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Surprise, Surprise

So-called “surprise medical bills” are a head-scratching phenomenon that one might expect to see in the satirical website The Onion than as part of a serious policy discussion.

Larry Levitt, MPP

Take the case of a recent report from Montana Public Radio about an air ambulance trip for a 2-year-old girl with a heart condition who had to be transported to a hospital 600 miles away. It turns out that the air ambulance company was not in the network for the family’s health insurance plan. They ended up with a bill for $56 000.

Similar surprise bills can arise in an emergency department when a treating physician is not in the plan’s network or in an elective surgery at an in-network hospital when the anesthesiologist, radiologist, or laboratory is out of network.

Expecting a patient to check whether the air ambulance is in-network before it transports her in the midst of an emergency doesn’t seem reasonable. Patients also have no way of anticipating that even when they choose an in-network hospital, some of the clinicians treating them may be out of network. Patients in these situations believe they are playing by the rules but nevertheless get hit with big bills after the fact.

Cost Sharing and Balance Billing 

The surprise bills can take two forms. One arises from the fact that a preferred provider organization (PPO) typically has higher cost sharing, such as deductibles, copays, and coinsurance, for out-of-network services. The other comes from balance billing, charges from facilities or clinicians when their prices exceed the amount that an insurer will pay for the service.

The Affordable Care Act (ACA) requires health plans (other than insurance policies that are grandfathered because they were purchased before the law passed in 2010) to charge only in-network cost sharing for emergency services. However, it does not prohibit balance billing by out-of-network physicians or facilities in emergencies or surprise bills of any kind for nonemergency services.

A recent survey from the Kaiser Family Foundation and the New York Times found that 20% of working-aged adults who are insured had problems paying medical bills in the last year and reported that out-of-network bills were a contributing factor in 32% of cases. Nearly 7 in 10 (69%) who had problems paying for out-of-network care did not know that the clinician or facility was not in their plan’s network when they received care.

Preventing these surprises for patients is seemingly straightforward: Just hold patients harmless for higher cost sharing and balance bills when they receive care in situations where they have no way of anticipating that an out-of-network provider—such as in an emergency or at an in-network facility.

But, as is often true in our complex health insurance system, it’s not quite that simple.

Who Holds the Cards?

Generally, when it comes to consumer protections in insurance, the government can simply set rules that insurers must follow. But in this case, insurers don’t hold all the cards. Surprise medical bills arise when a patient receives care from an out-of-network clinician or facility, who by definition has no contractual relationship with the insurer. Telling the insurer it has to protect the patient from such costs would obligate it to pay whatever an out-of-network clinician or facility charges.

The tricky part of addressing surprise medical bills is addressing not only what protections patients have, but also somehow mediating payment disputes between insurers and health care clinicians and facilities if patients are shielded from balance billing.

A New York law that went into effect last year takes a comprehensive approach to the problem. In state-regulated health plans—which do not include self-insured employer plans—patients are protected from higher cost sharing and balance billing in emergencies and when they inadvertently receive services from an out-of-network clinician while being treated at by an in-network facility. Out-of-network physicians can use a dispute resolution process if they believe the payment from the insurer is inadequate. The review will consider such factors as usual charges in the area, the physician’s training and experience, and the complexity of the case.

New York’s surprise medical bill law is ground-breaking, as much for its approach to resolving payment disputes between insurers and physicians as for its protection of patients. Pennsylvania’s insurance commissioner recently proposed a similar approach.

A proposed federal regulation would offer more modest protection from surprise bills, protecting patients in plans offered in the ACA’s marketplaces from higher out-of-network cost sharing, but not from balance billing. By excluding protection from balance billing, the federal proposal avoids having to enter the thicket of setting standards for how much out-of-network physicians should be paid.

From a patient’s perspective, a surprise medical bill no doubt seems completely unfair. But behind that surprise bill is a complicated set of business relationships between insurers, health facilities, and physicians that are more challenging to regulate than at first blush.

About the author: Larry Levitt, MPP, is Senior Vice President for Special Initiatives at the Kaiser Family Foundation and Senior Advisor to the President of the Foundation. Among other duties, he is Co-Executive Director of the Kaiser Initiative on Health Reform and Private Insurance.
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