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McMahon: Patients hurt in insurance fight

The Supreme Court's decision on the Affordable Care

The Supreme Court's decision on the Affordable Care Act health care reform law is expected on Thursday, June 28. Photo Credit: TMS illustration / Paul Tong

The pitfalls of a government-run health insurance system were best summed up by political satirist P.J. O'Rourke: "If you think health care is expensive now, wait until you see what it costs when it's free."

Here's a corollary: If you think health insurance in New York costs a lot now, wait until the state starts enforcing "fair" reimbursement levels for health care providers.

Heavy-handed regulation has already wrecked New York's individual health insurance market, and Gov. Andrew M. Cuomo's reinstatement of tighter state control over small-group health insurance rates is backfiring. Unable to raise premiums high enough to cover projected losses, Empire Blue Cross Blue Shield is discontinuing its most popular small-business plans in the New York City region.

The latest battle in Albany's health care regulatory war is being fought over proposals to set a floor under what health insurers pay to physicians outside their contractual networks.

As attorney general a few years ago, Cuomo investigated charges that insurers were sticking consumers with too much of the cost for out-of-network care. He concluded that an industry database owned by one of the largest insurance companies had been rigged to minimize out-of-network reimbursement rates.

To settle the case, eight major insurers agreed to set up an independent nonprofit company, called Fair Health, to maintain a database of "usual and customary" fees charged by providers.

It was assumed insurers would reimburse providers based on Fair Health rates -- but it hasn't worked out that way. Insurance companies claim some specialists are deliberately billing much higher charges than they actually expect to receive, automatically driving up the Fair Health benchmarks. Major insurers have been reimbursing out-of-network providers based on the lower rates paid by Medicare. Physicians, in turn, claim they are being unfairly squeezed.

Consumers are caught in the middle. The state Department of Financial Services recently reported that it "regularly receives complaints from consumers who have done everything reasonably possible to use in-network hospitals and doctors, but nonetheless receive a bill from a specialist or other provider who the consumer did not know was out-of-network."

The department cited a case in which a consumer had to pay a $7,516 bill from the out-of-network surgeon who participated in his heart surgery, and another in which a patient was not informed that an out-of-network anesthesiologist, whose $1,800 bill was not covered by insurance, would be used in his gallbladder surgery. In yet another complaint, the department said, "a neurosurgeon charged $159,000 for an emergency procedure for which Medicare would have paid only $8,493."

To deal with the problem, a few weeks ago the department floated a draft bill that would have required insurers to pay at least half of what Fair Health says they should pay for out-of-network services, while prohibiting "excessive" emergency room fees. But insurers pointed out -- not unreasonably -- that this would still give providers an incentive to game the system by ratcheting up prices. Faced with widespread employer fears that a reimbursement floor will lead to higher health insurance premiums, the governor's office reportedly is working on a new version of the bill.

While the Fair Health settlement is closely identified with the Democratic governor, this is not a partisan issue. Another measure requiring insurance policies to offer "significant coverage" of Fair Health rates has been sponsored by Sen. Kemp Hannon (R-Garden City), while the most prominent legislative opponent of this approach has been Assemb. Joseph Morelle (D-Rochester).

If there's one thing all sides should agree on, it's the need to require insurers and providers to give consumers more information on fees and coverage before visits and procedures. To the governor's credit, improved transparency is a key element of his proposal. Beyond transparency, however, Cuomo and the legislature should consider some better ways to protect consumers and hold down costs.

First, set up an arbitration process to resolve reimbursement disputes between insurers and physicians, while shielding consumers from bills for disputed balances. Such a law was enacted in Illinois two years ago.

Second, cap jury awards for "pain and suffering" in medical malpractice suits. This would help reduce malpractice insurance premiums for physicians.

The impact of any changes to the state's health insurance laws will be complicated by Obamacare, assuming it survives a Supreme Court challenge. In the meantime, New Yorkers looking for relief from high insurance costs should remember that when government controls prices, someone always pays in the end.

E.J. McMahon is senior fellow at the Manhattan Institute's Empire Center for New York State Policy.