No Surprises Act: A Federal–State Partnership to Protect Consumers from Surprise Medical Bills

Abstract

• Issue: The No Surprises Act aims to protect consumers facing surprise medical bills when receiving care from out-of-network providers in circumstances outside their control. The law allocates roles to states to implement and enforce these new consumer protections.
• Goal: To evaluate the federal–state partnership to implement the No Surprises Act, including state decisions around enforcement, determining payments to out-of-network providers, protections beyond federal standards, and education of stakeholders.
• Methods: Analysis of state and federal regulatory documents, enhanced by interviews with insurance regulators in 12 states.
• Key Findings: To enforce protections under the No Surprises Act, most states are partnering with the federal government. In the majority of states, disputes over payments to out-of-network providers will be resolved by the federal independent dispute resolution system. Some state systems for resolving payments are more favorable to health care providers, potentially leading to higher awards and inflating health care costs. In many states, the No Surprises Act expands state protections against surprise bills, but some states offer additional protections. Consumer and provider education is important to guaranteeing effective protections.

Introduction

The No Surprises Act protects consumers with most types of private health insurance coverage against certain surprise medical bills (Exhibit 1).¹ It was signed into law in 2020, and most protections went into effect as of January 2022.²

The new law addresses surprise medical bills in three circumstances:

1. When an enrollee receives emergency care either at an out-of-network facility or from an out-of-network provider
2. When an enrollee uses air ambulance emergency transport services (but not ground ambulance services)
3. When an enrollee receives nonemergency care at an in-network facility but is treated by an out-of-network health care provider without knowingly electing that provider or giving consent to be billed.

In these scenarios, the law guarantees that consumers’ costs are limited to in-network cost sharing and bans providers from sending patients balance bills for any amounts beyond that cost sharing. The No Surprises Act built on lessons learned from 33 states with existing laws protecting consumers against surprise medical bills.³

The No Surprises Act fills in gaps left by existing state-law protections, including key areas where other federal laws preempt state actions. The federal Employee Retirement Income Security Act of 1974 (ERISA) prohibits states from adopting surprise-billing protections for consumers in self-funded plans — typically offered by employers that bear insurance risk for their employees — though a few states allow self-funded plans to opt into state protections. In addition, the Airline Deregulation Act blocks states from enacting effective protections for those using air ambulance services. The No Surprises Act establishes nationwide protections in both of these circumstances.

The federal law also goes further than most state laws by including protections for poststabilization services administered after an emergency patient has been medically stabilized. The No Surprises Act also adds protections where state laws were not comprehensive, such as for facilities omitted from certain state laws (like critical access hospitals in Nevada) and excluded medical services (such as nonsurgical, nonemergency services provided in Virginia facilities).

In writing state laws, policymakers learned that effective laws required establishing how much the insurer must pay the out-of-network provider. Early on, most states used a single approach, either a specific payment standard or formula for setting the amount paid or neutral binding arbitration for setting the amount. But these approaches regularly set providers (favoring arbitration) against insurers (favoring a payment standard). Many states resolved the logjam with a hybrid approach that established a standard for the insurer’s payment but allowed providers to invoke dispute resolution if they were dissatisfied with the amount.

The federal law rejects the hybrid approach in favor of independent dispute resolution (IDR) but places strict guardrails on IDR with the dual goals of limiting its use and reducing the likelihood of large awards that might raise consumer premiums. The federal law requires an initial payment (or denial) by the insurer but does not specify the initial payment amount. If that payment is unsatisfactory to the provider, the law calls for providers and insurers to negotiate. If negotiations fail, parties may initiate arbitration. While this is not the hybrid approach preferred by some states because it does not establish a payment standard, the No Surprises Act recognizes the risks of an unrestricted IDR system by limiting the factors arbitrators may use in making decisions.

In states with existing surprise-billing laws, federal protections take precedence except where state laws are more protective of consumers. The primary exception is that the federal law defers to state mechanisms that determine payments to out-of-network providers in lieu of the federal IDR system, where state law has authority.

This report explains how federal and state governments are partnering to implement and enforce the No Surprises Act. It also describes state and federal efforts to educate consumers and other stakeholders about their new rights and responsibilities. We also explore various ways state laws interact with the federal law.

