As detailed in Tuesday’s Wall Street Journal, the federal Department of Health and Human Services (“DHHS”) and insurance companies are actively discouraging efforts by non-profit organizations, including hospitals and charities, to provide subsidies for low-income patients who purchase qualified health plans (“QHP”) through a health care exchange under the Affordable Care Act (“ACA”). DHHS in particular has requested that insurance companies reject such payments made by third parties.
As background, ordinarily the provision of premium subsidies for a federal health program, such as Medicare or Medicaid, would be prohibited as illegal remuneration under the federal Anti-Kickback Statute (“AKS”). However, in an October 30, 2013, letter to Rep. Jim McDermott (D-WA), DHHS stated that QHPs and other programs related to state and federal health care exchanges are exempt from the AKS. The letter addressed a concern among hospitals and other providers that financial assistance offered to patients who purchase insurance through a federally-facilitated exchange would violate the AKS, which makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a “federal health care program.” See 42 U.S.C. § 1320a-7b(b). DHHS was careful to note it would conduct oversight activities (e.g., audits) over premium subsidies utilizing the False Claims Act as legal authority. While the DHHS letter ultimately did not expressly authorize third-party premium assistance, that DHHS opined that QHPs are exempt from the AKS was interpreted by many in the health care community, including the American Hospital Association, as approval of the practice.
However, on November 4, 2013, DHHS released new guidance cautioning against the practice of premium assistance. In a “Frequently Asked Questions” document posted on the CMS website, DHHS stated as follows:
It has been suggested that hospitals, other healthcare providers, and other commercial entities may be considering supporting premium payments and cost-sharing obligations with respect to qualified health plans purchased by patients in the Marketplaces. HHS has significant concerns with this practice because it could skew the insurance risk pool and create an unlevel field in the Marketplaces. HHS discourages this practice and encourages issuers to reject such third party payments. HHS intends to monitor this practice and to take appropriate action, if necessary.
As the November 4 FAQ makes clear, the concern by DHHS is that offering subsidies to those unable to afford premium payments will lead to greater enrollment of low-income and medically needy individuals in the health insurance marketplace, resulting in higher premiums for those seeking to enroll in the exchanges and higher costs for participating insurers. While the FAQ does not reverse DHHS’ position on the subject of AKS liability for premium subsidies, the FAQ does suggest it will take legal action to protect the insurance marketplace (i.e., the risk pool) from becoming unbalanced. In this context, this could mean investigations and sanctions against hospitals or other health care providers who provide premium subsidies, as well as QHP issuers who accept third-party subsidies.
Without the AKS as a lever for enforcement activity, the legal authority DHHS would utilize to prohibit third party premium subsidies remains unclear. No provision of the ACA or its implementing regulations, including those adopted by DHHS and the IRS, currently prohibits hospitals and charities from providing premium subsidies. It is thus likely that DHHS (or IRS) will need to go through a rulemaking process in order to effectuate enforcement activity against providers seeking to offer third party subsidy payments, or insurers who accept the payments.
We will continue to monitor this issue and any associated regulatory activity as it unfolds.