- Third-party payment programs make health insurance affordable for low-income consumers by paying the health plan premium costs not covered by the ACA’s tax credits
- Third-party payment programs not only help low-income Americans afford marketplace health coverage, they also reduce hospitals’ uncompensated care costs
- 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.Nevertheless, 28.6 million people remained without health coverage in 2016, of whom an estimated 62 percent qualified for Medicaid or marketplace coverage. 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. Research suggests that the most important obstacle to increased enrollment has been consumers’ belief that coverage is unaffordable.
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.
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.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. Those regulations soon became the subject of litigation, and a broader policy debate continues around TPP programs that serve patients with specific diagnoses.
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.How We Conducted This Study.We also explore whether income-based TPP programs could be implemented on a much larger scale. For detailed information on our methods, see