Three Things to Know about “Surprise” Medical Bills

In recent months, lawmakers in Washington have focused on “surprise” medical bills. In large part, this term refers to two types of incidents: 1) individuals who received pre-arranged treatment at an in-network hospital, but saw an out-of-network physician (e.g., anesthesiologist) during their stay, or 2) individuals who had to seek care at an out-of-network hospital during a medical emergency.

In both cases, the out-of-network providers can “balance bill” patients—that is, send them an invoice for the difference between an insurer’s in-network payment and what the physician actually charged. Because these bills can become quite substantial, and because patients do not have a meaningful opportunity to consent to the higher charges—many patients never meet their anesthesiologist until the day of surgery, and few people can investigate hospital networks during an ambulance ride to the ER—policy-makers see reason to intervene.

1. Few Hospitals Comprise Most of the ‘Surprise’ Incidents

As a chart from The New York Times demonstrates, most hospitals had zero, or close to zero, out-of-network emergency room bills in 2015, according to a study by three Yale University professors:

“Surprise” bills applied in 22 percent of ER visits, but as a Times reporter noted, they are “not happening to some random set of patients in every hospital. [They’re] happening to a large percentage of patients in certain hospitals.”

As noted above, most hospitals don’t have this problem, because they keep their ER physicians and other doctors in-network. Unfortunately, however, the one-quarter or so of hospitals that have not forced their physicians in-network have made life difficult for the rest of the hospital sector.

The hospital industry should have done a much better job of policing itself and weeded out these “bad actors” years ago. Had they done so, the number of “surprise” bills likely would not have risen to a level where federal lawmakers demand action. However, the fact that these incidents still only occur in a minority of hospitals suggests reason for continued caution—because why should Congress impose a far-reaching solution to a “problem” that doesn’t affect most hospitals?

2. The Federal Government Has Little Reason to Intervene

Over and above the question of whether “surprise” bills warrant a legislative response, lawmakers should also ponder why that response must come from the federal government. Even knowledgeable reporters have (incorrectly) assumed that a solution to the issue must emanate from Washington because only the federal government can address “surprise” bills for self-funded employer plans. Not so.

ERISA, in this case, refers to the Employee Retirement Income Security Act of 1974, which regulates employer-provided health insurance. ERISA states that its provisions “shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan.”

But as that language indicates, ERISA applies only to the regulation of employee benefit plans—i.e., the employer as an insurer. It does not apply to the regulation of providers—i.e., hospitals, doctors, etc. As a Brookings Institution analyst admitted, states can, for instance, require hospitals to issue an in-network guarantee, ensuring that all doctors at an in-network hospital are considered in-network.

For most of the past year, interest groups have lobbied Congress on “surprise” billing. As one might expect, everyone wants a solution that takes patients out of the line of fire in negotiations between doctors, hospitals, and insurers, but no one wants to take a financial haircut in any solution that emerges.

The lack of agreement on a path forward indicates that Congress should take a back seat to the states, and let them innovate solutions to the issue. Indeed, several states have already enacted legislation on out-of-network bills, suggesting that Congress might do more harm than good by weighing in with its own “solution.”

3. Some Republicans Support Socialistic Price Controls

Both the comparatively isolated nature of the problem and the lack of a clear need for federal involvement suggest that some on the left continue to raise the “surprise” billing issue as part of a larger campaign. By establishing that the federal government should regulate the prices of health-care services—even those in private insurance plans—liberals can lay down a predicate for a single-payer health-care system that would do the exact same thing, just on a larger scale.

Sure enough, congressional Republicans, like Oregon Rep. Greg Walden and Tennessee Sen. Lamar Alexander, have endorsed legislation establishing a statutory cap on prices for out-of-network emergency services. (Remember: In policy-making, bipartisanship only occurs when conservatives agree to liberal policies.)

Both the House Energy and Commerce Committee and Senate Health, Education, Labor, and Pensions Committee have introduced proposals that would engage in such federal price-fixing, although lawmakers recently modified the House bill to allow for binding arbitration between doctors and hospitals where the disputed sums exceed certain thresholds. Alexander wants to move his legislation on the Senate floor within weeks.

Last month, Alexander said he “instinctively” liked the in-network guarantee approach—which requires hospitals to have their physicians in-network, while letting insurers, hospitals, and doctors negotiate those in-network prices without setting them through government fiat. However, he told reporters that he ultimately endorsed the price-fixing approach because the Congressional Budget Office (CBO) called it “the most effective at lowering health care costs.”

The retort to Alexander’s comment seems obvious: Of course, price-fixing will lower health care costs. Indeed, CBO said the price-fixing provision would save by far the greatest amount of money of any section of the nearly 250-page bill, because it “lower[s] payment rates” to physicians.