Key Findings

To enforce the surprise-billing protections of the No Surprises Act, most states are partnering with the federal government.

Under the No Surprises Act, states are the primary enforcers. The law provides for federal enforcement when states fail to substantially enforce the law, often because they lack statutory authority or capacity to do so.⁴ The federal government also will enforce the law for self-funded plans not subject to state regulation.⁵ Federal regulators have provided for a middle ground in which states share enforcement responsibility with the federal government on a provision-by-provision basis, sometimes under a collaborative enforcement agreement. Three-fourths of states have elected to share enforcement (Exhibit 2).

Enforcement approaches vary across the different types of regulated entities: state-regulated insurers, individual providers and facilities (combined for the purposes of this analysis), and air ambulance providers. Five states (Idaho, Iowa, Maryland, Pennsylvania, and West Virginia) indicated that they have the legal authority, willingness, and resources to undertake enforcement of the surprise-billing provisions for all types of entities other than self-funded plans. West Virginia set itself up for state enforcement with 2021 legislation giving the insurance commissioner authority to enforce the No Surprises Act, including the ability to impose fines and engage other state agencies as needed.⁷ One state official there suggested that the environment of a small state creates opportunities to communicate and ensure that stakeholders are complying. An official in another state, while committing to state enforcement initially, suggested that a collaborative enforcement agreement might be needed in the future to take advantage of the federal authority to impose fines.

Another four states (New Jersey, New Mexico, New York, and Texas) will tackle enforcement for insurers, facilities, and providers, but not for air ambulance providers. States are most likely to enforce on insurers, with 16 states taking on this traditional role on their own while either sharing responsibility for provider enforcement with the federal government (e.g., Maine and Washington) or deferring to federal enforcement for providers (e.g., Nevada and Utah) (Exhibit 3). An official in one state suggested that a combination of factors led to a decision not to enforce directly against providers while doing so against insurers. These include a lack of staffing capacity, resources, and authority.

At the other extreme, seven states will defer all enforcement to federal agencies. In Oklahoma, for example, the willingness and resources are there, but the statutory authority is not. According to one insurance official, the state will nonetheless continue to investigate complaints they receive and work with carriers and sometimes providers to resolve them. Where enforcement action is required, they will hand the case off to federal agencies.

Many states use collaborative enforcement agreements to define federal and state roles.

In most states, enforcement will be shared through a state–federal partnership. Some states, such as Texas and Virginia, have elected to enforce a specific subset of standards in the law, while the federal government will directly enforce the others. Virginia will enforce issuer standards for most emergency and nonemergency services, but the federal government will enforce for independent, freestanding emergency departments and poststabilization services. There is a similar split for provider enforcement, except that federal enforcement will be used for air ambulance services.

Other states, such as California, Colorado, Nebraska, and Wisconsin, are formalizing their shared roles through collaborative enforcement agreements with the federal government. One Wisconsin official indicated that although the state could enforce some insurer provisions directly, a collaborative enforcement agreement provides federal backup if needed.

Under a typical collaborative enforcement agreement, the state investigates complaints about violations. Such violations might include a provider sending a balance bill that is not allowed or an issuer not making a timely payment to the out-of-network provider. The state then contacts the issuer or provider informally or sends them a voluntary compliance letter and gives the entity an opportunity to correct the violation. Officials in states with existing surprise-billing protections have indicated that many such violations are unintentional, and most entities make the needed correction. But if they do not, the case would be referred to the federal agency for further action.

After an initial learning period, it may turn out that the need for active enforcement is rare. Some state regulators said that compliance with their state surprise-billing laws has been high. A California state official noted, “My expectation is that our health plans will comply with the No Surprises Act. In general, we don't see a lot of flagrant violations.” Nevertheless, enforcement processes are being put in place across the country with the goal of addressing consumer complaints.

In a majority of states, disputes over determining payments to out-of-network providers will be resolved by the federal independent dispute resolution system.

The default system for resolving payment disputes between insurers and out-of-network providers is the federal system of negotiations and IDR. But the federal approach will not apply in situations where a state has its own mechanism for determining how much state-regulated insurers should pay out-of-network providers. These state laws, referred to as specified state laws, apply only when the insurer, the provider, and the service are within the state jurisdiction. Typically, this includes fully insured plans but not employer-sponsored self-funded plans.⁸ The No Surprises Act imposes no requirement that the state approach matches the federal approach. Thus, state laws are recognized regardless of whether the state uses an IDR process, a payment standard, or a hybrid of the two.⁹

Nearly half the states are using existing state processes to determine payments.

