Many Americans purchase health insurance under the impression that doing so will protect them from exorbitant, one-time costs associated with medical care. Insured patients pay premiums every month rather than having to worry about paying a large medical expense at once. In some instances, however, insured patients visit their doctors and receive a costly, unexpected bill. This is a consequence of the current structure of health insurance and provider networks, wherein insurers and health care providers negotiate to accept discounted payments as payments in full for services in exchange for sending patients to those providers. When patients visit out-of-network providers—those who haven’t agreed to these discounts—they can lose the benefit of their insurance. The provider may charge them the entire, nondiscounted price for a service—and insurance may not cover any of the bill.
Even when their insurance covers part of the bill, patients are often left to pay the difference between the insurer’s payment and the high, nondiscounted price that the provider charges. This practice is called balance billing—or surprise billing, when the bill is unexpected—and it’s a practice that Americans want addressed. A 2018 Kaiser Family Foundation poll found that two-thirds of Americans are worried about receiving an unexpected medical bill. Solving this problem has garnered bipartisan support, and members of Congress from both sides of the aisle have introduced legislation on the topic. Some state governments have attempted to address the issue, but federal law and state inaction has left many patients still exposed to this harm.
Federal action is necessary to protect against surprise billing
Surprise billing must be addressed at the federal level for two reasons. First, many states have not acted on the issue. Only six states have enacted comprehensive protections against surprise billing, and just 15 more have any patient protections at all. Protection from surprise billing should not depend on where a patient lives; a patient living in Tennessee or Idaho should have the same security in what they will owe as a person living in California or Maryland. Second, even if every state were to pass comprehensive reform, many people with employer-sponsored insurance would not be protected from surprise billing due to limitations to state regulation under the Employee Retirement Income Security Act (ERISA) of 1974.
The Employee Retirement Income Security Act of 1974
ERISA intended to “provide uniform, federal regulation of pensions and employee benefit plans” and implemented federal standards for a variety of employee benefit plans, including health benefits. The law establishes sweeping pre-emption language that severely limits the requirements that states may impose on self-funded or self-insured plans—plans where the employer is at risk for and pays medical claims itself, rather than an insurer. Employers with self-funded plans hire insurers as third-party administrators (TPAs) that help them set up networks, process claims, and perform other administrative functions. In most cases, employees will not know if they are enrolled in a self-funded plan or fully insured plan—under which an employer purchases insurance for its employees, and the insurer holds the risk for any costs beyond premiums. Regardless of the type of plan, an insurer may not cover or only cover part of an out-of-network bill.
There is a narrow exception to this pre-emption for state laws that regulate insurance. Under ERISA, however, neither employers offering self-insured employee benefit plans nor insurers functioning as TPAs for a self-funded plan can be considered insurers. State insurance laws therefore only apply to fully insured plans.
While fully insured employer-sponsored plans are subject to both state insurance law and federal law, self-insured plans are subject only to federal law—with only a few exceptions. The majority of Americans are enrolled in these self-insured plans, however, putting them at heightened risk of surprise billing. In 2015, the U.S. Department of Labor estimated that 136 million people were enrolled in ERISA pre-empted plans—nearly 90 percent of the 155 million people who received employer-sponsored insurance.
Federal reforms must apply to all services and providers
In addition to covering both self-insured and fully funded plans, comprehensive legislation to protect against surprise billing must address both emergency and nonemergency services. Nearly half of all medical care is provided in emergency departments, and more than 1 in 5 emergency room (ER) patients receive some form of surprise billing after their treatment. When a person seeks emergency care, the last thing on their mind is whether or not the hospital or ambulance is in-network. There is bipartisan support for addressing ER surprise billing: Of the 15 states that have passed limited surprise billing protections, 14 include protections for emergency services.
Extending protections for emergency services is not enough, however. In order to ensure that all patients—in both emergency and non-emergency situations—are entering an in-network facility, they need access to accurate and up-to-date provider directories, or lists of in-network providers. Twenty-nine states have no regulations on when a health insurer must update their provider directories, and only 6 of the remaining 21 states regulate all types of health insurers. As a result, many Americans are unable to accurately determine whether or not a hospital or clinic is in-network. These patients are doing everything possible to work with the insurance system, but even that is ineffective if they lack critical information.
Compounding this issue is that even at in-network facilities, certain providers might be out-of-network, particularly for certain specialized services such as anesthesia and radiology as well as for surgeons assisting a patient’s primary surgeon. In these instances, a facility may not have in-network providers. In Texas, for example, up to 63 percent of hospitals have no in-network ER physicians. By basing protections from balance billing on a facility’s network status rather than a provider’s, lawmakers will ensure that patients who visit in-network facilities are not penalized by circumstances outside of their control.
California is one of the leading states on this solving this issue. When the California Legislature considered legislation that would have prohibited surprise billing, the state’s Senate Committee on Health found that 63 percent of Californians assumed that providers at an in-network hospital were also in-network, despite nearly one-quarter of Californians having received a surprise bill from an in-network facility. This disparity led California to join other states in enacting comprehensive reform by prohibiting out-of-network providers at in-network facilities from surprise billing their patients.
Meaningful protection must include billing limitations and a default payment rate
Congress must ensure that any legislation to protect patients from surprise billing does not put additional burden on patients. To do this, policymakers should prohibit providers from surprise billing patients exorbitant amounts of money and establishing a default payment rate for services. While some states have implemented other policies, they fall short of protecting patients as effectively. For example, requirements that insurers hold their enrollees harmless—meaning insurers do not require patients to pay more than their copayment, coinsurance, or deductible—do not prevent providers from attempting to charge patients more than their cost-sharing. Similarly, dispute resolution processes for surprise bills require patients to be aware of the law, report their bill to the state, and wait for lengthy and expensive arbitration to occur.
Other reform efforts will be undercut if patients are not protected from receiving unaffordable surprise bills from their providers. For example, a Texas law establishes a dispute resolution process between providers and insurers for surprise bills that are more than $500. However, this protection relies on patients’ knowledge of the law’s existence. This type of law is common and allows for patients to be charged for bills that their insurers should be resolving. Without policies in place to limit the amount that an out-of-network provider can bill a patient, other protections fall flat.
An effective federal surprise billing reform must also establish a default payment rate, or a minimum amount that the insurer must pay and the provider must accept if they cannot negotiate otherwise. Without a default rate in place, surprise billing claims, even if prohibited from being charged to the patient, will go to arbitration, a process that providers prefer because it can result in higher payments by insurers and can take weeks to resolve. Previous California state legislation established a default payment rate at the greater of the average contracted rate—the discount to which insurers and in-network providers have agreed—or 125 percent of what Medicare pays, while Maryland requires between 125 percent and 140 percent of the average contracted rate. By establishing a default payment rate tied to Medicare, patients are protected from unexpected out-of-pocket costs; insurers avoid inflated health care costs that increase insurance premiums; and providers are unable to game the system by negotiating higher contracted rates to increase their surprise billing rate.
As federal policymakers weigh various proposals to protect patients from surprise billing, it is imperative that they focus on the methods that will have the greatest effect on the largest number of Americans. Existing law necessitates federal action on this issue, as most states have not enacted any protections from surprise billing, and nearly half of Americans receive insurance through plans that are not subject to state regulation. Ensuring that this legislation applies to both emergency and nonemergency services, operates at the facility level, and protects patients is essential to any comprehensive reform. Congress should approach this issue with the careful consideration it deserves and work to enact meaningful protections for patients.
Thomas Waldrop is a policy analyst for Health Policy at the Center for American Progress.