Surprises in the No Surprises Act: An Interview with Greg Fann
By Kristi Bohn
Health Watch, September 2024
Kristi Bohn (KB): Greg, thank you for joining me to discuss the No Surprises Act, and if it’s all right, we can also refer to it as the NSA.
Greg Fann (GF): Thank you, Kristi. It’s good to be with you. NSA works for me. I think there’s a National Security Agency or something that may have claimed that, but I’m used to sharing acronyms in this business. We’ve partnered on several ACA [Affordable Care Act] study notes, and it’s good to have a chance to talk about something else that’s impacting the health care space, where I hear there’s a lot of actuarial interest.
KB: Great. Can you start by providing an overview of what the No Surprises Act is and its primary objectives?
GF: Absolutely. The “No Surprises Act” was passed as part of the Consolidated Appropriations Act of 2021, and it aims to protect consumers from surprise medical bills, particularly those incurred during emergency services or from out-of-network providers at in-network facilities. Its primary objectives include establishing a fair payment process between insurers and medical providers, ensuring patients are only responsible for in-network cost-sharing amounts, and preventing balance billing in certain situations.
From a macro policy standpoint, it falls under the broader aim of fostering greater transparency in health care prices, an issue that has received generally broader bipartisan support in recent years than other health care policy concerns.
KB: When did the act pass, and when did its provisions become effective?
GF: The law became effective on January 1, 2022. Its independent dispute resolution (IDR) process became effective in April 2022. The IDR is a voluntary forum for health care providers and health insurance issuers to resolve disputes about how much should be paid for out-of-network care.
KB: How do the act’s provisions aim to protect consumers from surprise medical bills?
GF: The act primarily protects health care consumers by prohibiting balance billing for emergency services and certain nonemergency services provided by out-of-network providers at in-network facilities. One way of thinking about this is it effectively characterizes some out-of-network services as “in-network” for cost-sharing and reimbursement purposes if consumers did not make a conscience choice to use out-of-network services. For example, the act protects consumers from being financially “surprised” when they receive out-of-network care at in-network facilities.
Three general categories are protected from surprise bills:
- Most emergency services, including post-stabilization, from an out-of-network facility
- Nonemergency services from an out-of-network provider at an in-network facility
- Out-of-network air ambulance services
Interestingly, the NSA does not protect ground ambulance services from surprise bills.
KB: Changing the cost sharing seems easy enough, but how does the NSA establish the equivalent of an in-network price when there is no network and no price?
GF: Great question. That’s getting into some of the technical details of the law. In most cases, a qualifying payment amount (QPA) applies, which is the median contracted rate that a health plan pays to providers in the same geographic area adjusted for some qualitative factors. There are a few caveats: billed changes would apply if they’re less than the QPA, but this comparison only applies if state law doesn’t determine the amount, and prior to the state law consideration is a state All-Payer Model Agreement.
KB: Stepping back for a minute, “surprises” in health care do not generally elicit positive sentiments. Why do we have these surprises in the first place?
GF: When Americans enroll in health insurance plans today, a network of medical providers is almost always attached to their health insurance coverage. Insurers have prearranged contracts with network medical providers that dictate the payment providers will receive, and the insurance contract determines how that payment is split between insurers and enrollees.
The “surprises” arise when enrollees receive services, sometimes unknowingly, from providers who are not “in the network” and have not agreed to a prearranged payment amount with insurers. These “out-of-network” bills have historically been surprisingly high for three quantifiable reasons: (1) without a prearranged contract, medical providers can charge higher amounts than what they negotiate with in-network providers; (2) insurers often require greater cost sharing for out-of-network services, usually a higher percentage of an “allowed amount”; and (3) insurers may limit their allowed amount on out-of-network services and consumers might receive a “balance bill” representing the full difference in the provider’s amount and the insurer’s allowed amount. Consumer complaints regarding surprise billing eventually reached Congress, and this issue has been a recognized public policy concern for a long time.
The NSA came into play after years of various sporadic efforts to control out-of-network billing and surprise medical bills. Previous attempts included state-level regulations and insurer negotiations to limit balance billing and protect patients from excessive costs. However, these efforts were often limited in scope and effectiveness due to varying state laws and complexities in regulating health care pricing.
To put the timeline in perspective, there is a fascinating congressional hearing from 2009. Congress was skeptical of purported industry improvements in methodology to determine fair out-of-network payments. Chairman Rockefeller of the Senate Committee on Commerce, Science, and Transportation cynically remarked during the hearing, “Suddenly the future is rosy and this is a wonderful thing … There is going to be so much transparency. It is going to be so much better for the out-of-network consumer … As somebody who has been working on health care all of my life, this is very suspicious to me, this sudden glowing view of the future, completely putting aside what I consider a very sordid past.”[1] Arguably, the market environment for out-of-network claims had not materially improved when the NSA passed. And of course, NSA application only applies to some out-of-network claims, so the broader concern of out-of-network surprise bills remains, albeit for a smaller percentage of the health care dollar.
