Surprise billing: the U.S. needs better definitions

While Medicare-for-All might be grabbing headlines, the health care policy debate that could have a bigger impact on consumers in the near future could be surprise billing.

State and federal lawmakers are looking at the issue, President Trump has addressed it, a group of ER doctors released a proposal in D.C. and new legislative proposals are expected later this year.

There is bipartisan support to address this issue, but efforts are hindered by how complicated it is. “Surprise billing” is an overly broad term that applies to a dozen scenarios, which makes it difficult for consumers and policymakers alike to understand what, exactly, new regulations might do.

Related: Baseball-style arbitration to settle medical bills?

Arguably, the industry needs an agreed-upon set of terms to explain surprise billing. Here are some proposed terms and definitions that might make creating, passing and implementing “surprise billing” legislation easier.

Surprise bills

This is the broadest, most general term — and one we should stop using when talking about specific legislation. A surprise bill is simply that — any bill you weren’t expecting to receive.

If a patient doesn’t understand that they are responsible for a $20 copay, that’s a surprise bill. If an unconscious patient is unknowingly treated by an out-of-network radiologist at an in-network hospital and discovers it’s not covered, that’s a surprise bill. But these are two completely separate issues in cause, cost and complexity.

Saying that a new bill would address “surprise billing” is somewhat misleading; most likely, the legislation applies to a very specific circumstance, and many consumers’ experiences with surprise bills would not be affected.

So what kind of surprise bills are there?

Cost-sharing bills

For benefits industry professionals, this one might seem like a no-brainer, but for many consumers, it’s not. Especially with the rise of high deductible health plans, many consumers are surprised to find that care covered by their insurance plan can still result in out-of-pocket costs, like copays and coinsurance.

Both in-network and out-of-network care typically involves cost-sharing, until the patient meets their deductible. For some consumers, this can result in a surprise bill.

This is particularly important for brokers, because the media often describes “balance billing” as the practice of charging patients for what insurance doesn’t cover. But that definition applies to cost-sharing, too, which is not balance billing.

Brokers should be careful to regularly explain this to employers and employees. If a broker says care at Acme Hospital is covered — in-network or out-of-network — some consumers may incorrectly infer from that statement that they won’t receive any bills.

Chargemaster bills

Another kind of surprise bill is the chargemaster, or cash pay bill, received by patients without out-of-network coverage and treated by out-of-network providers.

Let’s say the unconscious patient from our earlier example — we’ll call him Joe — has an EPO plan, which provides zero coverage for out-of-network care. He’s taken to an in-network hospital, but is treated by an out-of-network radiologist.

When his medical bills come, the radiologist’s charge is $10,000 — and insurance won’t cover it at all. Technically, this isn’t a balance billing issue; Joe is effectively uninsured with that doctor, or any provider who doesn’t contract with his plan.

Hospitals frame these types of surprise bills as coverage gaps or network adequacy issues, criticizing insurance plans that don’t cover out-of-network care. Insurers, on the other hand, take issue with hospitals that regularly align with out-of-network doctors, generally unbeknownst to patients.

This type of surprise bill is particularly tricky to legislate against. Insurers aren’t required to cover out-of-network care, and hospitals aren’t prohibited from working with out-of-network providers.

Balance billing

So what is “real” balance billing?

When a patient does have out-of-network coverage, insurance will reimburse providers for a percentage of out-of-network care.

But a patient with out-of-network coverage is typically charged the “chargemaster” rate, because their insurer doesn’t contract with that radiologist, for example.

Because there is no negotiated discount, and chargemaster prices are widely accepted to be inflated, insurers will typically contribute a percentage of what they consider to be the “usual and customary” rate for the service.

The difference in these sums — the out-of-network bill and the insurer’s portion of the “usual and customary rate” — is handed off to the patient. That is the truest definition of a “balance bill.”

From the insurer’s perspective, chargemaster prices are exaggerated and arbitrary, and hospitals are over-billing patients with private insurance. From the hospital’s perspective, “usual and customary” rates are too low, also arbitrary, and insurers are leaving patients high and dry.

This is the very specific scenario most surprise billing legislation is attempting to address.

Multiple regulations have been proposed to protect patients from this scenario, including prohibiting providers from balance billing, creating payment standards or instituting arbitration processes between carriers and providers. Some states have also passed their own balance billing laws.

But whether Congress takes up the issue on a federal level, brokers should be prepared to explain the various types of surprise bills to their clients and clients’ employees. In the complicated U.S. healthcare system, surprise bills are common — and no single piece of legislation will address the cause of them all.