Junaid HusainEarly in November, the healthcare provider community was left scratching its collective head upon reading two apparently contradictory opinions from the U.S. Department of Health and Human Services (HHS) and the Centers for Medicare & Medicaid Services (CMS) regarding third-party payment of premiums for qualified health plans (QHPs) purchased on the federal and state-based Marketplaces. In a letter dated Oct. 30, 2013, HHS Secretary Kathleen Sebelius issued an opinion implying that third-party reimbursement of QHP premiums for Marketplace consumers is a legally acceptable financial strategy for the provider community. Five short days later—in an apparent contradiction to Sebelius’s position—CMS issued a curious one-paragraph opinion arguing that third-party payment of QHP premiums would be deemed unacceptable. 

Impetus for the HHS Opinion 

The HHS opinion was rendered by Sebelius as a response to a question from Rep. Jim McDermott (D-Wash.) as to whether QHP products on the various healrh insurance marketplaces are considered healthcare programs under Section 1128B of the Social Security Act. Specifically, McDermott was looking for clarity as to whether QHPs fall under the scope of the federal Anti-kickback law. Secretary Sebelius, with input from the Department of Justice, argued that QHPs are not federal programs and do not fall under the anti-kickback provisions—which, on balance, means that third-party payment of premiums is acceptable.

Concerns Raised the HHS Opinion 

Immediately after Sebelius rendered HHS’s opinion, a number of constituencies began to grumble, including the payer community and CMS. Their collective concern centered on the potential risk pool that might be compromised should third-party payers (i.e., hospitals) reimburse QHP premiums. Specifically, payers were concerned that providers would selectively target patient demographics that are levered to the very sick and high utilizers of services (versus younger healthier people). In such a scenario, medical loss ratios could potentially creep higher for payers, compromising the financial sustainability of QHP products on the marketplace and potentially resulting in higher QHP premiums for consumers in year two of the ACA.

HHS Response

An HHS representative has informed us that the HHS views these two opinions as complementary, not contradictory. Specifically, the representative says, the CMS stance was not intended to imply that third-party payment of QHP premiums is unacceptable—rather, the opinion was intended to discourage “hospitals, other healthcare providers, and other commercial entities” from directly paying QHP premiums. Notably, the HHS contact points out that CMS’s position does not preclude third-party arm’s-length not-for-profit foundations and charities from providing QHP assistance, which is a prevailing model that many hospitals have already been exploring—i.e.,  foundation set up as a 501(c)(3) organization, which could distribute QHP premiums without undue influence from the parent entity.

Next Steps Absent Additional Guidance

HHS tacitly recognizes that Secretary Sebelius’ letter may have led to some irrational exuberance on the part of the provider community, necessitating the follow-up guidance from CMS. It seems that HHS and CMS have no plans to issue further guidance or statements on the subject of the third-party payments.

Ultimately, both the HHS and CMS opinions can be seen as guidance documents—documents that are open to interpretation and may not necessarily be considered hard-and-fast regulation. Confusion on the legality of third-party payments of QHP premiums, in terms of what can and can’t be done by the provider community, is likely to continues. Given that HHS and CMS are unlikely to issue any further statements on this matter (at least for now)—and given the dearth of case law and continued legal ambiguity—we might expect, and even encourage, the provider community to compel an Office of Inspector General (OIG) opinion on this issue to force the legal precedent. It is important for provider organizations exploring third-party foundation arrangements for QHP reimbursement to have their general counsels ponder the HHS and CMS position statements. Ultimately, in the absence of explicit federal guidance, we recommend a prudent approach that balances business need against an aegis of risk management.  


Junaid Husain is vice president of finance, Cardon Outreach, The Woodlands, Texas.

Publication Date: Tuesday, November 26, 2013