Imagine going to your local furniture store to pick out a new couch. An eager employee approaches you and helps you find the perfect piece for your new home. You make the purchase, thank the employee, and go on your merry way.
Weeks later, you open the mail. Congratulations! You have received a $500 bill for the “kind” employee’s services. You’ve already paid for the couch, the employee failed to disclose the cost of his services, and despite lengthy conversations with the furniture store and bank, you’re still somehow stuck with the bill.
It seems highly unlikely that any business would succeed long-term while behaving in such an outrageous manner. So why is this practice tolerated in the United States medical system?
If you have interacted much with the medical system, you probably have received a surprise medical bill at some point. They are frustratingly common. If you receive services from an out-of-network provider, even unknowingly, you could end up saddled with crippling and unexpected medical bills.
A March survey found that surprise medical bills are the second highest financial worry for American families, just behind rising gas prices. Worry over surprise medical bills even ranks ahead of utilities, food, and rent – which is astounding when considering the current inflationary crisis.
Worse still, another recent study found that one in three Americans delay necessary care for fear of burdensome bills.
What should be done? Recent federal legislation offers hope, and past California legislation provides a cautionary tale.
On January 1, 2022, the No Surprises Act went into effect. The bill banned surprise bills for most emergency services, with the notable exception of ambulance services. Additionally, it bans additional out-of-network service charges that are assumed to be part of in-network hospital service, such as opting for an epidural while birthing or receiving anesthesia for surgery. Hospitals must charge in-network prices for services that have been out-of-network.
The No Surprises Act also requires hospitals to provide easily understood information about the new medical billing protections no later than when payment for the medical services is requested.
It’s not hard to see how the new rules could theoretically benefit citizens. The Congressional Budget Office projects that the No Surprises Act will ultimately reduce the cost of health insurance for patients, and lessens the amount that the federal government will need to subsidize employer-based insurance.
But there are some potential downsides as well. In 2017, California adopted Assembly Bill 72 as an attempt to curtail surprise billing. Unsurprisingly reckless, California’s rule arbitrarily restricted how much a doctor could make in his practice.
As Pacific Research Institute Senior Fellow Wayne Winegarden found in a 2020 study, the rule exacerbated the doctor shortage. Rather than work more for less pay, doctors decided to work less. Additionally, the study found that the doctor shortage led to increased demands for care, which drove up prices. It also led to increased hospital consolidation, which drives up the price of health care in the regions where consolidation occurs.
In effect, California’s attempt to drive down health care prices through price controls entirely backfired.
The No Surprises Act does not mandate specific price controls in the same way that California’s Assembly Bill 72 does. Preventing “in-network” facilities from issuing surprise bills to patients based on “out of network” prices and requiring hospitals to provide clear price information upfront are important steps forward in favor of transparency.
Ultimately, price controls are not the answer to surprise medical bills or lowered health care costs for all. True transparency in health care costs will enable consumers to find the care they need at a reasonable price.
McKenzie Richards is a policy associate at the Pacific Research Institute.