Potential Revenue Losses with Health Insurance Exchange Patients Due to Premium Payment Default

Joette Derricks, CPC, CHC, CMPE, CSSGB
Vice President of Regulatory Affairs & Research, ABC

The Affordable Care Act (ACA) was passed four years ago and there have been plenty of ups and downs regarding its rollout. Now that it appears to be here to stay, healthcare providers need to change their focus on the impact the new health insurance exchanges may have on their financial bottom line.

Individuals who buy coverage on the Marketplace and fall below certain income levels can qualify for advance payments of a premium tax credit (APTC) to help pay their premiums. As long as these individuals pay their share of the first month of premium, insurers cannot later terminate their coverage without first giving a three-month (90-day) grace period to pay. The Obama Administration saw this rule as a means to further the continuity of care for those who cannot afford premiums for certain months due to job loss or other financial constraints. Many healthcare experts see the grace period as an unacceptable loophole.

Any time these subsidized members become delinquent on their monthly premium payments, health insurers must follow certain federal rules before terminating their coverage.¹ Providers need to understand these rules, as they will directly affect your payments for services and may affect how you operate your practice. This is especially true for smaller physician groups that may not have the charity care funds or other options, such as paying the patient’s premium to help offset the potential financial loss.

Insurers have to pay claims for services rendered during the first month of the grace period. Insurers may pend claims for services rendered in the second and third months, but must continue to treat the member as eligible. If the member never pays the premium, the insurer can terminate the member’s coverage, retroactive to day 31 of the grace period. Because the member defaulted on the premium payment, any claims for services rendered in the second and third months (days 31 through 90) will be denied.

So what does this mean? Patients with unpaid claims face a tax penalty but are not charged with a rate increase, issued a repayment order or even banned from participating in another exchange. In essence, enrollees can jump from one exchange plan to the next every four months—and still receive full health coverage.

Brett Johnson, JD, MPH, MS wrote an article in an American Bar Association Newsletter that provides a table clearly illustrating the course of this grace period.².

Some insurers are releasing detailed procedures on how they plan to implement the grace period. For example, Blue Cross Blue Shield of Arizona (BCBSAZ), in their January 2014 Volume 4 Issue 1 newsletter regarding network updates, offered the following summary:³

• The three-month grace period applies only to individuals who are:
• Enrolled in a Qualified Health Plan through the Marketplace;
• Are receiving a federal subsidy-APTC; AND
• Have paid their share of the first month of premium.
• If a member meets the criteria above, BCBSAZ must give the member a three-month grace period to cure any default in premium payments.
• During the grace period, BCBSAZ cannot terminate coverage for non-payment of premium. The member will show as “eligible” for electronic and phone inquiries about eligibility. BCBSAZ will, however, send notification letters to providers who submit claims for services for individuals who are in the second and third months of the grace period.
• BCBSAZ will process precertification requests in normal timelines, but will notify providers, as described above, when members are in their grace period.
• BCBSAZ will pay all appropriate claims for services rendered to a member during the first month of the grace period.
• BCBSAZ will pend all nonpharmacy claims for services rendered to a member in the second and third months of the grace period.
• BCBSAZ is allowed to, and will, deny pharmacy claims during the second and third months of the grace period.
• BCBSAZ will send notification letters to providers submitting claims for services to individuals who are in the second and third months of the grace period. The notification letter will indicate:
• The claim has been pended because the subsidized member is in the second or third month of the 90-day grace period; and
• Claim(s) may be denied if the subsidized member exhausts the 90- day grace period without paying all outstanding premiums.

• If the member cures the premium default, BCBSAZ will process the claims in accordance with the member’s benefit plan and all normal claims-handling procedures.
• If the member does not cure the default by the end of the grace period, BCBSAZ will terminate the member’s coverage retroactive to day 31 of the grace period and deny all claims for services rendered in the second and third months.
• BCBSAZ will process grievances and appeals as required by law. This may result in BCBSAZ asking for medical records for cases for members who ultimately are not eligible. BCBSAZ will work with providers to try to minimize unnecessary work and records requests.

The grace period loophole could take a serious toll on provider collections. Physicians may be left with payment for a patient’s treatment during months two and three of the grace period not covered and effectively not collectible.

How much will this impact physician practice finances? Early numbers indicate between 15 and 30 percent of enrollees may default on their premium payments.

“This thing is working,” President Obama said on April 17, 2014, at the White House, where he announced that more than eight million Americans had signed up for enrollment.⁴ The potential impact of the grace period loophole became apparent last month when Aetna reported that out of 720,000 sign-ups, only about 580,000 were paid up by May 20—a payment rate of only 80.6 percent.⁵ That would leave Aetna’s paid enrollment down as much as 30 percent from that May sign-up tally.

