What Is a Payer?
The term payer refers to an entity that makes a payment to another entity. While the term payer generally refers to someone who pays a bill for products or services received, in the financial context, it often refers to the payer of an interest or dividend payment.
- The term payer is used to describe any entity that issues a payment to another entity.
- In the context of fixed income instruments, a payer refers to the issuer of the debt; this may be a periodic coupon or interest payments that are made to the investor.
- If you are a payer in an interest rate swap, it can be financially advantageous if you correctly predict that interest rates are going to climb.
- The government is a payer on Treasury bonds, other U.S. government bonds, municipal bonds, foreign bonds, and mortgage-backed bonds.
- Companies are payers when they pay dividends to their shareholders.
The term payer has many applications across finance. In a purchase agreement, the payer can be the person or company purchasing an item or service. The payee is the one receiving payment and often delivering that good or service. In the case of a dividend-paying stock, the payer is the issuer of the stock who is paying the investor the stock dividend.
In the case of fixed income instruments, the issuer of the debt is the payer of periodic coupon or interest payments to the investor. In the case of an interest rate swap, the payer is the party that pays a fixed interest rate throughout the life of the swap.
In addition to considering the amount of yield they receive from payers, investors should also factor in their personal tax brackets.
In return, they receive a payment based upon a floating interest rate. Being the payer in an interest rate swap can be useful if you think interest rates are going to go up. As the payer, you pay a fixed rate to the counterparty and receive from them a payment that can increase if interest rates increase. This would lead to a profitable position.
Types of Healthcare Payers
In the healthcare industry, a payer is an individual or organization that pays for the care services that an administrator provides to patients. The most common use of this term is in relation to private insurance companies that provide their clients with health insurance plans and coverage for health-related services.
Medicare spending in 2020 was $829.5 billion.
The three main types of healthcare payers are commercial, private, and government/public payers. Commercial payers are insurance companies that are publicly traded, private payers are private insurance companies, and government/public payers are government plans such as Medicaid and Medicare.
Governments as Payers
In some cases, governments are payers, with various instruments, including the following types of vehicles:
- Treasury bonds. These are issued by the federal government to finance its budget deficits. These are considered to be risk-free, and consequently, the payer offers the smallest yields.
- Other U.S. government bonds. Issued by federal agencies like Fannie Mae and Ginnie Mae, yields are higher than Treasury yields, but interest on the bonds is taxable at both the federal and state levels.
- Foreign bonds. Payers promise to pay back the principal and make fixed interest payments in another currency. Exchange rates thus tend to determine how a foreign bond fund performs; more so than interest rates.
- Mortgage-backed bonds. With a high face value of $25,000, their value drops when mortgage prepayments increase. Consequently, they don't benefit from declining interest rates, as other bonds do.
- Municipal bonds. "Munis" are issued by U.S. states and local governments, in both high-yield and investment-grade and high-yield forms.
Examples of Stock Dividend Payers
A dividend-paying stock is a stock that provides its shareholders with an income payment on each share held. Each company can have a different dividend payment period; however, most dividend stocks pay quarterly.
Apple is a stock dividend-paying company that pays its dividends every quarter. A shareholder will receive a dividend payment four times a year from Apple. The last dividend payment Apple made was on Nov. 11, 2021, in the amount of $0.22 a share.
What Is a Payer Swaption?
A payer swaption is also known as a put swaption. A put swaption on an interest rate swap allows an entity to pay a fixed interest payment and receive a floating interest payment. A put swaption is used by entities looking to benefit from an increase in interest rates whereby they would receive higher payments if rates were to go up.
What Is a Single-Payer Healthcare System?
A single-payer healthcare system is a form of universal healthcare whereby the cost of healthcare is paid by a single public entity, usually the government. Though the structure of a single-payer healthcare system can vary, it always stipulates that healthcare is provided by a public authority and not a private one.
What Is the Difference Between a Payer and a Provider?
In the healthcare industry, a payer is an entity that pays for the administration of healthcare services. An insurance company would be a prime example of a payer. A provider, on the other hand, is an entity that administers healthcare services, such as a hospital.
What Is a Third-Party Payer?
Third-party payers refer to entities that pay for medical expenses on behalf of a patient. Examples of third-party payers include insurance companies, governments, and employers.
What Does Medicare Secondary Payer Mean?
Medicare Secondary Payer (MSP) is when the Medicare program is not the primary payment responsibility, such as when another organization or entity has the responsibility of paying for medical treatment before Medicare. Medicare became the secondary provider of medical treatment in the 1980s, ensuring that healthcare costs shift first to private companies.
The Bottom Line
A payer is an individual or organization that makes payments. In finance, a payer is an entity making payments on investment products, such as bonds or dividends on stocks. In the healthcare industry, payers are the organizations providing payment for medical services.