Addressing unexpected medical bills

OPINION:

Closing in on a decade since the passage of the grand health care reform better known as Obamacare, lawmakers are under increasing pressure to deal with both issues it created, and others that it merely exacerbated. One of the latter that has been quickly gaining attention, for good reason, is the increase in “surprise billing.” Unfortunately, a bipartisan bill that is gaining traction in Congress is a ham-handed attempt to fix this problem with more government price controls.

Surprise billing is the often-devastating result of hospital admissions (particularly ER visits) where the hospital itself may be within your insurance network but specific doctors on call at the hospital are not. So, you might be covered for the trauma surgeon, but the anesthesiologist and the specialist who follows up with you the next day might be out of your network. Generally, you don’t find out about this unfortunate fact until weeks later, when your insurance has only paid a small fraction of the out-of-network costs and the hospital passes on the rest in the form of a crippling medical bill to you.

This was one of the many tragic problems that predated the Obamacare, but has become much more frequent as a result of it. Insurers — particularly in the individual market but also in the employer-provided plans — have been responding to the coverage mandates and regulations under Obamacare by becoming more selective about the doctors and clinics they cover under their networks. Fewer doctors in-network in any given geographic area — more chance of being ambushed by a surprise bill.

Unfortunately, the variety of federally-imposed solutions being offered in Congress to address this issue are just examples of Congress playing whack-a-mole with symptoms of our government-dominated health care system. The proposal that is currently in motion is contained in a bill sponsored by Sen. Lamar Alexander, Tennessee Republican, and Sen. Patty Murray, Washington Democrat, dubbed the Lower Health Care Costs Act (S. 1895). 

The first two sections of this bill deal specifically with surprise billing by declaring that patients can only be charged at in-network rates for any emergency services they receive from out-of-network doctors. So, in that scenario, doctors get paid somewhat, the bill creates a price benchmark by forcing insurers to pay them at the “median in-network rate” for their geographical area (using a calculation that the feds will provide). In other words, regionalized price-fixing — another massive federal mandate upon local health care markets.

There are several gaping holes in this proposal from the perspective of markets and incentives. First, the whole concept is rooted in further federal government price controls on a (semi-) private marketplace. It’s unfortunate that Sens. Alexander and Murray apparently cannot see the irony of using a centralized government solution to patch a problem that has been made prominent thanks to multiple generations of previous centralized-government health care solutions.

Second, and more to the immediate point, this price fixing could have the perverse effect of actually decreasing patient access to care in some areas. It’s not like capping the payments to out-of-network doctors (who are a small minority of doctors in most given areas) is going to only affect them. Once a regional median cost is set, the half of in-network providers who are, by definition, being reimbursed at less than these rates have every incentive to try to negotiate higher, toward the median. This will result in higher prices across the network and/or insurance companies further narrowing their networks.

The tussle between hospitals and doctors and insurance companies to find equilibrium in a market hopelessly distorted by Medicare and Medicaid and countless regulations will continue, with the result likely being further increased costs and decreased access for patients in many areas.

There are a few transparency provisions in the Alexander-Murray bill which might help move toward a more long-term solution, such as requirements that require hospitals to disclose their out-of-network services — taking some of the surprise out of the billing. Bringing prices back into what has long been an opaque, closed market, along with tearing down barriers to competition with local hospitals and insurance monopolies, would go a long way toward actually reducing the shocking costs of health care.

As it stands, however, the Alexander-Murray proposal is one more price control further down the road toward a fully government-controlled health care market — and eventually, “Medicare-for-All.” It’s somewhat astonishing that Republicans have both sponsored and backed it.

And yet, it also highlights a fundamental problem with the way that lawmakers make policy — the failure to consider that top-down “fixes” in parts of a complex system will have ripple effects throughout the rest. In such a heavily-regulated and government-distorted market as our health care system, lawmakers resort to a continuous series of quick fixes to problems that arise as symptoms of their previous policy failures, rather than addressing the central disease of unfree markets and lack of competition and innovation.

• Josh Withrow is a policy analyst and a research fellow at the Innovation Defense Foundation.