It is not clear how representative Aetna’s experience is of broader exchange trends, or whether its projection may be too conservative. Other major insurers were still gathering the data. Some states, such as Washington, indicated about a $10,000 drop in premiums in a two month period.⁶

An estimate released by the Blue Cross Blue Shield Association, reflecting enrollment activity among 35 Blue Cross Blue Shield plans in 47 of the 50 states, including plans sold by WellPoint Inc., from October 2013 through February 2014, showed that premium payments were received from 80 to 85 percent of its new Obamacare health insurance enrollees.⁷

The gap between the sign-ups and the number of current premium-paying customers reflects both those who never sent in a first payment and those who stopped paying for any number of reasons. Finances may have been stretched too far, and some may have gotten fed up with high deductibles, while others could have switched plans so they wouldn’t have to switch doctors. Still others may have found a job that came with health benefits, or others lost income and qualified for Medicaid.

In support of adequate notification to health care providers, the American Medical Association’s (AMA) House of Delegates adopted a new policy calling upon insurers to inform physicians when their patients enter the grace period. Insurers that do not notify physicians would face a binding eligibility determination that would make them responsible for claims made during the grace period. The AMA noted that insurers are already capable of giving doctors real-time verification of eligibility, co-payments, deductible information and claims processing status.

The American Hospital Association (AHA) is also researching strategies for dealing with the grace period loophole. Because plans offered on the new health insurance exchanges are not federal healthcare programs, the Anti-Kickback Statute (AKS) and other federal enforcement statutes do not apply, according to a legal advisory issued by the American Hospital Association.

In an Oct. 30, 2013 letter to Rep. Jim McDermott (D-Wash.), United States Department of Health and Human Services (HHS) Secretary Kathleen Sebelius confirmed plans purchased on the exchanges established by the ACA are not federal healthcare programs and therefore are not covered by the Anti-Kickback Statute. Additionally, the ACA allows a third party to pay the premium on an exchange plan.

This should mean hospitals and health systems can supplement the insurance premiums for patients as they see fit. However, in a Nov. 4, 2013 Q&A, HHS expressed concerns these payments could create an uneven playing field in the market and declared that the Department “discourages this practice and encourages issuers to reject such third party payments.” Additionally, HHS “intends to monitor this practice and to take appropriate action, if necessary.”⁸

According to the AHA brief, HHS cannot currently take legal action against payments of this nature without rulemaking, as it has already declared ACA plans to be separate from federal healthcare programs and not subject to the Anti-Kickback Statute or similar laws. The brief states: “While it undoubtedly was intended to have a chilling effect on the willingness of hospitals to provide insurance subsidies for individuals in need, the Q&A appears to have no legal force or effect on hospitals (or insurers) and to be unenforceable.”⁹ Even if HHS decided to pursue rulemaking, AHA doubts HHS has the authority to enforce a ban on healthcare providers helping their patients afford ACA premiums.

In short, hospitals and some physician groups may see it as a viable option to pay the patient’s premium for a few months in order to recoup a significantly larger reimbursement for the care rendered. Like many other provisions of the ACA, the final decision on whether healthcare providers will be able to make the patient’s payments may rest with the court system.

¹ 45 C.F.R. § 156.270(d)
² http://www.americanbar.org/content/newsletter/publications/aba_health_esource_home/aba_health_law_esource_1308_johnson.html
³ http://bluesletteronline.com/volume4-issue1/network-updates/aca-three-month-grace-period-for-delinquent-premiums/
⁴ http://www.whitehouse.gov/blog/2014/04/17/president-obama-8-million-people-have-signed-private-health-coverage
⁵ http://acasignups.net/14/07/09/which-investors-business-daily-completely-mangles-my-data
⁶ http://www.insurance.wa.gov/about-oic/news-media/news-releases/2014/6-12-2014.html
⁷ http://www.reuters.com/article/2014/04/02/usa-healthcare-payments-idUSL1N0MU1YP20140402
⁸ https://www.federalregister.gov/articles/2014/03/19/2014-06031/patient-protection-and-affordable-care-act-third-party-payment-of-qualified-health-plan-premiums
⁹ http://www.ahanews.com/ahanews/jsp/display.jsp?dcrpath=AHANEWS/AHANewsNowArticle/data/ann_081513_graceperiod

Joette Derricks, CPC, CHC, CMPE, CSSGB serves as Vice President of Regulatory Affairs and Research for ABC. She has 30+ years of healthcare financial management and business experience. She is a member of MGMA, HCCA, AAPC and other associations and a regular speaker at practice management conferences. She can be reached at Joette.Derricks@AnesthesiaLLC.com.