One third of fully insured patients have received a balance bill in the past two years, according to one study. The majority of them ended up paying it in full, meaning they bear the cost of insurance carriers' and providers' inability to figure out what a “fair rate” means.
This huge financial burden on American families has reached crisis mode, and legislators have proposed two main solutions for protecting patients from balance bills. On the surface, these solutions may look like they protect patients, but both ultimately fail to address the core issue.
In 2015, New York passed legislation to resolve surprise billing disputes via arbitration. In this case, when a provider and insurance plan can't agree on a fair price, the two parties submit to a third-party arbiter, who decides between the two. In this way, patients are protected from directly receiving a balance bill.
But in reality, this policy suggestion is making healthcare more expensive in New York, not less. Why? Because the way its worded directs arbiters to consider the 80th percentile of billed charges for a given procedure.
“The problem is that these billed charges are based on absolutely nothing. They're made up numbers that hospitals and other providers know insurance carriers will negotiate down. This way, they can make patients feel like they have a deal (30% off sticker price) when in reality they may still be overpaying,” says Rob Saphow, President of the New Jersey Association of Health Underwriters. “Patients may not receive a surprise bill, but their healthcare costs still go up unnecessarily.”
It's worth noting that not all arbitration has to be based on billed charges, so we're not saying that the concept as a whole has no merit. But a successful arbitration solution would ultimately need to be based on the cost of providing care, not the sticker price.
With benchmarking, the rates that insurance plans pay out-of-network providers would be tied to a database of the negotiated rates generally paid for the same services. The thinking goes that because the gap between in-network and out-of-network rates are often the source of balance bills, mitigating that gap should reduce balance billing; even when they accidentally see an out-of-network provider, patients still benefit from negotiated rates.
In this way, benchmarking is the better option, because it moves the reference point from billed charges to negotiated rates, which tend to be significantly lower, Saphow says.
But perhaps you already see the flaw here: benchmarking off of negotiated rates means they’re still ultimately based on made-up sticker prices. So while benchmarking is conceptually better for consumers, both solutions leave us open to bearing unnecessarily high payment rates in the form of increasing premiums, because neither has anything to do with the actual cost of providing care.
Momentum is already building for re-attaching healthcare prices and healthcare costs. The best example of this is reference-based pricing, where health plans and providers agree in advance to a payment rate as a percentage of Medicare (the best estimation of cost we currently have). Private health plans are already implementing this all over the country, and it may be gaining traction in the public sector as well, as states like Montana and North Carolina attempt to implement it for their state health plans.
Legislators looking to address surprise billing should take note. Solutions based on billed charges may lead to a surface-level fix, but if we really want to control healthcare costs for consumers, it's critical that we promote healthcare prices that are based on actual costs.
The tech infrastructure needed to manage these unbundled plans doesn’t exist. This has created a fragmented consumer experience and delivers a fraction of potential value.