Twenty-two states are recognized to have specified state laws and thus use the state process (Exhibit 4). Two of these approaches are noteworthy. Disputed out-of-network hospital rates in Maryland will be set by the state’s all-payer rate system. Alaska’s rules for determining rates for emergency services are recognized as a specified state law, even though that law did not fully protect consumers from surprise bills. The federal law now guarantees protections for Alaska’s consumers.

Of note, some state laws have a narrower scope than the No Surprises Act. Payment for services not covered under these laws will go through the federal IDR system. For example, Virginia’s law does not apply as broadly to nonemergency services as does the new federal law. It applies only to surgical or ancillary services; nonsurgical services delivered in a facility are covered by the No Surprises Act and the federal IDR framework.

In addition, state payment determination processes typically do not apply to air ambulance payment disputes, since these providers were not subject to state regulation prior to the No Surprises Act. Thus, the federal IDR system will apply except in four states where policymakers elected to use state systems for determining payments for air ambulance providers.

There is also variation in whether the state or CMS will enforce the outcome of the payment determination — that is, ensure that the plan actually makes the correct payment to the provider. Overall, 25 states intend to enforce all payment determinations for insurers and providers (with a few exceptions for air ambulance cases), regardless of whether they use the federal IDR process or their state system. But about half of those states will do this with the help of a collaborative enforcement agreement, for example, allowing the federal government to enforce the outcomes of state processes. In other states, payment determinations are either federally enforced in all cases or at least for cases that rely on federal IDR.

Cost-sharing rules vary under specified state laws.

The No Surprises Act bases cost sharing paid by consumers on in-network rates. Where a deductible or percentage coinsurance applies, it uses the qualifying payment amount (the median in-network rate) and does not vary that amount when IDR decisions lead to different payment to providers.

Where specified state laws are recognized to resolve payment disputes, that state law also determines cost-sharing calculations. Although these state laws typically require in-network cost sharing, not all specify whether cost sharing is affected by arbitration results and most lack specific rules to determine cost sharing where coinsurance or deductibles apply. At least one state is modifying prior policies to align with the federal law. New York established that arbitration decisions yielding higher payment amounts will not raise cost sharing (like the federal policy), but lower payments will reduce cost sharing, which is more favorable for consumers than the federal policy.¹⁰

The federal decision to recognize state payment determination methods leaves in place existing systems that stakeholders have learned to use. But separate state laws could cause confusion for consumers, providers, and payers since they will use different approaches in different insurance markets (state-regulated versus self-funded) and even for different types of services. For example, the federal system might apply to poststabilization services not covered in state laws, while the emergency services up to the point of stabilization use the state process.

Some state systems for determining payment are more favorable to providers, thus potentially inflationary.

In establishing the federal independent dispute resolution system, Congress gave a key role to the qualifying payment amount, defined as the median in-network rate, in selecting between amounts submitted by providers and issuers. In implementing this provision, federal agencies spelled out how the various factors are to be considered.¹¹ These guardrails, which contributed to the estimate by the Congressional Budget Office that the No Surprises Act would lower premiums by 0.5 percent to 1.0 percent compared to projected levels, are under challenge in the courts.¹²

Some specified state laws dictate a different approach for determining payments to out-of-network providers. Some state approaches have inflationary potential by driving up awards and thus health costs and premiums (Exhibit 5). We estimate that at least nine states have systems friendlier to providers than the federal system.¹³ These states typically give a role to billed charges or usual and customary charges in determining payment amounts, factors that are prohibited in the federal system.

Three state arbitration systems (New Jersey, New York, and Texas) allow consideration of billed charges or usual and customary charges. As a result, these standards are friendlier to health care providers than to insurers and could lead to higher payments for providers.¹⁴ In 2022, New York added median in-network charges as another factor that can be considered in arbitration, a move that should provide greater balance between consideration of billed charges and in-network rates going forward. According to one study, median awards by New Jersey arbitrators on average were 5.7 times median in-network prices and often much higher.¹⁵ Similarly, Alaska, Connecticut, and Ohio have payment standards that rely in part on charges, which could lead to higher awards.¹⁶

Some state systems promote cost containment.

