Expert Commentary

Surprise billing: Why consumers with medical insurance still may face major health care expenses

People in the United States frequently receive unexpectedly high hospital bills even after paying for health insurance, which they counted on to help them to manage their medical costs, several studies show.

Surprise billing
(Michael Berdyugin on Unsplash)

People in the United States frequently receive unexpectedly high hospital bills even after paying for health insurance, which they counted on to help them to manage their medical costs, several studies show. This phenomenon, known as “surprise billing,” involves hospitals and physicians’ offices attempting to collect money directly from patients — after deeming a health insurance plan’s payment for a service to be inadequate.

This practice is sometimes called “balance billing,” but that term also encompasses expenses consumers should expect to pay for their medical care. For example, insurers tell their customers clearly ahead of time that they will have to pay a certain amount of money above the cost of health insurance for a prescription or office visit. Surprise billing is specifically just that — a surprise.

The charges that catch many Americans unaware are those excluded from the network of services covered by their insurers. The people who receive surprise bills largely have private insurance, which are health plans sold by for-profit companies like UnitedHealth Group and nonprofit organizations such as Blue Cross Blue Shield.

About 67% of Americans used private insurance in 2018, with 55.1 % of them gaining this coverage as part of their compensation or that or a spouse or parent, according to the U.S. Census Bureau’s 2019 report on insurance coverage.

Private health insurance often is part of workers’ total compensation. In addition, employees contribute directly to these plans by paying monthly premiums. Insurers then make agreements with hospitals and physicians and other medical professionals on how much employees will pay for treatments. The intent is to create a network in which consumers can obtain affordable health care.

Surprise billing can occur when people receive care outside their insurers’ network. In some cases, people might have invested significant time trying to make sure they used in-network hospitals and physicians, only to find out later that part of their medical team was not in their plan’s network. A study published in JAMA in February analyzed 347,356 surgical episodes, between 2012 and 2017, among commercially insured patients who had undergone elective surgery with in-network primary surgeons and facilities. This analysis found 20% of episodes involved out-of-network charges, with 37% of these cases involving anesthesiologists.

Emergency treatments also are likely to generate surprise medical bills. Prices for services included in surprise bills can far exceed the usual costs of these services. As part of their “Bill of the Month” series, for example, Kaiser Health News and NPR reported on what happened to Joshua Bates, a technical recruiter for a staffing firm, after he had an emergency appendectomy in 2018. Bates, then 28 and living in North Carolina, had a health plan provided by the company for which he worked at the time.

But that plan did not include emergency care at the hospital where he was treated, the Carolinas Medical Center in Charlotte, North Carolina. It initially charged more than $41,000 for the appendectomy and Bates’ hospital stay. The online site Healthcare Bluebook suggested “fair price” for Bates’ surgery was $12,090, in line with the $12,944 that Bates and his insurer already paid the hospital, Kaiser Health News and NPR reported.  Fair Health, another site that collects claims data, pegged costs for an out-of-network appendectomy at $19,292, according to that news report.

Surprise bills are separate from the portion of medical expenses that consumers with health insurance expect to pay. Bates, for example, contributed about $4,000 toward the cost of his surgery through co-pays and a deductible, according to the two news outlets. A deductible is an amount of money a consumer pays each year for medical costs before the insurer begins covering certain expenses.

As of April 2020,  29 states had put in place some form of consumer protection against surprise bills, according to a tally kept by the nonprofit Commonwealth Fund, which studies health policy issues. Among them were California, New York, Texas and Florida. But a federal law stops state consumer protections from applying in cases where employers fund employee medical expenses directly, instead of paying into a private insurer’s pool of funds. More than 100 million people in the U.S. are enrolled in these self-funded employer plans, according to a 2019 report from America’s Health Insurance Plans, a trade group.

Consumer advocacy groups such as the nonprofit Families USA have asked Congress to enact a federal law that would protect everyone from surprise medical bills. Work on this issue has stalled amid political battles over how to resolve disputes about the cost of out-of-network medical care.

