered a last resort for patient obligation sponsorship and only apply to patients who have not met qualifications for federal and state funding.
The regulations around provider subsidy of patient insurance premiums purchased through the Affordable Care Act (ACA) exchange program remain unsettled. While hospitals wait for rule clarification from the Obama Administration, some institutions are beginning to test programs designed to solely operate or partner with affiliated charitable organizations to provide sponsorship to the community. This novel, proactive approach is a direct response to increased patient dollars at risk for bad debt placement and elevated costs to collect on previously paid claims.
Providers are largely navigating the new sponsorship environment without much federal guidance, especially with the legality of such sponsorship action. Currently, the federal administration is providing conflicting stances over the legal authority of the government to prohibit hospitals and other third-party resources from paying a patient's insurance premium on his/her behalf. Insurance companies fear that the sponsorship of premiums "could skew the insurance risk pool and create an unleveled field in the marketplaces." However, different areas of the federal healthcare administration have weighed in with varying positions. This ranges from support of the insurers' fears around patient pools to asserting the federal government does not possess the legal authority to prohibit such sponsorship, based on premium tax-credit programs and COBRA program precedents (American Hospital Association, 2013).
Given the lack of direct guidance, some hospitals are cautiously proceeding in implementing sponsorship programs. While data to support how many institutions provide support are scarce, the University of Wisconsin Hospital and Clinics has established itself as a pioneer by partnering with the United Way for patient premium sponsorship. The hospital system announced that it would be providing the local United Way with $2 million to help low-income residents purchase insurance in the exchange. The expectation is that this charitable donation will sponsor insurance premiums and deductibles.
ESTABLISHING SPONSORSHIP PARAMETERS
Before organizations entertain the opportunity to sponsor patient premiums or deductibles, BRG's Healthcare Performance Improvement experts encourage a thorough analysis of the uninsured population presenting to the organization and the sponsorship costs offered through the exchange serving the patients within the area (state or federal). A sample analysis may include the following steps:
- Review 12 to 18 months of patient liability data, exclusively for the uninsured population, narrowing in on patients who have presented to the organization two or more times and have subsequently gone to bad debt. This is a focused population to utilize in determining if such a sponsorship program is financially and operationally reasonable. Notate the total liabilities transferred to bad debt and the volume of associated accounts.
- Select an accurate patient demographic that represents the majority of the bad debt uninsured population for a specific organization. This information is needed to identify the representative premium costs per tier (bronze through platinum). For example, 40-year-old male, non-smoker.
- Review your state or federal exchange to gather the costs per tier. For organizations considering sponsorship of all out-of-pocket costs, collect data on premium, deductible, coinsurance, and OOP maximums.
- Calculate the cost of sponsorship for the patient population selected. For example, if 400 patients meet the selection criteria noted above, and a Gold premium is $6,000 for the year, the minimum cost to the institution would be $2.4 million. If the bad debt adjustments for the 400-patient population are $6 million, then the reduction in bad debt may outweigh the cost of the subsidy.
- To determine an estimated bad debt reduction amount, compare original bad debt dollars against what may go to bad debt after premium sponsorship. A "worst-case" scenario would assume remaining patient responsibilities (deductible, coinsurance) as bad debt.
A more sophisticated algorithm can be developed to model the costs and associated bad debt reduction potential.
THE BOTTOM LINE
Due to lack of clarity of an official federal administration position, it is unclear if and how hospitals are truly allowed to assist the patient community through sponsorship of insurance premiums. Until formal guidance is communicated, hospitals are advised to continually seek guidance from their legal counsel when approaching the prospect of insurance premium subsidies. BRG professionals suggest that if an institution decides to move forward with a sponsorship program, the related financial assistance policies should be updated to outline the criteria that will be applied when selecting patients eligible for insurance premium and/or deductible sponsorship. Recommendations include:
- Partnering with a hospital-affiliated non-profit organization to better preserve the mission of a patient sponsorship program
- Sponsoring patients for an entire policy year, not just time of treatment
- Selecting patients to sponsor based on income criteria established by the partnered non-profit organization
- Establishing that an individual's health status is not a consideration in determination of sponsorship
Please contact a BRG representative at RevCycleHPI@thinkbrg.com to discuss the most appropriate analysis and management approach for your organization.
American Hospital Association, "HHS Encourages Insurers to Reject Hospital Subsidies for Patients in Need," Legal Advisory (November 13, 2013).
Clark, Cheryl, "AHA: Hospitals Can Pay Patients' HIX Premiums," Health Leaders Media, (November 18, 2013).
Hall, Render, Killian, Heath & Lyman, "QHPs, FAQs, Sebelius-Grassley Face-Off and the Louisiana Blues: An Update," blog post (March 5, 2014).
Harris, Susan F., and Christopher J. Swift, "Risks and Rewards from Hospital Premium Subsidies," Law360 (June 24, 2014), accessed at: http://law360.com/articles/548314/risks-and-rewards-from-hospital-premium-subsidies
U.S. Health and Human Services Department, "Patient Protection and Affordable Care Act; Third Party Payment of Qualified Health Plan Premiums," Federal Register (March 3, 2014).