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21 Health Law. 20 (2008-2009)
Everyone Pays the Price When Healthcare Providers Waive Patients' Co-Insurance Obligations

handle is hein.journals/healaw21 and id is 60 raw text is: EVERYONE PAYS THE PRICE WHEN HEALTHCARE PROVIDERS WAIVE PATIENTS' CO-INSURANCE OBLIGATIONS Michael H. Bernstein, Esq. John T. Seybert, Esq. Sedgwick, Detert, Moran & Arnold LLP New York, NY Recently, the Comptroller for the State of New York identified eight million dollars in over-payments by the state self- funded health benefit plan to eight large healthcare providers, caused by the providers' waiver of patient co-insurance obligations.' These out-of-pocket costs are the expenses a health plan member is required to pay a provider by his or her health insurance plan-usually in the form of a deductible, co-pay or co-insurance payment. These expenses are meant to give members pause before seeking medical treatment by imposing a small financial cost for each medical encounter in order to prevent over-use of health benefits. Some providers routinely waive the out-of-pocket costs because they can still profit from receiving the insurance company's payment, and also attract more patients due to the cost savings provided.2 But this practice actu- ally frustrates the purpose of these costs and does damage across the entire spec- trum of the healthcare delivery system. There are only a few legal opinions discussing the impact that waiver of patient co-insurance costs has on the private healthcare industry. This is surprising because routine waiver of out- of-pocket costs by providers produces a number of problems, not the least of which is interference with an enrollee's contractual obligations to make the payments to the providers. Issues of unfair competition also arise when co- insurance payments are waived by some providers, while others abide by the rules - and lose patients in the process. There is also a dearth of authority explaining the financial consequences of this prac- tice for insurance companies, self-funded groups and governmental entities that generally pay the medical claims. 20 Nonetheless, the economic impact on insurance companies as a result of such waivers is significant. In fact, providers' waiver of their patients' out- of-pocket costs results in: (1) inflation of provider billed charges; (2) interference with health plan insurers' relationships with network providers; and (3) overuti- lization of medical services and procedures. These consequences lead to higher healthcare costs for everyone, and ultimately damage the delicate financial balance between healthcare service providers, the patients they treat, and those who pay for these medical services. The Healthcare Payment System Most private health insurance companies offer two types of coverage- in-network coverage and out-of-network coverage. In-network coverage involves using only those providers who appear in a directory provided by the insurance company. Insurance companies create these networks by contracting with providers of healthcare services to accept certain cost controls, which include: accepting an agreed-upon rate for services; collecting co-payments from patients (generally a nominal amount of $10 to $15 per visit); and obtaining insurance company pre-certification before rendering certain services. In return for agreeing to these condi- tions, providers receive direct payment from the insurance company (generally within a set time-period) and a higher volume of patients, or steerage. Steerage occurs because the use of in-network providers is usually less expensive to the member. Generally, a token co-insurance payment is the only financial obligation patients incur in order to receive covered services. Patients also avoid the red tape hassles of paying the provider, completing claim forms, and pursuing reimbursement from the insurance company. The Health Lawyer Insurance companies also often provide out-of-network coverage for services a member receives from providers with which it does not have a contractual relationship.3 The insurance provided is designed to compensate the insured for the expense of these out-of- network services. There are usually strict limitations on this type of coverage. Generally, the patient must satisfy a financial deductible before any benefits are paid by the insurer. A deductible can be significant, ranging anywhere from $500 to $2,000, before any benefits are paid. The deductible significantly lowers premiums and as the amount of the deductible increases, the premium charged will decrease. In addition, after the deductible is exhausted, a member is responsible for co-insurance, which is a percentage of the allowable charge, and may be as much as 20 percent to 30 percent of the overall bill. As a result, for $3,000 worth of services received from an out-of- network provider, a patient may owe a $500-$2,000 deductible, plus 20-30 percent of the remaining bill. Because out-of-network services can be quite expensive, patients tend to gravitate to in-network providers, who cost less, or forego unnecessary treatment altogether. Providers sometimes agree not to collect their patients' required out-of pocket payments. When such arrange- ments are made, the economic disincentives created by these costs controls are removed. In other words, there is no longer a financial incentive to utilize in-network services when the out-of-network provider waives the out- of-pocket costs the members owe. With respect to in-network services, patients may be drawn to a provider because he or she waives the applicable co- payment. Regardless of whether the services received are out-of-network or in-network, however, waiving patient Volume 21, Number 2, December 2008

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