State Policy Network
The growing problem of ‘surprise’ medical bills

By Kaitlyn Finley, Policy Research Fellow at the Oklahoma Council of Public Affairs

An unexpected diagnosis or accident leaves one’s mind filled with reservations about treatments, the possible need for surgery, and expenses.

But getting a second opinion on a diagnosis or further information about treatment is far easier than obtaining financial information. Unfortunately, the cost of a possible medical service or procedure beforehand is often a mystery, only adding to the long list of worries for patients and their loved ones. Months after a hospital visit, families may be hit with an unexpected and inflated surprise medical bill for their hospital or doctor visit, straining their monthly budget.

Kaitlyn Finley
Photo Credit: OCPA

These “surprise” medical bills occur when families unknowingly receive care from “out-of-network” providers. This practice of surprise medical billing is becoming more common for patients. A recent study released in the Journal of the American Medical Association found that among 350,000 insured patients, more than 20 percent received a bill with an out-of-network charge. These surprise bills were on average $2,000 more than what their insurance carrier would normally pay.

The rise of surprise medical billing has served to unmask some the underlying systemic problems with American’s healthcare system, namely the lack of transparency between providers, insurance companies, and consumers. When consumers are kept in the dark regarding cost, many providers and insurance carriers may be able to drive up costs just because they can.

The average annual premium for families enrolled in an employer sponsored insurance plans has increased 54 percent over the last decade, while the average cost to visit the ER rose 176 percent from 2008 to 2017. Insured patients may have been numb to these steady increases in premiums and doctor’s visits in the past since they only foot a portion of the bill, but as total costs continue to increase, out-of-pockets costs will rise as well.

It is time to encourage medical providers to be upfront with service costs no matter what “network” you are in. When applicable, providers should always provide a good-faith estimate for medical services. It should not be a near-impossible task to secure a cost estimate for even routine MRIs, X-Rays, or blood tests.

Fortunately, state think tanks are in a good position to help address this problem for the people of their state. The Oklahoma Council of Public Affairs (OCPA) has been working to advance surprise billing reform in the Oklahoma Legislature. This past legislative session OCPA supported Senate Bill 1646, legislation that encourages medical providers to be upfront with costs and provide a good-faith estimate for patients whether they are insured or not. If providers don’t oblige, they cannot seek payment through collections or garnish the patient’s wages. Though the legislation failed to pass the Oklahoma House in May, OCPA will continue to promote surprise billing reform in next year’s session.

Tips for state think tanks as they engage on surprise billing reform

There are a few things we learned during our work to reform surprise billing that would be of use for other state think tanks as they start to engage on this issue.

First, when advancing reforms, state think tanks and free-market oriented policymakers should be aware of two major types of poor legislation often cited as “solutions” to surprise medical billing, commonly categorized as “rate setting” and “arbitration.” These flawed proposals try to address surprise medical billing through government rate-setting usually tied to Medicare rates or by using an expensive mediator to settle on a “fair” price that satisfies providers and insurance carriers.  

These solutions do not truly fix surprise medical billing, nor do they address the underlying problems of opaque pricing schemes and the continual rising costs of healthcare. Both ways use arbitrary non-market prices as baselines, whether by tying benchmark rates to Medicare rates, or using hospitals’ inflated “chargemaster” lists as the starting point in the mediation process. Put simply, the entire process may still involve bogus numbers that leave patients paying far more than what would occur in a transparent market.

Second, when putting together a messaging campaign for this legislation we found that it is helpful to frame the issue of price transparency as a matter of consumer protection. No matter what industry, consumers should be able to secure a good-faith estimate from the provider or vendor when applicable. This message seemed to resonate with lawmakers as we worked to garner support for the bill.

The importance of price transparency in healthcare

To address the ever-rising costs of healthcare, we must encourage true price transparency in healthcare. For far too long, policymakers have focused on expanding “coverage” while ignoring the true culprit—healthcare’s opaque pricing system.

Dr. Marty Makary, a professor of surgery at the Johns Hopkins University School of Medicine and author of the book, The Price We Pay: What Broke American Health Care—and How to Fix It, recently summarized this well: “We don’t have an insurance crisis in the United States. We have a pricing crisis. We have a cost crisis.” Unleashing the free market and promoting voluntary price transparency is the only way to stop surprise medical billing, lower costs, and fix America’s broken healthcare system.

Organization: State Policy Network