If Alexander suddenly wants to use price controls to lower health care costs, then why not regulate the prices of all health care services ($129.95 for surgery, anyone?)—or move to full-on single-payer? Because the quality of care will suffer too—as will American patients.

A Spoonful of Socialism, Anyone?

I noted above that the hospital industry caused the “surprise” billing problem in the first place. I have little love for hospital executives, many of whom behave like greedy monopolists, and who represent the single biggest argument for single-payer health care I can think of.

Yet however much hospital executives may have earned opprobrium by their conduct, the American people don’t deserve a single-payer system, with its massive economic disruption and its inferior care, foisted on them. They deserve better than federally imposed price controls as a “solution”—whether as the mere “spoonful of socialism” in the “surprise” billing legislation, or an all-out move to single-payer.

This post was originally published at The Federalist.

Republicans’ Mixed Messages on Federalism

Care to take a guess how many Republican senators are willing to take a stand over federalism? Would you believe just two?

On Monday night, when the Senate considered legislation sponsored by Sen. Susan Collins (R-ME) about “gag clauses” in pharmaceutical contracts, only Utah’s Mike Lee and Kentucky’s Rand Paul voted no. Lee and Paul do not believe the federal government has any business providing for blanket regulation of the health-care sector.

Gag Clauses, Explained

I have experienced the distorted ways the drug pricing system currently operates. When looking to refill a prescription for one of my antihistamines, my insurance benefit quoted me a charge of $170 for a 90- to 100-day supply. But when I went online to GoodRX.com, I found online coupons that could provide me the same product, in the same quantities, for a mere $70-80, depending on the pharmacy I chose.

I found even greater discounts by purchasing in bulk. I ended up buying a nearly one year’s supply of my maintenance medication for $210—little more than the price for a 90-100 day supply originally quoted to me by my insurer. Had I used my insurance card, and refilled the prescription repeatedly, I would have paid approximately $300 more over the course of a year. Because my Obamacare insurance is junk, I have little chance of reaching my deductible this year, short of getting hit by a bus, so it made perfect sense for me to pay with cash instead.

In theory, anyone can go to GoodRX.com (with which I have no relationship except as a satisfied consumer), or other similar websites, to find the cash price of prescription drugs and compare them to the prices quoted by their insurers. But in practice, few try to shop around for prescription drugs.

Why Federalism Matters

In general, conservatives would support efforts to increase transparency within the health-care marketplace, and prohibiting “gag clauses” would do just that. However, some conservatives would also note that the McCarran-Ferguson Act of 1947 devolves the business of regulating insurance, including health insurance, to the states, and that the states could take the lead on whether or not to eliminate “gag clauses” in insurance contracts. Indeed, a majority of states—26 in total—have already done so, including no fewer than 15 state laws passed just this year.

Lee’s office reached out to me several weeks ago for technical assistance in drafting an amendment designed to limit the scope of federal legislation on “gag clauses” to those types of insurance where the federal government already has a regulatory nexus. Lee ultimately offered such an amendment, which prohibited “gag clauses” only for self-insured employer plans—regulated by the federal government under the Employee Retirement Income Security Act of 1974 (ERISA).

Unfortunately, only 11 senators—all Republicans—voted for this amendment, which would have prevented yet another intrusion by the federal government on states’ affairs. Of those 11, only Lee and Paul voted against final passage of the bill, due to the federalism concerns.

More Federalism Violations Ahead?

One of the prime sponsors of the discussion draft? None other than Sen. Bill Cassidy (R-LA), the author of legislation introduced last year that he claimed would “give states significant latitude over how [health care] dollars are used to best take care of the unique…needs of the patients in each state.”

The contradiction between Cassidy’s rhetoric then and his actions now raise obvious questions: How can states get “significant latitude over” their health care systems if Washington-based politicians like Cassidy are constantly butting in with new requirements, like the “surprise medical bill” regulation? Or, to put it another way, why does Cassidy think states are smart enough to manage nearly $1.2 trillion in Obamacare funding, but too stupid to figure out how to solve problems like drug price “gag clauses” and “surprise bills?”

Politics Versus Principle

The widely inconsistent behavior of people like Cassidy raises the possibility that, to some, federalism represents less of a political principle to follow than a political toy to manipulate. When Washington lawmakers want to punt a difficult decision—like how to “repeal” Obamacare while “replacing” it with an alternative that covers just as many people—they can hide behind federalism to defer action to the states.

Reagan had another axiom that applies in this case: That there is no limit to what a person can do if that person does not mind who gets the credit. Lawmakers in literally dozens of states have acted on “gag clauses,” but that matters little to Collins, who wants the federal government to swoop in and take the credit—and erode state autonomy in the process.

