Why thousands are getting hit with unexpected medical bills

Hardly a week goes by without another story in the media covering a family somewhere in America dealing with an outrageous medical bill. Yet, in more and more cases, these families don’t have junk insurance, or lack coverage altogether. Indeed, they have what Americans would consider decent coverage, either through their employer or an Affordable Care Act marketplace. They also followed, or so they thought, the rules of their insurance policy requiring them to seek care inside their provider network. Yet, they are slapped with surprise bills, and often threatened by bankruptcy.

What gives?

In my view as a health care policy researcher, the increasing occurrence of surprise medical bills is not an accident. Rather, it is a reflection of a larger trend in the American health care system. There’s been a massive wave of consolidation in the health care business to gain greater bargaining clout. These surprise bills are a byproduct of the wrangling between two sets of players – insurers and care providers – a battle of giants that often leaves patients holding the bill.

Recent efforts at the federal level to provide protections to patients are long overdue. Yet, it is unclear whether patients will see any tangible outcomes, as insurers and providers are fiercely protecting their interests. Even if successful, these protections would likely only alleviate the most glaring problems of surprise bills untouched.

What’s going on here?

Patients in emergency rooms are receiving surprise bills more often than in years past. Monkey Business Images/Shutterstock.com
The story is nearly always the same. A patient, often in an emergency, receives care, as required by his or her insurance coverage, in a hospital that was part of their provider networks.

Patients usually assume that all doctors participating in their treatment in the facility are also covered in their network. However, while their primary providers may be part of their network, ancillary physicians with little or no contact with the patient, such as anesthesiologists and radiologists, may not be. And, in many hospitals, the very doctor who takes care of you in an emergency – the ER doctor – may not have any insurance contracts whatsoever.

Patients may only realize their miscalculation when it’s too late – when “surprise” bills start arriving in the mail, often outrageously high, a few week later. Not even members of Congress are immune from the practice, as Rep. Katie Porter, D-Calif., experienced when she received a US$2,800 out-of-pocket bill after an appendectomy.

The results for patients are often devastating. While the full extent of the problem is unclear, studies have shown, that about 20% of inpatient emergency department cases result in surprise bills. Insurance companies will usually pay a part of the bill, but physicians then send the remainder directly to the patients.

The sums are often horrendous and bear little correspondence to the cost of the care provided: $229,000 for spinal fusion surgery, $117,000 for neck surgery, or $250,000 for back surgery. These are bills after insurance companies paid for part of the bill. And of course, the threat of being turned over to a collection agency looms largely over patients’ heads, with medical debt typically listed as the primary reason for being contacted by a collection agency.

The larger picture: Battle of the giants

The distinguishing characteristic of the U.S. health care system is its high cost: Americans simply pay more for health care than their counterparts in the developed world.

Given the dual threats of high costs and large uncertainties, Americans have long relied on insurance arrangements when it comes to financing their health care needs. As a result, patients today are trapped between two massive bureaucracies intent on maximizing their income: providers and insurers.

For decades, Americans and public payers have, by-and-large, accepted accelerating health care costs. Yet, with costs around 18% of GDP and exerting intense pressure of public and private budgets, the health care sector has drawn greater scrutiny.

As a result, pressure to contain costs have begun to emerge, leading to intensifying conflict between the two entities. More recently, these developments have triggered significant and increasing consolidation efforts on both sides.

A CVS sign in Ridgeland, Miss. Rogelio V.. Solis/AP Photo
Health insurers are seeking mergers with other insurers. Recent examples include Centene buying WellCare but also Cigna’s ill-fated attempt to merge with Anthem and Aetna’s and Humana’s aborted consolidation attempt.