Health plan efforts to trim out-of-plan bills can be costly for employers

April 24, 2024

The New York Times reported earlier this month that health plans using fee schedules provided by a third party company dramatically cut provider fees for out-of-plan providers, which did not have contractual agreements to prevent balance billing members. This has led to members being charged enormous balance bills by providers. At the same time, employers are being charged very high fees by the carriers and the third party company to obtain this ‘discount.’ This increases employer medical costs without increasing payment to providers while sticking members with higher costs.

Here is an example highlighted in the New York Times article for a substance abuse service.

Source: Hamby, C NYTimes April 7, 2024 LINK

And here is a breakdown of this

The provider charge referenced here was likely wildly out of line, with a billed fee almost 15 times higher than the allowable amount in the schedule. The carrier charged a fee of 35% of the discount, and the third party company charged a fee of 9% of the discount. Therefore, the employer sponsored health plan got only a 52% discount, and the total cost that was incurred by the employer and the member combined was 21 times the allowable amount. The carrier was paid about 5 times the provider, and the third party company was paid 24% more than the provider.

High provider prices are the largest reason that US health care costs exceed the costs of other developed countries. Health plans play a central role in assuring appropriate payments for services delivered for patients, and we absolutely need medical carriers to cut too-high prices down to a reasonable size. However, this article highlights how medical carriers charge employers enormous fees to provide a service that may raise the total cost of medical care and leave patients with large balance bills.

The predecessor of the third party company mentioned in the article negotiated rates with providers and sold network access, which included prohibitions against balance billing. Balance billing is charging the patient for the balance of the bill that the health plan does not pay.

According to the article, the company apparently changed its business model sometime after 2006, and now publishes a proprietary (and low) fee schedule and takes a share of “discount.”  This approach encourages sky-high provider bills, as high billed amounts lead to higher payments to the carrier and the third party company, and lead to higher patient liability to providers, which write off only a portion of the balance bills. The No Surprises Act prohibits balance bills for only emergency services and hospital-based physicians (emergency medicine, anesthesiology, pathology and radiology), so members are really “on the hook” for these high charges.

Carriers should have a meaningful financial incentive to get deeper discounts for plan sponsors. However, this system of paying carriers and a technology firm far more than the provider and leaving plan members with unbearably high bills is making health care more unaffordable for patients and more expensive for employer plan sponsors.

Some context I would add to this article.

• Exceptionally high prices from medical providers are the root of this problem. If the out-of-plan providers billed reasonable rates, this “shared savings” issue would be far smaller.

• This report emphasized the balance bill liability for patients, and did not focus on the high total amount being paid by plans for these out of plan services.  Higher plan costs mean future higher premiums or higher out-of-pocket costs for plan members.

Implications for employers

• Employers should require full fee disclosure from their carriers, including fees like this that may be reported as part of medical claims.

• Carrier contracts can include caps for ‘shared savings’ fees. These limits can be in the aggregate (for instance no more than a certain amount per calendar year) or per claim.

• Complete claims reporting to data warehouses can help identify excess administrative fees that are framed as medical claims. Some medical carriers seek to limit which fields are reported.

• State regulators can address this issue for only fully insured plans; federal regulations would be required to address this issue for self-insured plans, which cover about two-thirds of those with employer-sponsored health insurance.

Thanks for reading.  You can find previous posts in the Employer Coverage archive

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