KB: Is the NSA doing what it’s supposed to do? Is there evidence to support that it’s affecting the degree of surprise medical bills, balance billing and patients’ financial outlays?
GF: Evidence on the law’s impact is still emerging. Researchers have been studying its effects on surprise billing rates, balance billing and patient financial burdens. Early evidence suggests that the act has reduced surprise medical bills and patient financial burdens, though comprehensive data on its full impact are not yet conclusive. Early reports indicate fewer incidences of surprise billing, although precise statistical trends are still being analyzed.
KB: How many companies are working in the No Surprises Act arbitration field?
GF: Seven thousand, four hundred and ninety-one. I’m kidding, I don’t have an exact number. The act introduced an arbitration process for resolving disputes between providers and insurers. Many companies now participate in this field, but exact numbers are not readily available. As of recent data, multiple companies are engaged in the arbitration process set forth by the No Surprises Act, with various entities providing arbitration services across the United States.
KB: Can you explain how the act’s “baseball” arbitration set-up works?
GF: The name is derived, unsurprisingly, from a common method of arbitrating major league baseball players’ contracts. The basic idea is that two parties submit their best “fair” amount to an arbitrator, who decides which one is the “fairest.” The arbitrator must choose one offer without modification, promoting a fair resolution; the arbitrator cannot develop a “fairer” solution—one of the two submitted options has to be selected.
KB: Can you provide an example?
GF: Sure. Imagine a scenario where Dr. Strawberry bills a patient $1,000, and Steinbrenner Insurance offers to pay $500. The arbitrator must choose one amount—either $1,000 or $500—without compromise. If allowed costs for other medical providers in the geographical area converged around $950, the arbitrator would likely determine that $1,000 is a fairer choice than $500.
KB: The arbitration process is very different from the arbitration process that had already been in place for a long time for individual and fully insured plans, as overseen by state regulators. Can you provide an overview of the major differences?
GF: The NSA’s process differs significantly from prior state-regulated arbitration. Unlike traditional arbitration, which varies widely by state and practice, the NSA’s arbitration involves randomized arbitrators and limits the consideration of evidence to data-based benchmarks. The intent is to promote fairer outcomes, prevent biases and potentially reduce costs.
KB: What steps should health care providers and insurers take to ensure compliance with the No Surprises Act and minimize potential penalties?
GF: Health care providers and insurers should ensure compliance by familiarizing themselves with act requirements, implementing clear billing procedures, complying with billing and disclosure rules, and actively engaging in good-faith negotiations to resolve disputes promptly.
KB: Are there any potential loopholes or areas of ambiguity in the No Surprises Act that stakeholders should be aware of?
GF: Yes. Potential loopholes include issues with network adequacy, balance billing in nonemergency scenarios and compliance challenges in arbitration processes. Stakeholders should remain vigilant in interpreting and adhering to the act’s provisions.
KB: Are there any regulatory changes being considered in terms of the No Surprises Act?
GF: Nothing stands still in health care. Ongoing discussions may lead to adjustments in regulatory frameworks surrounding the NSA, particularly in response to stakeholder feedback and evolving industry practices.
KB: Let’s take a break and continue this discussion in the next issue, but let’s end with how we titled this interview. What are the surprises in the No Surprises Act?
GF: That’s a really good breaking point. I think the biggest surprise, and something we’ll talk more about in the next segment of this interview, has probably been that the number of disputed payments is about 14 times what was projected.[2] I don’t know if it’s a surprise or not in retrospect, but there have been implementation challenges and inconsistencies in the interpretation and application of the new rules. I think a lot of the messiness is natural with disruptive changes like this, and things will get cleaned up as we move forward.
Thanks again for these great questions. To summarize where we are, I think we have covered what the NSA law is, what it is intended to do and how things are going. We can dive deeper into the complex IDR process and talk about some of the technical details later. This is the area that I believe has the most remaining uncertainty, and addressing some of these challenges may take stakeholders some time to figure out. As I often say, things happen fast in health care. Maybe we’ll know more when we regroup in a few months.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the editors, or the respective authors’ employers.
Kristi Bohn, FSA, MAAA, is senior vice president, U.S. Group Re. Kristi can be reached at kristi.bohn@rgare.com.
Endnotes
[1] Deceptive Health Insurance Industry Practices: Are Consumers Getting What They Pay For?—Part II, Hearing on Hrg. 111-37, Pt. 2, Before the Committee on Commerce, Science, and Transportation, First Session, 111th Congress (March 31, 2009) (statement of Senator John D. Rockefeller IV, Chairman), https://www.commerce.senate.gov/services/files/8ce9282d-acd6-451d-9f88-7056a88d5abb.
[2] Brian Blase, “Surprise Billing, ACA Plan Switching, & Capping the Exclusion,” Paragon Health Institute, April 12, 2024, https://paragoninstitute.org/newsletter/surprise-billing-aca-plan-switching-capping-the-exclusion/.