Physician and hospital groups such as the American Medical Association oppose efforts to peg out-of-network bills to the cost of in-network care or use Medicare rates as a standard. Their leaders say this approach would allow insurers to set rates too low. These groups prefer plans that would set up a formal arbitration process for handling disputes. This so-called independent resolution would take the consumer out of these disputes.

Insurers, on the other hand, have protested this arbitration approach, arguing it would be cumbersome and give advantages to hospitals and physicians.  Employers who offer self-funded plans would have to hire staff or outside consultants to manage a complex arbitration process, Jeanette Thornton, AHIP’s senior vice president for product, employer, and commercial policy.

Arbitration also gives physicians in certain specialties, such as emergency medicine, an advantage in negotiations, Thornton said. “Accepting their egregiously high prices as a starting point will not help to lower health care costs for Americans,” Thornton said.

Amid this stalemate, the Trump administration tried to use its administrative power to stop surprise bills in connection with the coronavirus pandemic. The U.S. Department of Health and Human Services (HHS) added a requirement to the rules for doctors and hospitals seeking to tap into the federal aid provided by the Coronavirus Aid, Relief, and Economic Security Act, enacted in March 2020. To receive certain federal funds, hospitals and other medical organizations must agree not to charge patients more than what an in-network service would cost in cases of presumed or confirmed COVID-19.

There had been speculation that this guidance from HHS meant an end to surprise billing for hospitals accepting these funds, with the idea that HHS would look at all patients as potential COVID-19 cases. On May 6, HHS specifically addressed this issue, saying the department did not view every hospital patient as a COVID-19 case. Instead, the prohibition on balance billing applies to care for presumptive or actual cases of COVID-19, HHS said.

Physician and author Marty Makary, who has studied surprise billing, in May urged Congress to pass a federal law to address this issue. Surprise billing erodes public trust in physicians, argues Makary, a professor of surgery and health policy at Johns Hopkins University School of Medicine.

Makary’s recent publications include an opinion article, “Billing Quality Is Medical Quality,” that appeared in JAMA on Feb. 4, 2020. In it, he and Simon C. Mathews, also of Hopkins, argued costly medical bills and subsequent risk for collection and damage to credit ratings may keep people from seeking health care. Makary also was a co-author on a research letter published in JAMA on June 25, 2019, about the practices of Virginia hospitals in seeking legal action to directly collect money from the wages, or garnish the paychecks, of people who owed debt for past medical care.

“Congress has solutions on the table that would bring much greater fairness and transparency to the healthcare system, protect patients from these predatory charges, and ensure that physicians are paid fairly for our services, as we deserve,” Makary, who is also editor of MedPage Today, wrote in that publication last month.

Below, we’ve gathered a sampling of research that offers insights into the scope of surprise billing. Toward the bottom of the page, we provide links to additional resources, including a map showing which states have taken action to protect consumers.


Assessment of Out-of-Network Billing for Privately Insured Patients Receiving Care in In-Network Hospitals
Sun, Eric C; Mello, Michelle M.; Moshfegh, Jasmin; Baker, Laurence C., JAMA Internal Medicine, August 2019

In a large study of medical expenses records, more than 4 in 10 visits to emergency departments and hospital stays involved out-of-network charges for customers of a large commercial insurer, write the authors, all of Stanford University.

Eric C. Sun, an assistant professor of anesthesiology at Stanford, and his colleagues sought to gauge how often people in the United States face surprise medical bills. To do this, they used records from the Clinformatics Data Mart database. The researchers examined records stemming from about 5.5 million hospital admissions and 13.6 million emergency room visits that happened between 2010 and 2016. The patients in this national sample were covered by commercial health plans.

In 2010, 32.3% of emergency-department visits and 26.3% of hospital inpatient admissions for the group studied triggered some kind of out-of-network charge, Sun and colleagues report.

In 2016, 42.8% of emergency-department visits and 42.0% of hospital inpatient admissions did so.


