Surprise Medical Billing Update

by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.

CBO Says: An Arbitration Process Does NOT Produce Savings, Rather It Costs Money

As I have always told you, what CBO says…goes…period, end-of-story. Sure, supporters of an arbitration process can criticize CBO, and argue that CBO got it all wrong. BUT, they are wasting their breath. Members of Congress are bound by CBO’s estimates when legislating. Why? Because CBO’s estimates dictate whether a particular legislative proposal increases or decreases the deficit. If CBO says that your legislative proposal increases the deficit, you CANNOT do anything about it…except complain.
- Analysis: But let me back up a second to say this: As I have explained in prior updates, CBO has estimated that requiring insurers and employer plans to pay providers the excess of a “balance bill” at a rate equal to the median negotiated price for the medical service rendered in the geographic area will produce $20 to $25 billion in savings. As I have also explained, that is a TON of money that Republican and Democratic Leadership can use to offset other legislative priorities. Importantly, members of the Senate HELP Committee are relying on this $20 to $25 billion in savings to pay for the extension and expansion of various public health programs in the HELP Committee’s “Lowering Health Care Costs Act.” Now let’s revert back to current events: CBO just announced that an arbitration process – a process that looks a lot like New York State’s surprise medical billing law – will actually cause the government to LOSE money. CBO suggests the cost could be as high as $15 billion. I am not good at math (that is why I went to law school), but that is a $35 to $40 billion swing from (1) saving money under the “benchmark” rate proposal to (2) losing money under an arbitration process proposal. As Ron Burgundy would say, that is kind of BIG deal. In my opinion, this is NOT good for proponents of an arbitration process. As I always tell you, there are NO absolutes in this town, soooo, I CANNOT say that CBO just killed the arbitration process idea. BUT – to me – CBO just put the arbitration process idea on life-support. What I mean is this: As I have told you, early on, insurers and employer plans were winning the argument that a “benchmark” rate is the way to go. BUT, the providers ramped up their lobbying efforts and advertising spending, and the providers successfully convinced a majority of the members on the House Energy & Commerce, Ways & Means, and Education & the Workforce Committees – along with some Senate HELP Committee members – that a “benchmark” rate was unfair, and that an arbitration process was a better solution to the surprise billing problem. The providers pointed to State laws like New York, and they argued that the arbitration process prescribed by the New York State law was good policy. It worked, as the providers started winning. BUT NOW, I cannot see how members who were initially for a “benchmark” rate – but then convinced that arbitration is a fairer process for providers – can continue to support an arbitration proposal. Initially, these members didn’t really have a good excuse for pushing back on arbitration, so these members essentially succumbed to the lobbying and advertising pressure. BUT NOW, CBO just gave these members a wild card to play, and that wild card is the cost of an arbitration process (which – at double-digit billions – is significant). BTW, I am truly on the edge of my seat as I continue to watch the debate on surprise medical billing play-out. I will be curious to see how members and staff react to CBO’s bomb-shell here. Importantly, sympathy for home-State hospitals remains. BUT, I believe the argument that an arbitration process is the best solution for surprise billing – especially for the out-of-network providers who opt against going in-network – has more-or-less been crushed.

Employer Update

Kaiser Family Foundation Says: The Cost of Employer Plans Went Up By 5% Last Year, Resulting In an Average Cost of $20,000+ for a Family Plan

