On February 7, 2014, the Centers for Medicare and Medicaid Services (CMS) issued a memorandum that adds to the growing library of federal guidance on the permissibility of and limitations for health care providers and other entities paying the premiums of patients covered by qualified health plans (QHPs) in the health insurance exchanges or marketplaces. The guidance significantly limits the types of third party premium payment arrangements that CMS would find to be acceptable.
In a memorandum issued on November 4, 2013, CMS first revealed its concern that third party payments of premiums could lead to adverse selection by skewing the insurance risk pool and creating an unlevel field in the exchanges. It expressly encouraged QHPs issuers “to reject such third party payments.” CMS suggested that it may “take appropriate action, if necessary.”
In its latest memorandum, CMS clarified that its original guidance does not apply to similar arrangements on behalf of QHP enrollees from Indian tribes, tribal organizations, urban Indian organizations, and state and federal government programs and grantees. For all other arrangements, CMS established a narrow exception for “private, not-for-profit foundations” if a foundation makes the premium payment on behalf of QHP enrollees who satisfy defined criteria that are based on financial status and do not consider enrollees’ health status. CMS expects the payments for the premium and any cost sharing payments to cover the entire policy year.
In taking this position, CMS is encouraging QHP issuers to reject the premium payments by hospitals, other health care providers, and any other commercial entities that provide the funds for such payments. This would include payments to provide either a month or so of coverage while a particular treatment or procedure is provided or even coverage for an entire policy year.
Given that the exchange market laws strictly limit when QHP issuers may terminate an enrollee’s coverage, the most likely method for QHP issuers to reject premiums after the premiums have been accepted is to rescind the enrollee’s coverage. The exchange market rules permit QHP issuers to rescind coverage where the enrollee (or a person on his or her behalf) has performed an act, practice, or omission that constitutes fraud or made an intentional misrepresentation of material fact “as prohibited by the terms of the plan or coverage.” QHP issuers would need to include a prohibition on third party premium payments in their policies. Since QHPs rely on the exchanges for the application and the contract, the most likely document to include such a statement would be the member handbook/evidence of coverage. Where an enrollee or someone on his or her behalf ignores the prohibition and submits a third party premium payment, the submission may constitute fraud or an intentional misrepresentation of material fact justifying rescission and the return of the premium payment.
It is not clear whether state insurance departments that have regulatory authority over the member handbook/evidence of coverage will support CMS’ position and permit the inclusion of language prohibiting third party payments. Overly broad prohibitions may raise concerns that QHP issuers will attempt to rescind coverage under unintended circumstances, such as where family provides financial support. Therefore, any prohibition on third party premium payments should be crafted with precision and to avoid such concerns.
As noted above, CMS’ guidance adds to a growing list of guidance on this topic from the federal government. On October 30, 2013, the Secretary of Health and Human Services (“HHS”) confirmed that HHS does not view QHPs or the programs related to the exchanges as federal health care programs that would then implicate fraud and abuse laws, such as the federal Anti-Kickback Statute. On December 2, 2013, the HHS Office of the Inspector General issued an advisory opinion approving a non-profit, tax-exempt charitable organization’s premium support program. Interestingly, whereas CMS would only approve of an arrangement that does not base support on health status, the OIG-approved arrangement was limited to a population with a specific disease. Of course, the OIG was concerned with the application of the Anti-Kickback Statute while CMS is concerned with adverse selection.
Despite the additional guidance from CMS, unless CMS engages in new rule making, CMS’ options to prohibit arrangements outside the scope it has approved appear to be limited. Rather, its guidance appears to be more of a green light for QHP issuers to begin taking steps to reject third party premium payments, including by rescinding enrollees’ coverage. Already, Blue Cross Blue Shield of Louisiana announced a new policy that effective March 1, 2014 it will no longer accept third party payments for premiums, except in the case of family support. Diverging from CMS guidance, this policy also applies to Ryan White clients. Given the CMS policy and actions insurance companies are taking, any hospital, health care provider or other entity considering a third party premium arrangement must ensure that it structures the arrangement to comply with all applicable federal and state requirements and guidance and particular insurer’s policies.
