In a letter to Rep. Jim McDermott dated Oct. 30, 2013, Department of Health and Human Services Secretary Kathleen Sebelius clarified that qualified health plans (“QHPs”) available on the health insurance exchanges under the Affordable Care Act (“ACA”) are not “federal health care programs.” Although Secretary Sebelius did not connect the dots, if QHPs are not federal health care programs they are not subject to the federal anti-kickback statute (“AKS”). Consequently, the Sebelius letter clears a major obstacle for hospitals and other providers who are contemplating providing premium subsidies to uninsured patients under the ACA.
The federal anti-kickback statute is a broadly worded prohibition on inducements, payments or kickbacks intended to influence the referral of items or services to be paid for by a federal health care program. The government has historically interpreted the kickback statute to prohibit giving items of value to beneficiaries of federal health care programs, including, with some exceptions, paying or subsidizing any copayment, deductible or premium obligations the beneficiary may have.
With the enactment of the ACA and the establishment of QHPs, the hospital, medical device, and pharmaceutical industries have been concerned that the language defining federal health care programs—coupled with the broad language of the anti-kickback statute—would prohibit subsidizing the premiums of the QHP enrollees under the new insurance exchanges.
The Sebelius letter, dated Oct. 30, 2013
In concluding that the AKS does not apply to exchange-related programs, Secretary Sebelius stated in the letter that:
The Department of Health and Human Services does not consider QHPs, other programs related to the Federally-facilitated Marketplace, and other programs under Title I of the Affordable care Act to be federal health care programs. This includes the State-based and Federally-facilitated Marketplaces; the cost-sharing reductions and advance payments of the premium tax credit [i.e., Exchange subsidies]; Navigators for the Federally-facilitated Marketplaces and other federally funded consumer assistance programs; consumer-oriented and operated health insurance plans [known as CO-OPs]; and the risk adjustment, reinsurance, and risk corridors programs [known as premium stabilization programs].1
Thus, under the Sebelius letter, since subsidized health insurance products under the ACA are not “federal health care programs,” the AKS will not apply to payments in connection with subsidized insurance products.
The Sebelius letter does not mean that the subsidized insurance products purchased on the exchanges are beyond federal oversight. Specifically, the letter emphasizes the substantial oversight and consumer-protection measures applicable to these products and includes a list of potential enforcement mechanisms, including:
The potential imposition of civil money penalties to non-compliance issuers that have plans in federally-facilitated exchanges;
The authority of HHS’ Office of Inspector General (“OIG”) [under to “audit, investigate, and evaluate” the programs and investigate the “affairs of an exchange,”] and;
The applicability of the False Claims Act to “payments made by through, or in connection with an exchange if the payments include federal funds.”
The Sebelius letter further states that DHHS will “continue to work closely with the OIG, [Department of Justice], the Federal Trade Commission, and state departments of insurance.” Finally, the Sebelius letter notes that state criminal or civil authorities may apply to exchange-related issues. This means that state anti-kickback laws and state unfair and deceptive acts could be interpreted to apply to QHPs and other exchange-related plans.
What does this mean for providers?
The Sebelius letter eliminates a major concern for providers who are considering subsidizing premiums for QHP enrollees. However, the road for providers is not completely clear. Among other things, providers should analyze applicable state law restrictions and evaluate non-profit tax laws when deciding whether to offer premium assistance to patients. For example, a tax exempt hospital should consider the relationship of any premium assistance to its mission and charitable purposes, and structure such assistance to avoid private benefit issues. Premium assistance provided to patients may also result in tax liabilities for the patients, and providers may be required to report each patient’s premium assistance amounts on a Form 1099-MISC.
1 Letter to Rep. Jim McDermott from Kathleen Sebelius, Secretary of the Department of Health and Human Services, October 30, 2013, http://mcdermott.house.gov/images/The%20Honorable%20Jim%20McDermott.pdf