SummaryA new Avalere analysis finds that New Jersey's "hold harmless" regulations that apply when health plan members involuntarily use out-of network (OON) providers may not protect consumers as intended and, instead, have the unintended consequence of driving up healthcare spending in the state.
The New Jersey “hold harmless” regulations are designed to protect consumers from excessive cost-sharing at the OON point of care by requiring health plans to limit a patient’s financial responsibility to paying for the in-network co-payment, coinsurance, or deductible. However, this consumer protection rule also exposes consumers, employers, and governments to higher insurance premiums after the fact by requiring health plans to reimburse a provider up to 100 percent of whatever is charged.
New Jersey has some of the highest insurance premiums and hospital charges in the nation. New Jersey premiums rank in the top four nationally with an average of $17, 396 for family coverage in 2013. Family coverage premiums have increased 71 percent since 2003.1 While 31 other states have experienced slowdowns in the rate of premium growth since 2010, New Jersey’s premium growth remains high relative to the nation. In addition, New Jersey hospitals are some of the most expensive in the country. 2 Acute care hospitals in New Jersey have the highest Medicare charge to payment ratio of any state, with an average charge that is 630 percent of the Medicare payment rate, compared to a national average charge that is 390 percent of Medicare. 3
The Avalere paper offers policy options for New Jersey based on practices from other states. Specifically, other states protect consumers from the full impact of OON charges by some combination of explicitly banning the practice of balance billing -where providers send bills directly to patients to recoup the portion of their billed charge not paid for by the insurance company – to hold consumers harmless and applying two general approaches, payment benchmark and arbitration, for settling reimbursement disputes between plans and providers.
A payment benchmark approach would use a formula based on a real-world measure (e.g. a fee schedule, in-network rates, or Medicare rates) to determine how much a health plan would pay an OON provider in the case of involuntary utilization. Benchmark options would all limit reimbursement in some way, providing predictability for plans, providers, and consumers, and minimize transaction costs for all parties.
An alternative to the benchmark approach would be for New Jersey to adopt a binding arbitration process, similar to New York’s new law set to go into effect during the spring of 2015 to settle OON disputes. As with the benchmark approach, there are pros and concerns to arbitration.
1. The Commonwealth Fund. State Trends in the Cost of Employer Health Insurance Coverage. 2003-2013. January 2015.
2. The New York Times. New Jersey Hospital Has Highest Billing Rate in the Nation,. May 16, 2013.
3. Centers for Medicare and Medicaid Services. Medicare Provider Utilization and Payment Data: Impatient. May 1, 2014.