By contrast, the rate standards or arbitration factors used by at least seven states may not promote higher payments and may even bring payments down. California sets payment for nonemergency, out-of-network services at the greater of 125 percent of the Medicare rate (an approach that is not allowed in the federal system) or the health plan’s average contracted rate. Colorado’s standard for providers (not facilities) is the greater of the 60th percentile of in-network rates across insurers or 110 percent of the insurer’s in-network rate. Maine sets payments using the insurer’s in-network rate and directs arbitrators to consider the in-network rate in their decisions, thus limiting the potential for inflationary awards.

Other state systems are more open ended.

In other states, arbitrators have considerable discretion. Virginia and Washington require payments at commercially reasonable rates determined by insurers, which are likely to be close to in-network rates. Georgia requires payments at in-network rates. If these payments are challenged in the state IDR system, the laws do not direct arbitrators toward or away from billed charges. Few arbitration cases have been filed in Washington, even though some insurers report offering payments slightly below median in-network rates.¹⁷

While the No Surprises Act expands consumer protections in many states, some state laws offer even greater protections.

The No Surprises Act allows certain providers to ask patients in advance to waive protections from surprise medical bills by signing a consent waiver under strict limitations that disallow requests at the time of service and forbid requests for emergency services or for ancillary services surrounding a nonemergency service. Some states go further. In at least four states, no consent waivers are allowed. Several other states require more advanced notice than under federal rules.

Some state laws go beyond the No Surprises Act to include protections for a greater scope of services. For example, protection for ground ambulance services was omitted from the federal law, in part because of uncertainty over how to handle ambulance services operated by cities, counties, and other public authorities. However, 10 states offer some protections for consumers when they use ground ambulance services.¹⁸

As in the federal law, most states limit protections for nonemergency services to those delivered in facilities. The No Surprises Act defines facilities as inpatient hospitals, critical access hospitals, hospital outpatient departments, and ambulatory surgery centers. In rulemaking, federal officials have requested public comments on defining facilities more broadly. Some state statutes also include skilled nursing facilities, infusion centers, and dialysis centers, among other sites, or include other services like diagnostic imaging or laboratory services. At least two state laws also extend surprise billing protections to services delivered in physician offices or other outpatient settings.

Federal and state officials appear to recognize that education is important to ensure effective protections.

It is important that consumers, insurers, and providers understand how the No Surprises Act affects them. In an ideal world, consumers would benefit from the new protections without direct action on their part. A provider would no longer send balance bills and limit bills to in-network cost sharing. But during the first year, both providers and insurers will be learning the rules and developing procedures for sharing information and billing correctly.

In addition to leveraging federal efforts, many states are taking additional steps to educate consumers on new protections.

Consumers should be aware of their options if they receive a bill they believe is incorrect. The first step should be to review insurers’ explanations of benefits to determine whether a bill results from something like not having met a deductible. If the bill qualifies as a surprise medical bill, consumers should contact their insurer and provider to ask for a corrected bill.

If this step fails, consumers should file complaints. There is no monitoring system where the federal government or state governments track provider bills, and insurers cannot see from claims whether balance bills are sent. Consumer complaints are therefore an essential component of enforcement. The federal government has published resources online for people to learn about their rights and has a portal for submitting complaints.¹⁹

Many states also are acting to educate consumers and other stakeholders. In Idaho, Indiana, New York, Oklahoma, West Virginia, Wisconsin, and other states, websites provide basic information on consumer protections as well as links to federal resources.²⁰ Some states also are creating portals and phone lines to take in complaints. Pennsylvania’s online resource page includes a “no surprises bill review request form.”²¹

One challenge for states is ensuring that information is available when a potential surprise bill is received. Pennsylvania is developing a brochure, conducting social media outreach, and leveraging the governor’s office to help.²² The Montana insurance commissioner issued a statement to publicize the state’s efforts.²³ Other states are primarily directing consumers to federal resources. Some states are ensuring that relevant phone numbers and websites are available on the explanation of benefits statements consumers receive from insurers after receiving a health care service. In addition, Colorado, New York, and Texas, among other states, require that insurance identification cards specify whether the insurance is state-regulated or falls under federal ERISA rules. Making this information readily available can help consumers and providers know which government has jurisdiction.

