On Wednesday, May 21, 2014, in a letter to American Hospital Association President Richard Umbdenstock, Health and Human Services ("HHS") Secretary Kathleen Sebelius confirmed that private, not-for-profit foundations can use properly structured premium support programs to make premium payments to Qualified Health Plans ("QHPs") on behalf of QHP enrollees.1 In this latest guidance on the issue of third-party QHP premium support payments, Secretary Sebelius reiterated that the concerns addressed in the November 4, 2013 FAQ Memo issued by the Centers for Medicare & Medicaid Services ("CMS") "would not apply to private, not-for-profit foundations" if such foundations satisfied the criteria outlined in CMS's February 7, 2014 FAQ Memo.
Based on the guidance contained in this latest letter, private, not-for-profit foundations can make premium support payments on behalf of QHP enrollees without risk of violating HHS's previous guidance related to premium support payments, provided that such premium payments are made pursuant to a properly structured premium support program that complies with the requirements outlined in CMS's February 7, 2014 FAQ Memo. In order to comply with the requirements outlined in CMS's February 7, 2014 FAQ Memo, a private, not-for-profit foundation's premium support program must, at a minimum:
Make premium support payments based on defined income criteria, not on a QHP enrollee's health status; and
Provide for premium payments and/or cost-sharing payments that cover an entire policy year.
So long as a private, not-for-profit foundation's premium support program includes these characteristics, HHS has stated that "as a general matter, such payments are not prohibited by HHS's rules."
The letter from Secretary Sebelius, and the guidance contained therein, is a response to calls for clarity from organizations representing health care providers across the country, including the American Hospital Association and the Catholic Health Association of the United States2 on whether private, not-for-profit foundations can make QHP premium support payments. The need for clarity on this issue relates to CMS's publication of its Interim Final Rule on March 19, 2014 regarding premium payments and cost-sharing payments made on behalf of QHP enrollees by the Ryan White HIV/AIDS Program, other Federal and State governmental programs and Indian tribes, tribal organizations and urban Indian organizations.3
In the Interim Final Rule, CMS did not incorporate any reference to its February 7, 2014 FAQ Memo regarding premium support payments made by private, not-for-profit foundations, while specifically citing its November 4, 2013 FAQ Memo, wherein CMS cited its perceived risk associated with premium support payments made by hospitals and health care providers and encouraged insurance companies to reject such payments. This omission led many in the industry to question whether CMS intended the Interim Final Rule to overrule the guidance offered in its February 7, 2014 FAQ Memo. While the letter from Secretary Sebelius still leaves some questions unanswered, such as: (i) what exactly is HHS referring to when it uses the term "private, not-for-profit foundations"; and (ii) why, in light of the individual mandate, considering an individual's health status would skew the risk pool if the premium/cost-sharing payments cover an entire policy year, the guidance offered therein is encouraging for health systems looking to establish a premium support program through their charitable foundation or through a local independent charity.
It is important to note that the latest letter from Secretary Sebelius does not broaden HHS's stance on hospitals and other health care providers' ability to directly make premium support or cost-sharing payments on behalf of QHP enrollees. That being said, CMS has not taken any further steps to formally prohibit such payments. On the contrary, this most recent letter arguably provides guidance supporting the position that a health system may pay a QHP enrollee's insurance premiums under a properly structured program via a related private, not-for-profit foundation. Further, in this latest letter, Secretary Sebelius did not refute the American Hospital Association's connection of hospital-affiliated charitable foundations to CMS's February 7, 2014 FAQ Memo. As such, we continue to believe that hospitals can make premium support payments as part of their charity care program if the premium support program is appropriately crafted.
Finally, in addition to the federal law considerations outlined herein, state law, and in particular state insurance laws, must be considered before implementing a premium support program. This may be particularly significant for health systems with an affiliated insurance company. If you are considering implementing such a program, we encourage you to have the program reviewed by legal counsel prior to making any premium support payments.