Surprise billing is one of few pressing legislative concerns discussed by both parties in the US, and it makes sense. As much as one in five Americans receiving emergency care will get at least one surprise bill from an out-of-network doctor. Because insurers tend to cover less of the costs of out-of-network providers, it leaves many on the hook for thousands of dollars.

This direct and confusing financial pressure likely explains political pressure to parties throughout state and federal constituencies. However, the phenomenon of surprise billing is indicative of deeper misalignment in the incentives between health insurers and doctors, which ends up affecting patients in the crossfire.

No Surprises Act Implementation: What to Expect in 2022 | KFF — Source: Kaiser Family Foundation

Billing and Networks

Healthcare providers tend to get reimbursed by health insurers, hence insurers are often called payers in policy contexts. After treating a patient, the provider usually bills the insurer with the services provided, and the insurer pays back the provider accordingly. The price of these services are set by negotiations between the payer and the healthcare provider.

Typically, an insurer will target their negotiations to cover a variety of specialties across a geographic region. For services that many patients will be using, the payer can negotiate lower charges from providers, but for low-volume services, providers tend to have the upper hand.

The providers with which the insurer has negotiated prices with make up the provider network that a health plan member can receive healthcare in. To encourage patients to take advantage of the lower cost of medical services within the network, insurers have lower deductibles, co-pays, and co-insurance for medical services from providers in network. Some plans may help cover some out-of-network costs, but the member is usually left with a higher out-of-pocket balance.

Market Failures

Surprise billing is often discussed in the context of a market failure caused by local monopolies of providers. It’s very unlikely that in the event of an emergency, a patient can take the time to choose a provider who is in-network. Once admitted to a hospital, there may be several out-of-network doctors providing care for a patient such as anesthesiologists and radiologists.

The market failure comes from the inability of a patient to choose whether to get care from these out-of-network providers. Even if the patient knows that these doctors are out-of-network, the potential loss of physical well-being can be too steep to say no.

This lack of an ability to control whether a patient sees an out-of-network provider makes emergency care particularly expensive for health insurers. That’s why a key metric for many health plans is how much a member gets hospitalized unnecessarily — the small cost of diagnostic and preventative services saves a great deal of pain down the road.

Many healthcare organizations are also aware of this lack of options and may jack up the amount billed to the insurer. The insurer, already trying to reduce medical costs on out-of-network providers, often does not cover as much of the bill which is passed onto the patient in a surprise bill.

The NSA (not the national security one)

The No Surprises Act (NSA) passed Congress as part of a spending bill in 2021. A similar bill nearly passed in 2019, but opposition from providers and private equity firms owning them killed the effort.

There are two primary means that state governments have previously sought to control surprise billing. At the core of surprise billing reform is a need to pay for out-of-network providers who have been known to overcharge insurers who themselves are offloading a larger share of that cost to the health plan member. As it turns out, capping the amount a patient may have to pay or outright banning any extra balance to the patient is the easy part.

Almost half of all states already had their own laws attempting to resolve these disputes which end up causing surprise billing, following two main strategies.

The first approach sets the prices that out-of-network prices such as by tying them to what Medicare would pay. This prevents overcharging by the provider and makes the bill more manageable for the patient. However, price-setting is a politically risky policy to take and for many could face intense lobbyist pressure.

The alternative which many states adopted was defining a process for insurers and providers to work out the payment disputes with the intent of resolving the difference and avoiding the need of the patient to pay what the insurer refuses to.

There were multiple limitations of these laws at the state level. In some states, only a portion of emergency medical services’ bills fell under these restrictions. A federal law ERISA, which has defined the nature of health plans for employer self-funded health plans, also made many employer-sponsored plans exempt from these state-level rules on resolving disputes with providers.

The NSA takes a slightly more aggressive approach than many states and fills many of the gaps in which providers and plans are required to comply.

Instead of directly billing the patient for applicable surprise medical services, providers must identify the patient’s insurer and send a the bill to the insurer. The insurer must then let the provider know of the amount a patient would normally pay if they were in-network. After being paid by the insurer, the provider cannot charge the patient directly more than what they otherwise would pay if the emergency care was received in-network.

Not Quite There

This is still more complicated than is ideal. At the end of the day, the NSA is a law arguably more complex than the original cause of surprise bills. It relies heavily on a coordination of state and federal-level enforcement, and the procedure laid out for providers and insurers to handle their dispute requires back-and-forth communication. In healthcare, that means days or weeks before a patient even hears about an incoming bill.

Most people already struggle to understand their health plan, so even the insurer’s explanation of benefits is likely to still cause confusion. To put a cherry on top of that, enforcement depends on patient complaints, which requires the patient to know the law and what bills are unallowed.

It’s clear that the work is not yet finished. Regulators have a daunting challenge of crafting a long-term solution to ensuring that people can get emergency care anywhere in the country. Providers, in the face of threats to cutting Medicare’s reimbursements for medical services, are eager to fight tooth and nail against measures to set maximum prices for patients getting care out-of-network. On the other hand, payers are going to keep fighting for ways to curb medical costs by limiting patient usage of medical services.

Understanding Healthcare

How Emergency Care is Designed to Surprise