Under the Trump administration, short-term, limited-duration health plans, formerly limited to a three-month duration, can be held for up to nearly one year and renewed for up to three years. The flaws of short-term plans — no requirement to cover essential health benefits, annual limits, preexisting conditions exclusions, and excessive cost-sharing — have been well-documented. But another problem with these health plans is that they do not offer a network of health providers, which leads to unexpected “balance bills” for the consumer.
Balance billing occurs when a health care provider bills the patient more than the insurer is willing to pay, and the insured receives a bill from a provider that exceeds the insurer’s payment. This is most common for care received outside of a plan’s provider network. In the case of short-term plans, every medical bill has the potential to become a balance bill. Because most short-term plan insurers have no established contract rates for health care services, they apply an “allowable charge calculation” to every claim, not just out-of-network claims as in the case of insurers with contracted provider networks.
State and federal lawmakers have been searching for ways to solve the problem of balance billing and surprise medical bills that occur when people unknowingly receive care from an out-of-network provider in an Affordable Care Act–compliant plan. But consumers who consider buying a short-term plan, which often has a low monthly premium, should be aware of the high risk of receiving a balance bill under this type of coverage.
People Considering Short-Term Plans Should Be Wary of Balance Billing and Increased Cost-Sharing
For short-term plans, the allowable charge for each claim is determined by applying deductibles and coinsurance to the amount the insurer is willing to pay (i.e., the allowable charge), not the amount the provider bills. The allowable charge is usually significantly lower than actual billed charges. Many short-term plan insurers, among others, use databases that compile provider billing information and categorize it by type of service and geographic area to determine a “usual, customary and reasonable” (UCR) rate that is applied to a claim as the allowable charge.
In the past decade, the New York Attorney General and other state insurance regulators focused attention on UCR databases that are owned or controlled by insurers. The use of these databases has resulted in allowable charge determinations that were often 50 percent lower than a provider’s billed charge. In addition, there is almost no way for a consumer to predict the allowable charge amount.
A current lawsuit in federal court in Montana makes similar fairness claims against a short-term plan using a UCR database. The table below shows a sample of total medical bills submitted for cancer treatment and the amount of the claims actually paid. The insurer accepted $39,300 out of $60,300 in claims submitted for payment and denied $21,000 in claims for other reasons. Out of the $39,300 in claims accepted for payment, the insurer paid 35 percent.1
|
Total claims accepted by the insurer for payment |
$39,300 |
|
“Reasonable and customary” charge reductions applied to allowed claims |
$16,800 |
|
“Allowable charges” eligible for payment by insurer |
$22,500 |
|
Amount paid by insurer, after deductibles, coinsurance, etc. applied |
$13,600 |
|
Amount owed by insured patient |
$25,700 |
Insurers who slash provider charges sometimes portray themselves as fighting a battle against excessive health care costs and claim that they will assist consumers with provider negotiations to lower the charges. However, the consumer is left holding the bag if the provider refuses to lower the billed amount; health care providers may ultimately threaten patients with debt collection. Even if the billed charges are ultimately reduced, the stress and time involved takes a toll on patients.
Looking Forward
Consumers buy health insurance for peace of mind. If consumers choose short-term plans, they are already facing the uncertainty that their claims won’t be paid because of preexisting conditions, benefit exclusions, or annual limits. The threat of significant balance billing further erodes the protection offered.
The Centers for Medicare and Medicaid Services (CMS) raised the lack of a provider network in the preamble to its final rule on short-term plans, and repeatedly invited states to regulate the sale of such plans as they deem appropriate. State lawmakers should consider warning consumers about balance billing issues in disclosures or consider applying network requirements to short-term health plans. Although health plans with adequate provider networks may have issues with surprise medical bills, a short-term health plan with no provider network will present consumers with surprises on nearly every claim that is accepted for payment.