Kaiser Family Foundation’s annual survey of employer health plans always gets headlines. This year is no different. There is one headline that stuck out to me. Axios’s short summation of the survey starts with the following: “The Silent Decline of the Employer Market.” I am currently struggling with what to make of this headline.
- Analysis: One reaction to the headline is a negative one. That is, the reader reads the headline and goes: “Yah, the employer-sponsored system stinks.” Then without really knowing why, the reader may think to themselves: “Well, a government-run system would probably be better. After all, those evil, money-grubbing, profiteering employers should not be in the health care game to begin with. The government can surely take better care of me.” Another reaction to the headline is this: “Yah, I can see how the employer market is shrinking. This is because both employers and employees are having a difficult time paying for the ever-increasing cost of health care. After all, wages are not increasing because employers are using those wages to pay for non-taxable health benefits that get more expensive every year. To keep premium increases relatively low (at like 5% year-over-year), employers have to increase the deductibles and co-pays, essentially shifting the ever-increasing cost of health care onto their employees. Otherwise, the premium increases would be closer to 7% to 10% to 13%.” This reader may then say to themselves: “Would a government-run system produce better results for workers?” In my opinion, the question is NOT whether a government-run system is better than the employer-sponsored system – RATHER – the question is: How can we control the ever-increasing cost of health care? Think about, the ever-increasing cost of health care is the reason why deductibles have increased by 162% since 2009. And the ever-increasing cost of health care is the reason why wages have generally been stagnant over the past decade. Also, think about this: Let’s say you support a government-run system over the employer-sponsored system. Aren’t you going to have the same problem the employer-sponsored system faces? That is, if health care costs continue to go up-and-up, aren’t you also going to have to do things like shift costs onto your participants under a government-run system? I would argue that under a government-run system, you may NOT be cost-shifting directly onto the participant from a health care perspective – but rather – you are going to raise taxes on certain participants. Yes, lower-income participants probably won’t see their taxes go up, so these participants will still be better off than under the current system (i.e., these participants will be paying very little if anything for their health care, and they also won’t be forced to fund the government-run system through additional taxes). BUT, what about middle-income participants? Some of them – but maybe not all of them – are likely going to be worse off. And if higher-income participants are the losers, then does the economy take a hit, thereby impacting ALL participants at ALL income levels? Admittedly, we have never had a full-blown government-run health care system, so we really don’t know the extent of the economic impact. BUT, a lot of smart economists – even left-leaning economists – will tell you that the economy will likely take a hit (which impacts things like jobs and retirement savings). Under a government-run system, taxes will also be imposed on employers. There is ZERO chance that supporters of a government-run system are going to let employers off-load one of their largest liabilities – a.k.a. paying for health benefits – without clawing back most or all of the money these employers are currently paying for their employees’ health benefits. Regardless of whether people think the employer-sponsored system is good or whether they think it stinks, aren’t we overlooking the elephant in the room? I mean – at the end of the day – don’t we have a health care provider problem? I mean, if we want to control the ever-increasing cost of health care, don’t we need to control what health care providers are charging? And when I say “health care providers,” I do NOT just means hospitals, physicians, and specialists. I mean the prescription drug industry – and other related sectors of the health care industry – as well.

Government-Run Price Controls Versus Value-Based Care

Proponents of a government-run system will tell you that they can solve the “health care provider” problem. How? Through “prices controls.” This way, you control the amount of money health care providers can charge, and thus, control the ever-increasing cost of health care by defining how much health care costs can go up each year. On-paper, I would agree. BUT, I also believe that we live in a country where a government-run system with price controls will never happen (at least it won’t happen until we are forced to accept government price controls, which could happen a couple of decades from now). But in the meantime, what’s the answer?
- Analysis: As you know, I am a proponent of a value-based health care system. As I have explained in prior updates, I believe that a private-based, value-based health care system can place downward pressure on health care costs. Admittedly, value-based care will NOT be as effective as government price controls. But again, price controls are NOT in the DNA of our country, so unless we want to stave-off prices controls from ever coming to fruition, incorporating value-based care strategies into our health care system is a MUST-DO. This will require the health care providers to take a hair-cut. Hospitals, physicians, and specialists will have to stop getting over-paid, not only in surprise medical billing situations, but in most other contexts. Make no mistake, I am NOT saying hospitals, physicians, and specialists shouldn’t get paid well for their services. They SHOULD get paid well. BUT, those payments must be “reasonable,” as opposed to the “unreasonable” amounts some providers are currently getting paid in certain scenarios. Health care providers will also have to take on more risk of losing money if the quality of their health care services is poor. Look, we are a country built on risk-and-reward. And, I – and others – believe that some concept of risk-and-reward must be incorporated into our health care system. Admittedly, I do NOT specifically know how “quality” should be defined. HOWEVER, I believe that the employer-sponsored system has an ample amount of evidence of what should – and could – be considered “quality” care, especially in the self-insured marketplace. A number of private organizations out there have done some great work on developing a fair and uniform definition of “quality” (e.g., the Pacific Business Group on Health, and there are others). In my opinion, HHS and Congress should codify these private-sector definitions of “quality” into the statute or regulations. If you need to build in geographic variations of what “quality” may mean in different parts of the country, so be it. The prescription drug industry also has to fall-in-line. Drug manufacturers need to be incentivized – or mandated – to enter into more value-based contracts (i.e., risk-sharing/outcome-based contracts). Drug manufacturers also have to penalized for doing things like re-designating a particular prescription drug as an “orphan drug” and then jacking up the price by 600%.

