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The No Surprises Act has been hailed as a major bipartisan reform aiming to eliminate most surprise out-of-network bills.

For years, Americans had expected their insurance to shield them from high medical costs and cap their out-of-pocket payments at modest levels. Yet many received unexpected bills for medical services at unregulated prices when they accidentally chose out-of-network caregivers or lacked safe in-network options.

The No Surprises Act sought to solve that problem. But neither the legislation nor the recently published final regulations address the endemic flaws in private insurance that give rise to surprise bills: high out-of-pocket costs and restricted choice of caregivers. The act is a Band-Aid that’s too small to cover a large wound.

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The struggles over surprise billing reveal how those two flaws, coupled with the lack of durable political deals between payers and caregivers, have generated burdensome financial problems whose complex solutions are themselves difficult to implement effectively.

Surprise bills are a predictable product of the two main tools American insurers use to try to control their costs: narrow caregiver networks, which are used to negotiate lower prices; and high patient co-payments, which are intended to reduce patients’ use of services, especially those from higher price out-of-network caregivers. These tools fail to contain U.S. health spending.

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Narrow caregiver networks and high out-of-pocket costs are rare in other high-income democracies because payers instead devise effective cost controls such as negotiated capped fees for self-employed physicians, salaries for hospital physicians, hospital budgets, and annual spending caps.

Narrow networks cause more people to receive out-of-network bills, which insurers do not pay. Nearly 60% of Americans had received a surprise medical bill by 2018, according to a NORC survey. Media stories exposed this dark side of American health insurance, sparking demands for reform. By 2020, 33 states had regulated surprise bills. Federal statutes, however, precluded state regulation of employer self-funded health plans regulated by the Employee Retirement Income Security Act and air ambulances, prompting Congressional action.

The No Surprises Act requires insurers to cover non-network services in several key situations:

  • for care in emergency departments and urgent care centers, and transport by air ambulances
  • for non-network physicians who work at in-network hospitals
  • for care unintentionally obtained in an out-of-network due to inaccurate network directories, for which patients now pay no more than for in-network services

Bowing to demands of some hospitals and doctors, the No Surprises Act doesn’t set prices. Instead, it requires that insurers and caregivers negotiate prices within 30 days or accept binding arbitration. In arbitration, the insurer and non-network caregiver propose prices and the arbitrator chooses the more reasonable offer, with the losing party paying the arbitration costs. The new federal regulations direct the arbitrator to accept the offer that most closely represents the value of the medical care received after considering the median in-network payment rate and six factors related to the patient, the medical care received, and the caregiver.

In this way, the No Surprises Act incorporates key toxic ingredients of U.S. health care recipes: complexity, costly administration, and ongoing financial warfare. The act authorizes $500 million to finance its arbitration and regulatory system. The Department of Health and Human Services estimates that insurers will invest $5 billion to implement the act, and that operating costs might average $1 billion a year thereafter.

Congress rejected two simpler alternatives: require all physicians to join the same insurance networks as their hospitals, or oblige insurers to finance emergency care by paying the hospital for all services, leaving hospitals to compensate physicians for their services. Physician lobbying blocked both proposals, which would have required caregivers to accept much lower in-network fees. Congress also rejected paying for non-network care at average prices set by Medicaid, Medicare, or the largest private insurers, the model that has been employed by Medicare Advantage plans for non-network care.

Caregivers remain free to impose their highest prices on 30 million uninsured Americans because Congress failed to cap the sums they could be charged for medical care at, for example, Medicare or Medicaid prices.

U.S. insurers and employers fantasize that restricted networks and high out-of-pocket costs constrain total spending by reducing the volume of care and prices paid. They do not. Hospital admissions are 20% lower and physician visits 40% lower in the U.S. than in the average high-income democracy, yet U.S. per capita health spending is double, largely because of higher prices, administrative costs, uncapped entitlements, and caregiver shortages and maldistribution.

Surprise bills are a symptom of private health insurance’s endemic illness. The No Surprises Act manifests government’s own preference for short-term and narrow thinking about large, persistent, and complicated health care problems. While it may help people abused by acute surprise bills, this act ignores people chronically harmed by other out-of-pocket costs, narrow networks, and high premiums.

The No Surprises Act did not aim to improve the design of insurance, control costs, or encourage peace treaties between payers and caregivers. Consequently, the financial games continue. Caregivers can still extract high payments, and insurers can employ cost controls that are ineffective but nonetheless generate unpredictably high out-of-pocket cost-sharing for Americans unlucky enough to need care. Lawyers, as always, will be busy.

By amputating gangrenous surprise bills, the No Surprises Act helps preserve business as usual — for now.

Marc Rodwin is professor of health law and policy at Suffolk University Law School in Boston. Alan Sager is professor of health policy and management at the Boston University School of Public Health.

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