It may seem novel to most of official Washington, but if lawmakers claim to believe in federalism, they should stick to that belief, even when it proves inconvenient.

This post was originally published at The Federalist.

Four Ways the Patient Freedom Act Is Worse than Obamacare

Last week, I wrote about how the Patient Freedom Act—introduced by senators Bill Cassidy (R-LA) and Susan Collins (R-ME)—would dramatically expand taxpayer funding of abortions, even when compared to Obamacare.

But that’s not the only way in which their bill (S. 191) exceeds Obamacare’s standards for government intervention. Other details of their legislation reveal why its short title serves as a misnomer.

1. It Has More Spending Than Obamacare

Section 104 of the bill contains a complicated formula to determine state allotments for option two—the default option for states under the PFA. Section 104(b)(2) provides that states that did not expand Medicaid under Obamacare will receive 95 percent of the amount they would have received had they accepted the Medicaid expansion.

In other words, rather than reducing Obamacare’s spending, the Patient Freedom Act could well increase it—by giving new Medicaid funds to states that declined to expand.

Medicaid reform should not disadvantage states that did not expand Medicaid under Obamacare. But the proper solution to that problem does not lie in adding to Obamacare’s nearly $2 trillion in spending over the coming decade. Instead, it lies in freezing enrollment in the Medicaid expansion, unwinding that new spending, and transitioning beneficiaries over time off the rolls and into work.

2. It Repeals Health Savings Accounts (Not Obamacare)

Current law makes HSAs tax-privileged in two ways. First, contributions to an HSA can be made on a pre-tax basis—either via a payroll deduction through an employer, or an above-the-line deduction on one’s annual tax return. Second, HSA distributions are not taxable when used for qualified health expenses under Obamacare.

The Patient Freedom Act would abolish the first tax preference while retaining the second. Individuals must contribute to an HSA using after-tax dollars, but their contributions could grow tax-free, and distributions would be tax-free when used for qualified health expenses, as under current law. Section 201(b) prohibits additional contributions to “traditional” HSAs following enactment of the bill, instead diverting new contributions to the Roth (i.e., after-tax) HSAs created by the measure. While the bill does not require individuals to convert their existing HSAs to the new Roth HSAs, account administrators (e.g., banks, mutual funds, etc.) could require their customers to do so at some point—and individuals could face a hefty tax bill when they do.

Health Savings Accounts are a proven vehicle to help control the growth of health costs. While Obamacare included new restrictions on HSAs, Democrats did not upend the accounts nearly as much as contemplated by the Patient Freedom Act. Significantly reducing the tax preferences for Health Savings Accounts would not lower health care costs. If anything, it would raise them.

3. It Supports Government-Imposed Price Controls

Section 121(a)(2) of the Patient Freedom Act goes further than Obamacare, imposing maximum charges for emergency services: 85 percent of insurers’ usual, customary, and reasonable charges for physician care; 110 percent of Medicare payment rates for inpatient and outpatient hospital care; and acquisition costs plus $250 for drugs and biological pharmaceuticals.

While the issue of “surprise” medical bills does present a policy problem—individuals caught in the middle of stand-offs between providers and insurers regarding payment rates—there are other ways to resolve it short of government price controls. To borrow a medical metaphor, the PFA uses a blunt knife when a sharp scalpel would be more appropriate.

4. It Would Create an Automatic Enrollment Program

Sections 105(c) and 107(c) of the PFA create parameters through which states can automatically enroll their residents in health insurance—complete with restrictions on the type of coverage states can auto-enroll individuals into. While individuals can opt out of insurance should they wish to do so, this mandate-without-a-mandate could prove even more problematic than Obamacare’s requirement that all individuals purchase health coverage.

Nearly four years ago, then-Rep. Bill Cassidy said this about the IRS’ power in enforcing Obamacare:

Obamacare requires thousands of IRS agents to implement the law…They’re going to go through the small businesswoman’s books, to make sure that she actually has the number of employees that she claims, and that she has adequate insurance. That’s a little scary when you see what the IRS has been doing with their political targeting.

Granted, the PFA doesn’t have an employer mandate to enforce, but why is Sen. Cassidy’s “solution” to big government overreach at the federal level allowing states to impose their own intrusive requirements on individuals and businesses…?

Conservatives looking to repeal Obamacare should be disappointed by the ways in which the Patient Freedom Act exceeds Obamacare in several key respects, while liberals will undoubtedly oppose its (insufficient) attempts to devolve or deregulate health care to the states. Its Senate sponsors notwithstanding, the bill appears to lack a natural constituency. Or, to put it another way, if the Patient Freedom Act is the answer, then what exactly is the question?

This post was originally published at The Federalist.