Any organization, public or private, that pays or insures health or medical expenses on behalf of beneficiaries or recipients, such as commercial insurance companies, Medicare, and Medicaid. A person generally pays a premium for coverage in all such private and in some public programs. The organization then pays bills on the insured’s behalf.
These payments, called third-party payments, are distinguished by the separation between the individual receiving the service (the first party), the individual or institution providing it (the second party), and organization paying for it (the third party). Gillian I. Russell, Terminology, in FUNDAMENTALS OF HEALTH LAW 1, 42 (American Health Lawyers Association 5th ed., 2011).
Some have blamed the meteoric rise of healthcare costs on the third party payer system and argue patients should pay physicians directly instead. See Association of American Physicians and Surgeons blog post at http://www.aapsonline.org/newsoftheday/00960.