An Examination of Surprise Medical Bills and Proposals to Protect Consumers From Them
Pollitz, Karen; et al. Peterson-Kaiser Family Foundation Health System Tracker, February 2020.

A major study of health insurance claims finds 18% of emergency room visits by people covered by employer-sponsored insurance generated at least one out-of-network charge.

Researchers with the nonprofit Kaiser Family Foundation, which specializes in health care studies, used data from IBM’s MarketScan Research Database to analyze the costs and types of medical care provided to people who received their insurance from large employers, or those that have more than 1,000 workers. This database contains information about medical treatments provided for almost 19 million people.

The Kaiser researchers looked at claims connected to care for people who visited emergency departments in 2017 and found significant variation by state.

About 38% of emergency visits in Texas for this group of consumers resulted in at least one out-of-network charge. The rate was 29% in New Mexico, 28% in New York and 26% in California. In Minnesota, the rate was 3% percent and it was 4% in South Dakota, Nebraska and Alabama.


Surprise Billing in Private Health Insurance: Overview and Federal Policy Considerations
Rosso, Ryan J.; Isserman, Noah D.; Shen, Wen S. Report from the Congressional Research Service, December 2019.

In an overview report intended to aid lawmakers, Ryan J. Rosso and colleagues on the staff of the Congressional Research Service detail the ways in which a consumer can end up with a surprise medical bill. These include cases in which people suddenly need transport by air ambulances for emergency medical care. The authors also delve into different approaches taken by states to prevent surprise medical bills. These could serve as models for a future federal law on surprise billing.

As of July 2019, 26 states had implemented policies intended to protect consumers from surprise billing for emergency department services, Rosso and colleagues write. A California law requires insurers to pay the greater of the average contracted rate or an amount equal to 125% of the rate Medicare pays  for certain types of out-of-network care. In contrast to this benchmark approach, a New York law calls for the use of a form of arbitration called independent dispute resolution, or IDR.

The report includes a detailed analysis of competing legislative proposals offered in the 116th Congress, which convened in 2019 and will end early next year, to address surprise billing.


Out-of-Network Emergency-Physician Bills — An Unwelcome Surprise

Cooper, Zack; Scott Morton, Fiona. New England Journal of Medicine, November 2016.

In this study, Zack Cooper and Fiona Scott Morton, both of Yale University, examine insurance claims data from a large commercial insurer to estimate how commonly surprise billing occurs. Cooper is an associate professor of health policy and economics and director of health policy at Yale’s Institution for Social and Policy Studies. Scott Morton is a professor of economics at Yale’s School of Management.

The study focuses on emergency department visits for people under age 65. It’s worth noting that most people age 65 and older in the U.S. are enrolled in Medicare, which largely eliminates concerns about surprise billing.

Cooper and Scott Morton looked at data on more than 2.2 million visits nationwide between January 2014 and September 2015.

The study findings are “deeply troubling,” they write — 22% of the emergency room visits they examined involved out-of-network physicians, even with 99.4% of these visits happening at in-network hospitals.

This national average of 22% “masks significant geographic variation,” Cooper and Scott Morton write. The surprise billing rate for McAllen, Texas, for example, was 89%. For St. Petersburg, Florida, it was 62%.

In contrast, the rate was close to zero in Boulder, Colorado, and South Bend, Indiana, which suggests, according to Cooper and Scott Morton, “that surprise billing is a solvable problem.”


Surprise! Out-of-Network Billing for Emergency Care in The United States

Cooper, Zack; Scott Morton, Fiona; Shekita, Nathan. National Bureau of Economic Research Working Paper No. 23623, revised January 2018.

In this paper, the researchers delved into the factors driving surprise billing for emergency room visits. They homed in on how the outsourcing of staffing of emergency departments contributed to an increase in surprise billing.

In recent years, hospitals have turned to outside contractors to staff their emergency rooms.  About 65% of the physician workforce for emergency rooms has been outsourced as of 2012, with two firms — EmCare and TeamHealth — controlling about 30% of the outsourced physician market, the authors write, citing a 2013 research report from Deutsche Bank. The bank’s market research unit has studied this field in order to advise investors.

