Surprise medical bills have received a good amount of attention recently and for good reason.
Sarah Kliff, a health policy reporter for the New York Times, has written extensively on this topic recently.
Surprise medical bills cost Americans millions each year.
After years of debate, Congress is now set to ban most of them. https://t.co/3eoeez9Ina
— Sarah Kliff (@sarahkliff) December 21, 2020
A Surprise Medical Bill is when a patient receives a direct bill for medical services because some part of their care was rendered by an out-of-network provider. Even if a patient goes to an in-network hospital or health system, it’s possible an emergency room doctor, surgeon, anesthesiologist, radiologist, or other may be out of network.
Most Surprise Bills Come From Emergency Room Visits
According to the CDC, there are 141 million visits to the emergency room every year, with 40.4 visits per 100 people. Since people are not usually planning ahead for an ER visit, like they are for elective visits, it’s unsurprising that emergency room visits generate the majority of surprise bills.
Sarah Kliff, while writing for Vox in 2018, reported on a 34-year-old man in Texas who was taken to a hospital while unconscious following a violent attack and received a $7,924 surprise bill, even though the hospital was in his insurance network. This charge was brought by the surgeon who replaced his jaw, which was broken in two places after he was admitted to the ER.
Kliff collected a number of stories from across the country in 2018 as part of a project on surprise medical bills. Unfortunately, patients are still receiving these bills, despite the nationwide focus on them. Studies on surprise bills vary in prevalence, but a 2016 study out of Stanford found that 42.8 percent of trips to the ER – more than 4 in 10 – led to patients receiving a surprise medical bill.
This would imply about 60 million surprise bills per year are sent to Americans.
Once a consumer issue has the spotlight like surprise bills today, we can expect the government to get involved. Enter the No Surprises Act of 2021.
Financial Implications of the No Surprises Act
Surprise bills cost consumers much more than in-network charges, both because out-of-network charges have higher cost-sharing requirements and also because providers charge higher amounts than the negotiated rates between plans and in-network providers. Additionally, surprise billing has upward effects on health insurance premiums and the cost of in-network care. Let’s unpack each of these separately.
Increased Cost Sharing for Out of Network (OON): plan designs call upon members to pay a greater share of their cost of care when they receive OON care, plus frequently feature a separate deductible and maximum out-of-pocket limit.
Thus, a member spends more out of their own pocket when they see an OON provider and their payments don’t get them closer to relief via their deductible or OOP max. Eliminating surprise bills will go a long way towards helping members with their out-of-pocket spending.
Providers Charge and Earn More From Surprise Bills: Findings from Biener et. al. reported in Health Affairs found that emergency room physicians recover a higher share of charges from OON care than from in-network care. This directly puts upward pressure on healthcare spending and has indirect effects via the negotiations and contracts between insurers and providers.
Consumer Costs Increase Due to the Threat of Surprise Billing: Research on private-equity healthcare acquisitions has found private equity-owned emergency care organizations increase charges for patients compared to previous billings and threaten payers with high OON bills in order to earn high fees from the carrier or force their way in-network.
By forcing a carrier to accept their higher prices to the in-network charges, private equity-backed healthcare organizations may lead to higher overall healthcare spending as carriers must either charge more premium or increase cost-sharing on members.
Potential Impact of the No Surprises Act on Healthcare Costs
The act bans balance billing, ie surprise bills, for emergency services. Rather, the rule requires that consumers pay similar cost-sharing for emergency services to their in-network benefits. Consumers must not be required to pay greater costs from an in-network facility than if they saw an in-network provider.
Critically, and this is where the leverage is being exerted by legislation to reduce healthcare costs, a provider and payer are given guidelines for how to arrive at a total cost, or else they are required to go to arbitration to work out an agreeable rate for services. The guideline is based on their state’s All-Payer Model Agreement, state law, or the Qualifying Payment Amount or QPA.
This may sound fairly complicated – basically, the payer or carrier and provider will either have a negotiated rate via an in-network agreement, or they will pay a fair rate for that service in that area (they’ll pay near the median contracted rate for the same or similar service in the same geographic area).
The Congressional Budget Office projects that the No Surprises Act would reduce both private health plan premiums by 0.5% to 1% on average and the federal deficit by $17 billion over 10 years.
On top of these estimates, we can also expect significant reductions in consumer spending via the reduction of cost-sharing for OON emergency services.
Overall, the surprise balance bill portion of the No Surprise Act should protect consumers from surprise balance bills. Time will tell how the supply-side dynamics play out as insurers, payers, and providers adjust to the new reality of out-of-network bills and how their negotiations affect total costs.