Capping Out-of-Pocket Costs for Lower-Income Individuals

Here is another thing Congress and the current (and future) Administration should consider: Placing some sort of caps on out-of-pocket costs. Now, some of my friends are falling out of their chair right now. How can I suggest such a thing? Isn’t this idea simply price controls??
- Analysis: Here is my response: The status quo is unsustainable. If we continue on our current trajectory, we will see a government-run system at some point (maybe decades from now, but the possibility is real). So – I say – if you care about ensuring that our health care system continues to be a private market-based system, then something-has-got-to-give. For example, employers CANNOT continue to cost-shift costs onto their employees. Especially lower-income employees. Also, it does NOT appear that the theory behind high-deductible health plans (HDHPs) – and the notion that employees will become better consumers of health care if they are exposed to the true cost of care – has worked the way HDHP purists had thought. Look, I don’t blame the HDHP purists for thinking that having more “skin in the game” would produce positive results. I definitely bought into this theory. Where I think the real blame lies is with our current health care system. What I mean is, our health care system remains so opaque, and it is difficult to navigate. There have been a number of venture capital-backed start-ups that have tried to solve the rubik’s cube of making health care costs more transparent – BUT – they still haven’t really figured out how best to help consumers effectively shop for medical services based on cost and quality. The current Administration is trying to pull-back-the-curtain on health care costs by requiring, for example, hospitals to disclose their negotiated rates. BUT, this proposal is vehemently opposed by the hospital community – as well as insurance companies – so it is easy to question whether forcing hospitals to disclose their negotiated rates will ever become a reality. Soooo, that leaves us is in a difficult spot, doesn’t it?!? That is why I am suggesting that we consider capping out-of-pocket costs as an alternative. Please note, I am NOT suggesting that we cap out-of-pocket costs for everyone. I am suggesting that we target low- and middle-income individuals for these caps. I am also suggesting that we come up with arbitrary dollar limits for these caps (maybe $2,000 for single and $5,000 for family coverage). Now, the government has to come up with a way to pay for these caps. That is, you can’t just say the deductible can ONLY be $2,000 for single and $5,000 for family coverage, and then ask the insurance carriers and self-insured plans to eat the cost. The government CANNOT also allow the carriers and self-insured plans to jack-up the premiums to pay for these lower deductibles. That would defeat the purpose of trying to protect low- to middle-income people from out-of-pocket costs for health care. In addition, the government CANNOT just throw money at the problem. That is, the government CANNOT allow health care providers to continue to charge unreasonable amounts, which is contributing to the ever-increasing cost of health care and the out-of-pocket cost problem. Based on all of that, here is my suggestion: Tie the caps on the out-of-pocket expenses to a health plan that has a value-based care design (e.g., a plan the varies cost-sharing based on whether the medical service is a “high-value” or “low-value” service). Also, in order to take advantage of the caps, a consumer can ONLY enroll in a health plan that contracts with a health care provider that meets certain “quality” metrics defined in the statute (or defined by HHS). Here is another idea: You could establish an HRA, or an HSA, or whatever name you want to give to a personal account (maybe the “cost-sharing account” (CSA)), which could be funded with government dollars that low- and middle-income consumers could use to pay for their out-of-pocket expenses. You could also incentivize private-sector companies that currently administer account-based plans for employers to agree to administer the HRA/HSA/CSA and substantiate that the health claim that is being paid through this account is a Code section 213(d) medical expense. Such an incentive could be a tax credit or some other tax benefit. This idea will also cost money. So, you are going to need legislative proposals like limiting surprise medical bills to a “benchmark” rate – plus a BUNCH of other savings from other parts of the health care system – to pay for what I believe is something that will certainly help low- to middle-income consumers, and will potentially lower costs by promoting the use of value-based care strategies.