The two firms used different strategies to raise prices for their physicians’ services. EmCare would exit insurer’s networks and thus avoid negotiated rates for its physicians’ services. The paper’s authors explain that EmCare would raise charges by 96% relative to those billed earlier for care at a hospital. TeamHealth would take its physicians out of insurers’ networks for several months and then allow them to return, “using the now credible threat of out-of-network status to secure higher in-network payments,” write the researchers.


Out-of-Network Bills for Privately Insured Patients Undergoing Elective Surgery With In-Network Primary Surgeons and Facilities
Chhabra, Karan R.; et al. JAMA  February 2020.

Even scheduled surgeries can leave consumers with surprise bills, write Karan R. Chhabra,  who was a national clinical scholar at of the University of Michigan’s Institute for Healthcare Policy and Innovation, and his co-authors.

In 20.5% of the cases studied by Chhabra and his co-authors, consumers received out-of-network bills despite using hospitals and surgeons who were in their insurers’ networks. The average amount of unexpected charges in each surprise bill was $2,011. Patients received surprise bills because other medical professionals who were not in their insurers’ networks helped with their care. This happened with about 37% of anesthesiologists, for example, the authors find.

They examined how often people face surprise medical bills for elective surgeries — procedures such as knee replacements and heart surgery, for which a patient has time to plan.

In theory, consumers can try to stick with hospitals and physicians included in their insurers’ networks. But this often proves not to be the case. Chhabra and colleagues analyzed claims from a large health insurer, looking at records for more than 347,000 people who had undergone elective procedures between January 1, 2012, and September 30, 2017. The authors selected cases in which the primary surgeons were in the patients’ insurers’ networks, as were the hospitals where the operations took place.


Most Patients Undergoing Ground And Air Ambulance Transportation Receive Sizable Out-Of-Network Bills
Chhabra, Karan R., et al. Health Affairs, April 2020.

This is likely the first study to document the financial liability consumers face after using out-of-network ambulance services, Chhabra and his colleagues write. In emergencies, dispatchers choose ambulances based on their proximity to the patient and the patient’s medical needs.

Looking at insurance claims data from 2013 to 2017 for members of a large national insurance plan, they focused on 1,048,619 cases where ground ambulances were used and 18,810 with air ambulances. At least 71% of all ambulance rides had the potential to generate surprise bills, Chhabra and his colleagues find. Out-of-network charges for both ground and air ambulances were substantially greater than in-network charges, they explain. The median potential surprise bill, or the amount charged beyond the typical or in-network price, was $450 for ground transportation and $21,698 for air transportation, they write.


Other resources:

  • The nonprofit, nonpartisan Commonwealth Fund tracks actions by different states on surprise billing. In April, it published a table about state actions as well as a map. In addition, the Fund has compared different federal legislative proposals for addressing surprise billing.
  • The National Conference of State Legislatures tracks this issue as well. It produced a March 2020 webinar about different approaches used to address surprise billing.
  • Kaiser Health News and NPR have worked together on a Bill of the Month This series included the story on Joshua Bates’ bills for his appendectomy.
  • The American Hospital Association tracks federal legislation introduced on surprise billing.
  • The “No Surprises: People Against Unfair Medical Bills campaign is a joint effort of consumer watchdog groups such as Families USA, Consumer Reports and Public Citizen and medical organizations such as the National Alliance on Mental Illness.
  • The trade group for insurers, America’s Health Insurance Plans, produced a 2019 report on its members’ efforts to address surprise billing. Blue Cross Blue Shield of Texas also produced its own video that breaks down surprise billing in simple terms.
  • Journalist’s Resource in 2019 looked at studies assessing how expansion of Medicaid, a public health insurance program, affected the health of people who were able to gain access to medical care.
  • Journalist’s Resource also offered more tips for reporting on health care in this 2018 interview with Joanne Kenen, POLITICO Pro’s executive health care editor, including an analysis of insurance issues.

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