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"Surprise" Out-of-Network Medical Bills Explained


medical-costs-health-careHave you overheard grumbling about health care around the water cooler lately? If so, it may be because your staff members are receiving “surprise” medical bills. A growing number of employees and their covered dependents are getting hit with charges when they inadvertently receive medical care from out-of-network providers.

State and federal policymakers are beginning to address the problem, but until universal protective measures take effect, you should learn as much as you can about the issue and start warning workers about the possibility that it could happen to them.

How Does it Happen?

How do covered employees find themselves socked with unexpected bills, often as much as several thousand dollars? In one common scenario, an employee who needs surgery arranges to have it performed at an in-network hospital by an in-network surgeon. But other members of the surgical team — for example, an anesthesiologist or surgeon’s assistant affiliated with an out-of-network medical practice — also perform services, so the employee is hit with out-of-network charges.

In another typical case, the employee has a medical emergency and is rushed to the nearest hospital — which is out-of-network. The Affordable Care Act (ACA) does provide some protection in this regard, which we’ll discuss further below, but the employee could receive bills that take them by surprise.

What’s the Cost?

The financial hit taken by employees in these situations usually comes in one of two forms:

  1. The employee’s cost sharing percentage is, for example, 40% for out-of-network services vs. 20% for in-network. Thus, the employee incurs the extra 20% of the charge.
  2. The employee’s health plan pays a negotiated fee for specific services to in-network providers, and those providers are required to accept that as full payment. That is, they cannot “balance-bill” the patient for any difference between the negotiated fee and the provider’s standard service charge. Out-of-network providers, however, face no such constraints, so they do balance-bill the patient.

A study published in Health Services Research found that, in one year, 8% of privately insured people received care by an out-of-network provider, and that 40% of the resulting medical claims were of the “surprise” variety. Another study, conducted by the New York State Department of Financial Services, found that 90% of surprise bills incurred by residents of that state weren’t for emergency services. More typically, the unexpected charges were for surgery, anesthesiology, radiology and laboratory work.

Today, New York residents are protected against such charges thanks to a state law that was possibly fueled by this study. A law that took effect there in 2015 covering insured health plans (that is, non–self-funded plans governed by ERISA, not state law) prevents recipients of emergency services from being charged any more for out-of-network care than in-network care.

For out-of-network, nonemergency, “surprise” care, patients can authorize the provider to bill their insurance plans. Then, the patient can be charged only whatever he or she would have been charged for in-network care. (The insurer and the provider are left to battle it out to determine the level of reimbursement to the provider, possibly resulting in an amount higher than that paid to in-network providers.)

Is Anything Being Done?

At least two other states have taken protective, though more limited, action. Legislation adopted in Florida earlier this year, applicable only to PPO plans, generally bars out-of-network providers from balance-billing patients.

Those providers are given a potential escape hatch, however: They can enter a voluntary dispute resolution process with the employee’s health plan to try to recoup the full amount of the charge. Under that mechanism, providers and health plans both have strong incentives to reach an agreement.

The Florida legislation was intended to strike a balance between the interests of patients and a politically powerful medical community. Although the Florida Medical Association supported it, two medical specialty groups representing anesthesiologists and radiologists opposed it.

Meanwhile, California has enacted a law, taking effect next July, that protects patients from paying out-of-network fees for “surprise” services. If the patient has agreed in advance to pay in full for out-of-network charges, he or she must do so. This creates a strong incentive for non-network providers to prevent surprises so they’ll receive full reimbursement. Other states — including Georgia, Hawaii, Missouri, New Jersey, and Pennsylvania — are grappling with the issue.

What Does the ACA Say?

At the federal level, the ACA does provide some patient protections with regard to emergency services. Nongrandfathered plans aren’t permitted to require higher co-payments for out-of-network emergency coverage or approval for seeking emergency care from non-network providers. But the ACA doesn’t prevent out-of-network service providers from balance-billing patients.

Regulations do, however, make an effort to protect employees from balance-billing. This statement is contained in the “interim final regulations” covering Section 2704 of the Public Health Service Act (as amended by the ACA):

"It would defeat the purpose of the protections in the statute if a plan or issuer paid an unreasonably low amount to a [emergency services] provider, even while limiting the coinsurance or copayment associated with that amount to in-network amounts. To avoid the circumvention of the protections of [the ACA], it is necessary that a reasonable amount be paid before a patient becomes responsible for a balance-billing amount."

States will no doubt look to this language as they consider legislative protections.

Can We Do Anything?

The bottom line for employers is that this is an evolving story. Educate your employees as much as possible about the risk of “surprise” charges, and work with your advisors to stay apprised of new developments.

Ron M. Present, CALA, CNHA, LNHAIf you have questions about out-of-network medical bills, please contact Ron Present, Partner and Health Care Industry Group Leader, at or 314.983.1358.


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