Employees Buying Into a “Public Option” Plan

Axios had another very interesting headline and article the other day: “How a Public Option Could Benefit Employees.” The short article goes on to explain that Democratic Presidential Candidates Biden and Buttigieg would allow workers to forego their employer plan and purchase coverage under a “public option,” where premium payments for the “public option” coverage CANNOT exceed 8.5% of the worker’s income. In addition, government subsidies that may be used to buy into the “public option” would be more generous because they would be pegged to the cost of a “gold” plan as opposed to a “silver” plan.
- Analysis: Here is why this is a problem for employers: If employees have the ability to “opt out” of their employer plan – and then go to the “individual” market and buy into the “public option” – this could lead to some serious adverse selection for the employer plan. How? Well, many lower-income employees are young (i.e., young individuals who are entering the workforce for the first time). If these younger/healthier lives “opt out” of the employer’s risk pool, this will leave older workers who typically use a lot of health care. And, the younger/healthier workers won’t be in the risk pool to offset the health risks of these older workers. If you think $20,000+ for a family plan is BAD, just think of what the plan would cost if younger/healthier workers have the ability to “opt out” of their employer plan. In my opinion, proponents of Candidates Biden’s and Buttigieg’s proposal don’t really care about adverse selection in employer plans. Yes, maybe they will be sympathetic to the short-term pain that employers – and older workers – would experience as more and more younger/healthier – and even middle-aged – workers “opt out” of their employer plan for the “public option.” But in the end, these proponents want every worker to buy into the “public option,” and they would be happy to see the employer-sponsored system continue to shrink…and shrink…and shrink…into oblivion. Here is another problem for employers: As the reimbursement rates for the “public option” move closer to Medicare reimbursement rates – and as hospitals and providers really start feeling the pain of receiving reimbursements that are lower than private insurance rates – employer plans will start feeling the pain too as hospitals and providers cost-shift more and more on to employers. Proponents of a “public option” and Medicare-for-All argue that there will be NO “cost-shift” from providers to employers, but I – and many others – believe it will be a reality. Soooo, if you couple the adverse selection with even a marginal amount of a “cost-shift,” you are going to see employer plans cost WAAYYY more than $20,000+. Last couple of comments: Interestingly, the Trump Administration is also allowing employees to purchase an “individual” market plan on their own. With a government subsidy no less! BUT, the difference here is that the Trump Administration is allowing employees to purchase an existing ACA-compliant “individual” market plan, NOT a “public option” plan. AND, the government subsidy is a tax preference, NOT a full-blown government subsidy that directly pays for the health coverage. How is the Trump Administration allowing this? Answer: Through the final HRA regulations. Here is another VERY BIG difference between the final HRA regulations and Candidates Biden’s and Buttigieg’s proposal. The Trump Administration realized that if an employee could “opt out” of the employer plan and purchase an ACA-compliant “individual” market plan on a tax-free basis, this would lead to adverse selection. Soooo, to ameliorate any potential adverse selection, the final HRA regulations require an employer to CHOOSE between (1) offering an employer plan (i.e., a “group health plan”) OR (2) offering the HRA contribution to purchase an “individual” market plan (i.e., an “individual market HRA”). If an employer CHOOSES to offer its employees a “group health plan,” an employee CANNOT get a tax preference to purchase an “individual” market plan. This eliminates any incentive to “opt out” of the employer plan to purchase an “individual” market plan, thus eliminating adverse selection. As described above, this is NOT how Candidates Biden’s and Buttigieg’s proposal would work.