by Sandy Ahn, Jack Hoadley and Sabrina Corlette of the Center on Health Insurance Reforms, originally posted on Health Affairs Blog, March 22, 2016

President Obama’s final budget proposal was met with little fanfare, but a lot of political opposition. The President, however, put forth one legislative proposal that deserves attention. It is aimed at helping consumers who get stuck with surprise bills from out-of-network health care providers. Specifically, the proposal would protect patients from having to pay unexpected fees to out-of-network providers for services delivered while they are in an in-network hospital. Although details are sparse, the administration proposes to require hospitals to take “reasonable steps” to match patients with physicians who are in their health plan’s network, and require physicians who “regularly provide” services in hospitals to accept in-network rates.

Surprise billing can occur when an individual is unaware that they are receiving treatment from a provider that is not included in his or her health insurance plan (i.e., out-of-network). This can happen during a medical emergency, but also is not uncommon when patients are admitted to in-network hospitals for planned procedures. Some physicians who provide services to the patient (such as anesthesiologists, pathologists, or emergency room physicians) may not have contracts with the patient’s health plan even in situations when the hospital and admitting physician are in network.

Today in most states, these non-network providers are under no obligation to accept the health plan’s reimbursement and can separately bill for their services. The health plan, in turn, can decline to pay for treatment because the service was provided out of network or it can pay for a portion of the bill with an amount it determines is reasonable. Often, however, health plans and providers disagree over what is reasonable and patients get stuck in the middle because the provider bills the patient directly for the full charge or whatever balance remains after the health plan’s reimbursement. The amounts billed can often be quite large – in one case, reported by The New York Times, as large as $117,000.

States Lead the Way

Although Congress is unlikely to take up and adopt the President’s proposal during this election year, it could prompt more states to take action. As we found in a report published for the Robert Wood Johnson Foundation, some states have already taken steps to address the problem of surprise billing, but the approach and comprehensiveness of consumer protections vary.

For example, Colorado requires that a health plan hold a consumer harmless in a surprise billing situation; California and Florida prohibit balance billing in emergency situations. Balance billing occurs when insured consumers receive a bill for the difference between an insurer’s payment to the provider and the provider’s charges, excluding any applicable cost-sharing amounts. Generally, in-network providers agree to accept the insurer’s payment as payment in full with private coverage, and traditional Medicare bans balance billing in most situations. However, since out-of-network providers are under no obligation to accept a private insurer’s payment, they can bill consumers for any remaining balances. For some states, the protection is limited to providing consumers with advance notice that they may be billed for out-of-network charges. New York uses a combination of protections, including an independent dispute resolution processto help providers and plans resolve payment disputes. New York also requires health plans and providers to provide notice to consumers that they may be billed for out-of-network services.

We found no state, however, that currently requires hospitals to match their patients with physicians who are in network, as the President’s proposal would do. Nor do current state protections require providers who regularly provide services to a hospital, but are not part of a health plan’s network, to accept in-network rates. In fact, some states like Maryland that restrict balance billing generally set payment levels higher than in-network rates, although lower than billed rates.

A Delicate Balance

For any federal or state regulator, protecting consumers from surprise out-of-network bills requires a balancing act between two powerful special interests: insurers and physicians. When state rules place the burden on health plans to hold their consumers harmless, the plan often must pay whatever the physician charges. But when states place the burden on physicians by prohibiting balance billing, providers may believe they are paid less than their services are worth. The federal approach appears to tilt towards the latter – it would be providers (hospitals and physicians) who must accept lower payments to protect consumers from balance billing. Such an approach is likely to be strongly opposed by both hospital and physician provider groups.

In our research we found that few states have been able to achieve a perfect balance even when there is general agreement that consumers should be protected. Provider or insurer groups often express concerns that specific balance billing proposals will disadvantage those they represent. For example, in 2015, state proposals in California and New Jersey saw partial success in their legislatures, but they ultimately failed after facing strong opposition from provider groups. Several states are considering balance billing protections in 2016, including Florida and Pennsylvania.

The most promising state approach we reviewed was in New York, whose recently enacted balance billing legislation achieved remarkable consensus by (1) taking the patient out of the middle and (2) using an independent dispute resolution process when providers and payers cannot agree on the fee. We don’t yet know much about how that law is working as it only recently went into effect.Connecticut enacted a similar law in 2015. Although the President’s proposal is unlikely to become law this year, it could spark a useful conversation about how best to protect consumers from unexpected, often very expensive, medical bills.

Copyright ©2015 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.