The ultimate guide to navigating what can be a confusing topic in healthcare. Although it can sound daunting, almost everyone will have to work with a third-party payer when navigating healthcare costs. You’ve likely dealt with one without even realizing a third-party payment (TPP) is what it’s called.
Third-Party Payment Definition
In the healthcare world, your insurance provider is a wonderful example of a third-party payer.
In other words, a third-party payer is an intermediary between the healthcare provider and the patient, either public or private, that partially or fully covers the cost of a healthcare bill.
Third-party payers make it easier for patients to pay some of a healthcare bill or can even cover the entire cost. This payment is done so by an entity or individual other than the patient. Normally, the patient will be in direct contact with the third party.
Third-party payment is extremely common in healthcare nowadays due to the normally high costs. Third-party payers are either public or private.
General Types of Third-Party Payers
With a private third-party payer, the insured typically must pay a premium each month to stay covered by the plan. Sometimes, this can be required by public third-party payments as well.
Public
A common type is Medicare or Medicaid. This type is government-funded and is a program only available to those who may be elderly or disadvantaged. In this case, the government is the third party that is paying for care received by individuals under the program.
Private
An example of a private third-party payer would be your private health insurance companies, employers, or health maintenance organizations (HMOs). These are not government-funded.
Specific Types of Third-Party Payers in Healthcare
High Deductible Health Plans (HDHP)
Compared with a traditional insurance plan, this one has a higher deductible, as the name states. Per the IRS, this is defined as having a deductible of at least $1,4000 for an individual and $2,800 for a family. In terms of expenses for the individual, it cannot be more than $7,000 and $14,000 for a family per year.
One of the benefits of a high deductible health plan includes overall less expensive insurance. This type of insurance has lower premiums.
Self-Insured (or Self-Funded) Group Health Plans
This is a type of health plan in which the employer organizes to pay for health expenses. Usually, a pool or some type of system is organized so that each member can have their health care completely or partially paid for. This type of health care plan can be beneficial if an employer would like to customize their plan or save extra money as many of the hidden costs that come along with traditional insurance plans do not apply to self-insured group health plans. However, this can prove risky for many employers because they are responsible for what can be a hefty price.
Health Maintenance Organizations (or HMOs), or Managed Care
HMOs or Health Maintenance Organizations is insurance in which those that are covered usually pay an annual fee that does not change. However, patients can only choose doctors associated with the HMO except when in an emergency. This way, costs can be kept lower. There is a service area that you will need to live within to be eligible for your HMO.
Preferred Provider Organizations (or PPO’s)
This is a network of doctors and hospitals. As the name states, it is “preferred” that you choose a medical provider within the organization.
This can be a great option if you like the idea of saving money by staying within an insurance network but would like the option of being able to go outside of the network.
The difference between HMOs and PPOs is that with an HMO, you are restricted to only using the doctors within the network. Using a PPO, you can visit a doctor outside of the network, but it may cost a bit more. With PPO, you can generally choose any doctor you’d like.
What is a Real-Life Example of a Third-Party Payment?
A few examples of third-party payers are listed above. A third-party payer can be a government agency, a traditional insurance company, or simply your employer.
Instead of paying directly for the service you are provided as a normal sale would constitute, a third-party payer is usually required due to healthcare costs being high. Using a third-party payer allows patients to receive the care they need without having to worry about not being able to pay.
For example, if you get the flu and need to head to your local urgent care, you can be worry-free about the costs. You know that this provider is within your network and the costs will be covered. Although the treatment costs for the flu could amount to over $300 for the visit, the patient may only pay $25 or none of this cost at all.
Advantages of Third-Party Payments
Third-party payments benefit both the patient and the health care provider.
- They allow patients access to otherwise expensive medical care for lowered or no cost. This can help improve wellbeing and longevity.
- They make sure that medical providers are receiving adequate payment. Without third-party payments, those providers could lose money due to patients who would be unable to pay the full cost of medical expenses.
Disadvantages of Third-Party Payments
Although third-party payments allow for an incredible amount of healthcare freedom, there are many downsides.
- Healthcare providers will not receive payment for services right away.
- Added financial aid for medical costs could cause patients to accept unnecessary medical expenses for an unneeded doctor visit.
- Third-party payers can limit who a patient chooses as a provider. This can be tough for a patient especially if they are needing a specialist.
- There can be an increased environment for fraud. Costs could be increased since a third party is taking care of the fees.