Insurers and providers need to understand their responsibilities.

Even more important is the education of insurers and providers, since they are responsible for ensuring that consumers are notified of their rights and protections and correctly billed when receiving services from out-of-network providers. The transfer of information for out-of-network claims requires new avenues of communication between providers and insurers moving in both directions.

Providers and insurers also need to understand the steps involved in billing disputes, including whether state or federal IDR processes apply. When negotiations and IDR are invoked, participants are required to exchange information about the applicable qualifying payment amount, amounts to be paid, and documentation of factors IDR entities may use in making a payment determination.

There are new federal resources for medical providers and insurers, including a U.S. Department of Health and Human Services website that informs providers where they can submit complaints or get information about the new requirements.²⁴ A separate webpage provides information on the federal IDR process.²⁵ In addition, the U.S. Department of Labor has a webpage for self-funded group health plans.²⁶

Discussion and Policy Implications

Implementation of the No Surprises Act has been a substantial undertaking, requiring federal agencies to develop a complex regulatory framework and facilitate its adoption, all in a short time span. Simultaneously, states have compared their own surprise billing laws to the federal law to understand interactions. Many states have launched websites and educational outreach to ready citizens and stakeholders for a smooth and effective implementation.

Enforcement is a particular challenge. Consumer complaints are critical for identifying compliance issues because there is no systematic way for government agencies to track incorrect bills. The federal government will receive complaints through a federal portal and phone line. In the spirit of this “no wrong door” policy, complaints also may be received by state insurance departments. Ideally, complaints will be routed quickly and efficiently to whatever state or federal agency can best investigate and address them. Many believe that informal contacts to a noncompliant insurer or provider will resolve most complaints.

It will be important to monitor these efforts to learn how well and how quickly complaints are resolved and how often they must be elevated to a more formal enforcement process. For example, the U.S. Department of Labor lacks a track record for effective oversight of self-funded plans.²⁷ And many states lack any history for enforcing requirements on facilities and providers with regard to billing issues.

Inevitably, enforcement processes will evolve. The law anticipates that states have the primary enforcement role, but initially most will partner with federal agencies or rely entirely on federal enforcement. Some states may enact laws to give their agencies clearer enforcement authority, allowing them to take on a larger role in the future. Similarly, collaborative enforcement agreements between federal and state agencies may evolve as experience demonstrates how enforcement works best.

Over time, state policymakers will debate changes to their existing surprise billing laws. Some states may opt to align state protections more closely to the federal law to reduce confusion and simplify procedures. For example, New York enacted changes to update the state surprise billing law to align it with the No Surprises Act.²⁸ Similarly, Washington enacted legislation to expand protections in state law to medical specialties not currently covered, modify their handling of poststabilization services, and make other adjustments.²⁹

Some states also may consider filling gaps in the federal law’s protections. States may also consider expanding protections for services provided by ground ambulances or in facilities other than hospitals and ambulatory surgery centers. Furthermore, Congress may decide to expand on the law in areas such as ground ambulance services, and there are some potential areas where the federal agencies have authority to expand the law.

One unanswered question in the law’s implementation is the final resolution of lawsuits filed by provider organizations challenging the rules for how the qualifying payment amount should be considered in IDR determinations.³⁰ The final rule, released in August 2022, addressed issues raised in the litigation.³¹ Some litigation remains active, and further changes could curtail the cost-containment goals that were important to congressional sponsors of the No Surprises Act.

Even after litigation is resolved, other battles over payment determination may arise in state legislatures. Providers may push for state payment determination processes that are more favorable to them. Alternatively, advocates for cost containment may push for systems like those in California and Maryland that may reduce costs.

The long-term success of the law also will rely on oversight from state and federal agencies, both to monitor the law’s efficient operation and to identify any adverse consequences. The No Surprises Act calls for various studies of its impact on provider networks, health costs, provider concentration, and the role of private equity. Some states already report on the impact of their state laws on both costs and the prevalence of out-of-network claims. A focus on these issues by government agencies and researchers will be critical to identifying adverse effects and opportunities for adjustments.