Third-Party Payment Assistance Programs: The Good, the Bad, and the Ugly

Although the number of uninsured Americans has dropped by nearly 20 million since the passage of the Affordable Care Act in 2010, plenty continue to go without coverage. In 2017, over 29 million people of all ages—nearly 1 in 10 Americans—remained uninsured, according to a report from the National Center for Health Statistics (NCHS). 

There are still problems that many Americans have accessing insurance outside of governmental support, said A Mark Fendrick, MD, director of the University of Michigan Center for Value-Based Insurance Design, and “there seems to be a political wave to decrease the role of government in enhancing insurance uptake as exemplified by the elimination of the individual mandate.” As a result, third-party payment (TPP) programs are experiencing a resurgence, he said. 

Simply put, these programs provide assistance to those who are uninsured or underinsured so that they can obtain health insurance coverage, primarily through the individual marketplace. The upside is that this form of support can make insurance more affordable for low-income consumers by paying a health plan’s premium costs that are not covered by the ACA’s tax credits. Some stakeholders, though, have voiced a variety of concerns as outside entities such as health care systems, pharmaceutical companies, and foundations have stepped in to foot the bill for third-party premiums. 

“We are increasingly looking for potential private sector solutions to the uninsured and underinsured problem,” Dr Fendrick told First Report Managed Care. “Third party premium programs are one potential solution to fill this important gap with a very nice upside, but there are very identifiable and predictable challenges” that require managed care leaders and decision makers “to really think through the various pros and cons of these TPP programs before they either get on board or reject them.”

Insurance Industry Voices Concerns 

America’s Health Insurance Plans (AHIP)—the national trade association representing the health insurance community—issued a brief in May 2018 arguing that TPP programs can raise overall health care system costs, lead to higher premiums for consumers, and destabilize the individual market.

While payments made by third-parties in the Medicare and Medicaid programs have been largely banned because of conflicts of interest that can emerge between a provider’s financial interests and the interests of the patient, AHIP argues that there has been less clarity when it comes to this form of payment within the individual marketplace.

There are a limited number of entities from which issuers must accept third-party payments, such as tribal, state, and local government programs. Insurers in the individual market have seen growth, however, in the number of payments coming from entities that they say are steering Medicare and Medicaid eligible beneficiaries into health plans sold through the ACA marketplace.

More specifically, insurers have raised concerns about dialysis providers that have involved themselves in end-stage renal disease (ESRD) patients’ coverage decisions by encouraging them to accept support from nonprofit organizations that then enroll them into marketplace plans paying higher reimbursement rates. 

AHIP points out that because many of the organizations interested in handling these payments stand to gain from the larger reimbursement amounts, it potentially puts patients’ best interests at risk. This phenomenon can also lead to a higher level of enrollment of individuals with serious health issues, which can skew the risk pool.

After noticing troubling effects on consumers and risk pools, the federal government stepped in during the summer of 2016 to adjust regulations and put an end to the practice. In an interim final rule released in December of 2016, federal authorities indicated this practice could negatively impact patients’ odds of receiving a kidney transplant, expose them to additional health care costs, and increase their risk of mid-year insurance coverage disruptions. 

That interim final rule, however, became the subject of ongoing litigation and has not yet been implemented as a result. In the meantime, a bipartisan group of 184 lawmakers wrote a letter in May 2017 requesting that the HHS revisit and roll back policy intended to curb the practice of steering patients to higher-reimbursement plans. 

They pointed out that it has enabled insurance companies to reject patients with rare diseases and chronic illnesses on the basis of financial assistance received from nonprofit organizations.  

The lawmakers called for a new rule that would allow patients to receive this form of assistance from local civic organizations, nonprofit charities, and places of worship—entities “that can serve as a safety net for those most in need” and provide access to life-saving treatment while “preventing individuals and families from experiencing financial crises, such as bankruptcy and home foreclosures.”

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Why Discounts Can Increase Costs

The concerns raised by insurers don’t stop with ESRD providers, however. AHIP also points to the growing use of prescription drug coupons and copay assistance cards funded by pharmaceutical companies as other forms of what it sees as inappropriate third-party assistance. While portrayed as consumer-friendly benefits, the insurance industry argues that these types of programs can actually increase overall costs and lead to premium price hikes as a result.

The spending impact of copay cards for prescription drugs has been analyzed by Harvard, UCLA, and Northwestern University researchers, who found that coupons increased sales of branded drugs that have generic alternatives by over 60%. This equated to a spending increase of $30 to $120 million per drug, according to the findings published last year in the American Economic Journal: Economic Policy, which amounts to as much as a $2.7 billion increase in spending for the 23 drugs studied over the course of a 5-year timeframe. 

Because brand-name drugs cost significantly more than their generic counterparts, insurance companies encourage the use of generics by offering lower copays for those drugs. Meanwhile, drug manufacturers of brand name drugs have used copay assistance to circumvent this move. While it might mean a more expensive drug costs a consumer the same amount as the generic version, it is the insurance companies that wind up footing the extra bill. This cost, in turn, may be passed along to consumers in the form of more expensive insurance premiums.

“We have a lot of very exciting change occurring in how we pay for health care in this country,” Christopher Ody, PhD, an applied microeconomist at Northwestern University’s Kellogg School of Management, and one of the study’s coauthors, said. Figuring out how to effectively accomplish that is a difficult dilemma, and what he and colleagues are flagging in their research is that it is important to create the right incentives for managed care companies so that they can be thinking about how to innovate in this space. From there, it’s all about giving them the best set of tools to work with. 

“And so we worry that these third-party assistance programs are a way of eliminating tools from the toolkit of managed care organizations that we would like them to have—tools that let them restrict the set of products that consumers can choose from and then negotiate more aggressively on pricing and quality for inclusion,” he added.

How TPP Programs Could Help

Although some have pointed out that an increase in TPP systems could upend the current status quo or lead to downsides, a brief released by The Commonwealth Fund in May indicated that support based on income level (as opposed to specific health conditions) could help improve the affordability of marketplace insurance coverage.

One of the programs studied asked beneficiaries how they would have obtained health care if not for the TPP program. Fifty-three percent responded that they would have gone uninsured, 29% said they would have bought more limited protection, and 16% felt unsure about what they would have done. Just 2% indicated that their coverage would have been unaffected.

The programs studied were funded by local hospital systems and run by independent nonprofits, and they handled the premium costs not covered by tax credits. Hospital systems reported that their funding of TPP programs reduced uncompensated costs and led to a positive financial return on investment, according to Stan Dorn, JD, senior fellow at Families USA and author of the brief. And despite initial risk pool concerns, carriers reported that TPP consumers did not present a different risk profile than other qualified health plan (QHP) members. 

Mr Dorn concluded that TPP programs could be scaled up to help larger numbers of low-income individuals obtain coverage but also believes that larger changes, such as increased premium tax credits and cost-sharing reductions, are needed to truly tackle the affordability issues at hand. 

Likewise, Dr Fendrick expressed a similar sentiment. “I think we’re going to need much more than TPP programs,” to address the concerns of the various constituencies involved and to enhance access among relatively healthy, low-income folks on a larger, national scale, he said. And yet, “we can’t let perfect get in the way of the good.”  

Given the option of either no health insurance or adequate coverage with a TPP program, he feels the latter option makes better sense despite the limitations and concerns, many of which he believes could be adequately addressed with some dialog between the key stakeholders.