Side Effects of the No Surprises Act

 by James Capretta

In the final days of the first Trump administration, Congress attached a long-debated measure—the No Surprises Act (NSA)—to a must-pass appropriations bill with the intention of protecting patients from unexpected and expensive medical bills. The good news is that “surprise” bills are now less common, although they still occur. The bad news is that the law had other, less favorable effects which will likely inflate health insurance premiums for American consumers. It is an unfortunate reality in US health care that efforts aimed at protecting patients often end up increasing overall costs.

Members of both parties in Congress were eager to get the NSA enacted because they believed it offered a reasonable solution to a persistent problem. Prior to the implementation of the law in April 2022, it was possible for patients to receive bills with exorbitant fees charged by out-of-network providers, such as emergency room physicians and anesthesiologists, even when the relevant services were delivered at in-network hospitals or during episodes that prevented patient discretion. Insurers would cover a fraction of the bills with the rest passed onto patients in the form of “balance billing.” With resentment building at this practice, Congress stepped in by prohibiting higher costs for patients under these circumstances.

That was not the end of the story, however. To get the NSA enacted, key policymakers had to strike a compromise between insurers and the holdout physician groups refusing to sign in-network contracts. The two sides agreed to a new independent dispute resolution (IDR) program to settle their disputes, with arbitrators choosing the fee specified by one side or the other when making their binding decisions. The law did not allow for a compromise fee to factor into the proceedings.

Now in its fifth year, it is clear that the NSA’s IDR process favors clinicians over insurers. Arbitrators sided with emergency room physicians in 80 percent and then in 85 percent of the disputed cases in 2023 and 2024, respectively. Large companies investing in specialist physician groups have backed a push to flood the IDR process with contested claims.

With each passing year, as the wins pile up for physicians, insurers lose leverage. The holdouts like their odds in the IDR process, so they are less willing to make pricing concessions. The overall effect has been to push up the expected market rates for the services that frequently end up in IDR. At the same time, insurers expect to lose most IDR cases, which means they are building the added costs into the premiums they charge for coverage.

The administrative burden of IDR is heavy too, with the federal government paying for the many millions of submitted claims through fees charged to both parties in the disputes. Over time, those charges will get passed on to consumers in the form of higher premiums for health coverage.

Insurers are so disappointed with how the NSA has played out that they would like Congress to step in again, this time with a fix to what they see as a broken and biased IDR process. It is unlikely that the holdout physician groups will agree to reopen the deal that allowed the NSA to pass in 2020.

That the NSA was seen as a necessary political intervention is an indictment of the health sector. Hospitals and insurers were well aware that balance billing would harm patients, and yet they continued to sign contracts that allowed some physicians with privileges at the relevant facilities to opt out of in-network contract terms. None of the actors were willing to take responsibility for forcing a market solution, one way or another. Instead, they turned to Congress to fix a problem that no law or regulation prohibited them from addressing on their own. The result is a politicized and unwieldy administrative process for settling millions of billing disputes which the federal government was not responsible for creating.

Congress should reconsider its role in this mess. Instead of trying to fix every problem insurers, hospitals, physicians, and drug companies bring to them, it should establish simple rules that protect consumers and force the market participants to find an equilibrium. Hospital systems should be barred from signing in-network contracts that exempt some of the physicians practicing at their facilities and clinics from the relevant terms. Similarly, insurers should be barred from signing preferred provider contracts that allow some physicians to opt out of in-network rules when participating in otherwise covered in-network procedures.

The micromanagement of the market that the NSA represents invites more lobbying and rent-seeking rather than greater market efficiency. Painful as it might be initially, consumers would be better off in the long run if politicians did not always step in to solve problems that providers and insurers should be expected to address on their own.

https://www.aei.org/health-care/the-side-effects-of-the-no-surprises-act/