An update on state legislation
Manthan Bhatt

Health plans with high out-of-pocket expenses and narrow insurance networks continue to grow in the Affordable Care Act (ACA) market exchanges. As a result, balance billing for out-of-network providers at in-network hospitals has become a major issue for regulators, the media, and physicians.

Insurance regulators, seeking to fix the problem, have created model legislation that will be debated in nearly every state. Their proposal, supported by health plans, limits the ability of out-of-network physicians at in-network facilities to negotiate for their services. State insurance commissioners would regulate providers and their rates, and state legislators would set benchmark rates.

Patients don’t like surprises
Surprise bills arise when patients go to an in-network facility for healthcare services, but are unaware that some services may be delivered by an out-of-network provider. When patients receive a bill from the provider for the services that their insurance is not obligated to fully cover, they are surprised and frustrated—and they’ve communicated their feelings to legislators.

As a result, state legislatures across the country are attempting to remedy surprise charges and protect patients. Last November, the National Association of Insurance Commissioners (NAIC) released a draft model regulation, “Health Benefit Plan Network Access and Adequacy Model Act.” The 17-section model legislation will be introduced across the country.

Specific proposals
Section 6 of the model act creates requirements for health plans, and in-network facilities and providers that create tiers of providers. It requires insurance companies to inform state regulators and the public of the criteria of these tiers. The rules also prohibit plans and facilities from discriminating  among providers based on their patient populations. Finally, it governs the relationship between providers and health plans in creating, managing, and terminating in-network contracts.

Section 7 sets requirements for participating facilities with non-participating (out-of-network) facility-based providers. In effect, it creates billing rules for both emergency situations and non-emergency situations.

Under these rules, patients treated in emergency situations would pay the same amount for care by both in-network and out-of-network providers. If out-of-network provider bills patients, patients would forward the bill to the insurer. If the difference in the billed charge and the plan’s allowable amount is more than $500, the insurer and the provider would participate in a mediation process.

In non-emergency situations, patients unwilling to pay the full bill of more than $500 would pay the traditional in-network portion and forward the rest of the bill to the insurer. This section allows state legislatures to set payments as a percentage of Medicare payment rates. Providers who reject those payments must participate in a mediation process established by the health plan, and must split the cost of mediation evenly with the insurer.

A ban on billing
The model legislation, at its core, limits the ability of out-of-network physicians to bill for services provided at in-network facilities. In most cases, if patients who receive a balance bill do not agree to pay the physician for the services rendered in a non-emergency situation, providers will not be paid unless they go through a mediation process with the health plan or agree to the legislated percentage of Medicare payments.

Surprise bills as a result of narrow networks is a problem created by health plans. Statistics show a significant difference among health plans and their in-network providers at in-network facilities. For instance, some in-network facilities will have a nearly 100 percent rate of in-network providers for certain specialties, while other plans may have no in-network providers for those specialties. An article in the Journal of the American Medical Association (JAMA), titled Adequacy of Outpatient Specialty Care Access in Marketplace Plans Under the Affordable Care Act, showed that plans are being offered with no in-network physicians for a certain specialty within 100 miles of beneficiaries. According to the study, about 14% of plans were deemed specialist-deficient.

Health plans with properly managed networks make significant investments in contracting, negotiations, and other business functions required to attract and build a provider network. But some networks have few or no in-network providers in a certain specialty at an in-network hospital. This saves the health plan money, but does a great disservice to their beneficiaries (the physician’s patients).

Unfortunately, this section results in an incentive system that rewards carriers with the poorest networks and discourages health plans that have invested in their networks. By limiting out-of-network physician payments to a percentage of Medicare or mediation, the model legislation creates “network-in-laws” and reduces the need for health plans to contract with physicians.

The model legislation proposed by NAIC goes much further than the standard role of insurance commissioners. In most states, insurance commissioners are charged with regulating insurance licensees (health plans). The NAIC, in this model legislation, is attempting to regulate providers and the rates that they set.

A more proper role for NAIC would be to address balance billing issues by creating model legislation that further regulates insurance companies. If NAIC is truly concerned with out-of-network billing at in-network facilities, it should turn its attention to model legislation that focuses on the shortcomings in health plan policy benefits.

A link to the NAIC model legislation can be found in the online version of this article, available at

Manthan Bhatt is the manager, state government affairs, in the AAOS office of government relations. He can be reached at


Out-of-Network Providers, In-Network Hospitals

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