Insurers shift more out-of-network costs to patients

Consumers Hit By Higher Out-of-Network Medical Costs

By Julie Appleby
Kaiser Health News, February 8, 2012

Consumers have long complained about the cost of going outside their health plan's network, but ...

Now, instead of paying a percentage of the "usual and customary" charges from physicians and other providers, insurers are basing reimbursements on a percentage of what Medicare pays, which can be much less.  "Every carrier is moving to this," says Ken Sperling, global health care practice leader at the benefit consulting firm Aon Hewitt.

Many employers welcome the change as a way to slow rising premium increases, but some “employees are going to get stuck shouldering a significant portion of the bill because they don't understand how it’s done," Sperling says.

Consumers are responsible for the difference between what the out-of-network doctor charges and what their insurer pays. But few understand the basis on which plans reimburse, let alone the widely varying prices doctors and hospitals charge. As a result, they may be blindsided by big bills, says Lynn Quincy, senior health policy analyst at Consumers Union.

Insurer networks are designed to slow rising health care costs, in part by getting doctors and hospitals who join to agree to negotiated rates, which are generally lower than their usual fees.

Because out-of-network hospitals and doctors are not held to negotiated rates, they can set their own fees and "balance bill" patients for the portion insurers don't cover.

"One of the most expensive decisions that a customer could make is going out of network," says Alan Muney, chief medical officer at Cigna.

Medicare strictly limits how much patients can be balance billed by doctors who don't participate in the program.

Benefit consultants, insurers, patient advocates and actuaries say the shift to Medicare rates began after a national database tracking usual and customary charges -- run by UnitedHealthcare subsidiary Ingenix -- was shuttered in 2009 following an investigation by the New York Attorney General, who questioned whether the data were skewed in favor of insurers.

While the closure was touted as a consumer win, "unfortunately, it's worse now," says Jennifer Jaff, executive director of Advocacy for Patients with Chronic Illness, a Connecticut-based group that helps file insurance appeals for consumers. "Once New York said you can’t use those (Ingenix figures) anymore, the insurers looked at it as an opportunity to pay even less."


By Don McCanne, MD

The most effective cost containment tool introduced during the managed care revolution was the ability of insurers to contract for set rates with networks of health care providers, eliminating arbitrarily high rates by those providers, rates that seemed to have no end in sight. Although health plan purchasers benefited by the slowing of the rate of premium increases, the trade-off was that care obtained outside of the networks either required larger out-of-pocket costs, or was not covered at all.

A universal single payer system would apply rate controls to all health care no matter where is was obtained. The obvious advantage would be that patients would then have their choice of any and all health care providers. With the current provider networks established by the private insurers, care outside of the networks may not be available because of prohibitive out-of-pocket costs.

Networks may not include centers of excellence, specialists with greater expertise of complex problems, an adequate network of primary care physicians, care that is provided by non-network physicians called in during a hospitalization, or care that is accessible within reasonable geographic boundaries. There are many reasons, not always under the control of the patient, as to why care is obtained out of the network.

Although the insurer may not provide any coverage for out-of-network care, it is more common to provide coverage that will cost the insurer no more or even less that would be paid to in-network providers. The patient could bear the brunt of the costs when the amount of the allowed charges not covered is higher, but the greater risk is that the patient is responsible for the full amount of charges over the allowed amount since the providers' charges are not bound by a network contract.

Those supporting the private insurance industry tout the application of insurer innovations as being one of the great advantages of market solutions. But these are not social institutions that serve the public good. These are private businesses that serve their own interests. The innovations are designed to leverage markets in their favor.

This latest innovation is particularly repulsive because it is a new deception that was designed to replace the fraudulent rate-setting perpetrated by Ingenix, a UnitedHealthcare subsidiary. Ingenix and the insurers using them were caught cheating patients by manipulating downward the usual fees charged by out-of-network providers so that they would pay less out-of-network, while the patients had to take up the slack. The insurance industry paid hundreds of millions of dollars in legal settlements and shut down the Ingenix program.

Not to be outdone, without fanfare, they replaced the phony usual fee determination for out-of-network care with an allowable fee based on a percentage of Medicare fees. In most cases, this shifts even more of the costs away from the insurers and onto the patients receiving care. So these Ingenix-driven scam artists have shifted to a worse-than-Ingenix system of manipulating prices, but one that will pass legal muster since it's in the fine print of the insurance contract (as an example, on page 108 of the 126 page booklet of the Oxford/UnitedHealthcare plan mentioned in the article).

Another newer innovation that compounds the injustice of this scheme is that insurers are increasing the number of limited network plans - smaller networks which increase the probability that patients will be stuck with the much higher costs of out-of-network providers.

Also compounding this problem is that the high-deductible plans that flooded the individual market are now being adopted wholesale by employers. Insurers benefit because they can keep their premiums more competitive, even if still outrageous. Employers have complicity with these strategies because they want the lower premiums made possible by protecting the insurers from the costs that are shifted to the patients.

Under the Affordable Care Act, we'll continue to see more of these abuses. Employers will continue to shift more payment responsibilities to their employees. Insurers will continue to innovate to bring them the highest return possible using this sick financing system. And the patients will be exposed to ever greater financial hardship.

Most employers would prefer not to introduce these innovations that stiff their employees, but the very high cost of private plans almost force them to do so. We should relieve employers of the obligation to sponsor their employees' health plans. Above all, we need to eliminate the industry that uses health care payment innovations to enrich themselves at a great cost to patients.

For those who have not yet watched Lawrence O'Donnell's video on employer-sponsored plans and single payer, do it now, and then share it with others: