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Olga Sher, Esq.
Crum & Forster - Accident & Health Division
(862) 217-3956
Hugh O. McAdorey, Esq.
Crum & Forster, Accident & Health Division
(732) 676-9876

OVERVIEW OF THE NO SURPRISES ACT AND ITS IMPACT ON THE SELF-FUNDED EMPLOYER GROUP MARKET AND STOP LOSS CARRIERS

The No Surprises Act (“NSA” or the “Act”),[1] enacted in 2020 as part of the Consolidated Appropriations Act of 2021,[2] is designed to protect patients from unexpected medical bills in several critical situations while keeping patients out of payment disputes between their health plan and their health care provider.  Since the Act is relatively new, it is still in the process of being implemented, with new rules and new court decisions frequently refining its requirements.  While the Act applies to most health plans subject to federal health care reforms, this article specifically focuses on the NSA’s impact on the self-funded employer group market and to the stop loss carriers who service this market. 

Many Americans who have private health coverage receive this through a health plan funded by their employer.  While a commercial health insurer may have designed the plan and may administer the plan, it is the employer who takes on the financial risk for paying the covered claims of plan members, who consist of enrolled employees and their eligible dependents.  These are referred to as self-funded health plans, and according to the latest data from Mark Farrah Associates’ Health Coverage Portal™, more than 131 million Americans receive their health coverage from such plans.[3]  To mitigate the risk of large claims, plan sponsor employers frequently purchase stop loss insurance, which shifts the risk of loss from the self-funded health plan to a stop loss carrier after a claims payment threshold[1]  is reached for an individual plan member, an aggregation of plan members, or both.  The stop loss carrier who protects a plan via a stop loss policy is often a different carrier than the health insurer who designs and/or administers the self-funded plan since stop loss insurance is a very different product than traditional health insurance.

To the extent that self-funded health plans include benefits within the scope of the NSA, plans and their third-party administrators (“TPAs”) are responsible for administering those benefits in compliance with the Act.  Therefore, plan sponsor employers, their TPAs, and their stop loss carriers must stay informed of and proactively address developments related to the NSA to maintain a stable benefits structure and protect the interests of plan members.  This is especially critical now as the traditional out-of-network pricing models and dispute settlement strategies upon which stakeholders previously depended are in flux as the Act is implemented. 

From UCR or RBP to the NSA’s Qualified Payment Amount Methodology

Whether purchased through work or an exchange, nearly all health plans encourage members to seek healthcare from in-network providers: health care providers who have a contractual relationship with the plan to provide healthcare services to plan members for agreed upon compensation. This system helps to provide financial certainty to all parties to a medical encounter.  A plan member knows that they are responsible for meeting their plan’s cost-sharing requirements, which can include deductibles, copayments, and coinsurance, but once they reach their annual out-of-pocket maximum, covered medical expenses are protected in full for the remainder of the plan term.  The network provider, meanwhile, knows exactly what they will be paid for providing a given healthcare service, as well as the parties who will be responsible for providing payment to them.

For one reason or another, plan members occasionally receive care from a provider who does not have a pre-existing contract with their plan.  In such situations, health plans that provide coverage for healthcare provided by non-contracted providers (also referred to as “out-of-network providers”) usually pay either an amount that approximates what a usual healthcare provider in that geographic area would charge for the service (often referred to as paying on a “usual, customary, and reasonable” basis or “UCR”) or an amount that is equal to some percentage of Medicare (often referred to as “referenced based pricing” or “RBP”).[4] 

Before the enactment of the NSA, plan members could face unexpected out-of-pocket costs beyond cost-sharing requirements when receiving services from out-of-network providers in all covered situations.  Plans could agree to pay a price for these services based on UCR or RBP, but if the provider’s charge exceeded that amount, the provider could bill the plan member for the difference (a practice commonly referred to as “balance billing”). In such cases, plans, often with the assistance of their stop loss carrier, were prepared to defend what they paid and worked to negotiate a reasonable resolution to ensure that the plan member would not bear the full brunt of discrepancies between the provider’s charges and the plan’s reimbursement rate.  However, there were no legal protections that prevented the provider from balance billing the plan member if negotiations failed to reach a mutually agreed upon solution. 

With the enactment of the NSA, providers' ability to balance bill plan members is restricted, preventing them from charging plan members more than the in-network cost-sharing amount for (i) emergency services, regardless of the provider’s network status;[5] (ii) non-emergency services by out-of-network providers at in-network facilities (with limited exceptions);[6] and (iii) air ambulance services from out-of-network providers.[7]  In all three cases, the plan is solely responsible for paying the remainder of the provider’s bill, mirroring how the situation would have been handled in-network from the plan member’s perspective. 

Under the NSA, the qualifying payment amount (“QPA”) serves as a key, mandatory metric for determining the base payment amount for out-of-network providers in many situations within scope.  The QPA is calculated as the median of the contract rates recognized by a plan for the same or a similar item or service that is provided by a provider with the same or similar specialty within a specific geographic area.[8]  For situations in scope, plan member cost-sharing requirements are often based upon the QPA for the service provided.[9] Additionally, the QPA is one of the key factors that guides the federal Independent Dispute Resolution arbitration process (described in more detail in the next section).[10]

The NSA requires the Department of Health and Human Services, the Department of Labor, and the Department of the Treasury (the “Tri-Agencies”) to enact regulations to determine the methodology for plans to utilize when determining the QPA.[11] While the Tri-Agencies promulgated regulations in response, the federal district court for the Eastern District of Texas invalidated key aspects of their QPA calculation methodology, which the health care provider plaintiffs believed to be unfair.[12] Notably, the provider plaintiffs objected to the fact that the rules permitted plans to consider contracted rates for services that, in practice, the provider will never actually provide to any plan member (called “ghost rates”), which they alleged artificially lowered the QPA.[13] The Tri-Agencies appealed this ruling, and the Fifth Circuit partially reversed the decision in a panel ruling, concluding that the Tri-Agencies’ methodology, including allowing so called “ghost rates” to factor into the QPA, is consistent with statutory intent.[14]  However, the Fifth Circuit’s reversal remains uncertain at this time because the plaintiff providers filed a petition seeking an en banc review of the panel’s ruling.[15]  For the time being, the ongoing uncertainty leaves the future of QPA payment methodologies in a state of limbo.

As this situation plays itself out, stakeholders should pay especially close attention to how the QPA ultimately compares to the amount a network provider would have been paid for providing the same service.  If the QPA is significantly higher, this could incentivize providers to leave plans’ networks, which will likely lead to plans raising compensation for providers to encourage them to stay in-network.  This could result in plans more frequently reaching their stop loss policy’s attachment points, which could cause stop loss carriers to raise their attachment points or their rates.  All of this places stress upon the self-funded employer group market and could ultimately result in higher premiums for plan members. 

Open Negotiations and Independent Dispute Resolution

The Open Negotiations and Independent Dispute Resolution (IDR) processes under the NSA are designed to protect plan members from surprise medical bills by offering a mechanism for resolving billing disputes between out-of-network providers and plans, leaving plan members out of the dispute.   Initially, under the Open Negotiations process, providers and plans must attempt to reach a settlement within a 30-day period.[16] If no agreement is reached, the dispute proceeds to the IDR process, where an independent arbitrator makes a binding determination on the appropriate payment amount.[17]  During the IDR process, both the plan and the provider must present an offer to the arbitrator.[18]  The arbitrator then decides which offer to accept, typically considering the QPA (discussed above) as well as other factors listed in the NSA, including the provider’s training and experience, the acuity of the patient, and the complexity of the situation.[19]

Congress empowers the Tri-Agencies to issue regulations to govern the IDR process.[20] While the Tri-Agencies promulgated regulations, several have been struck down by the courts.  Most notably, the Fifth Circuit struck down rules that gave greater prominence to the QPA than other factors during the IDR process, holding that the NSA does not authorize the Tri-Agencies to require arbitrators to give special prominence to any one statutorily listed factor.[21]

It is imperative for stakeholders to carefully review further developments impacting the NSA’s IDR process, as this has the potential to upset the self-funded employer group market.  If arbitrators are not required to give the QPA special consideration, the IDR process may be filled with more uncertainty than perhaps the NSA’s authors initially intended, which may incentivize plans to settle with providers.  However, plans will need to be mindful of their stop loss carrier when settling a dispute, as the terms of most stop loss policies require any payments under the plan to be made in accordance with the plan’s terms so that they are coverable.  If a plan is not carefully drafted, settlements to avoid the IDR process could violate the terms of the plan and would not be covered by the stop loss insurance.  Therefore, plans, TPAs, and stop loss carriers need to strengthen their partnerships so that all are aligned when key decisions are made relating to a claim within the scope of the NSA, such as when to settle to avoid the IDR process. 

Conclusion

This paper serves as an introductory overview of potential disruptions that the NSA may cause to the self-funded employer group market.  Stakeholders in this sector may face various additional challenges due to the NSA, including delays in the IDR process due to higher than expected volume[22] and potential amendments to the Act, such as the extension of NSA requirements to ground ambulance services.[23]  All impacted parties must keep abreast of ongoing developments, so that plan members can continue to enjoy the benefits of the NSA without rendering their plans unworkable. 

References

[1] The threshold is commonly referred to as an “attachment point.”

[1] The No Surprises Act was enacted as Title I of Division BB of the Consolidated Appropriations Act, 2021. Pub. L.

116-260, 134 Stat. 1182 (2020). Sections 102 and 103 of the No Surprises Act added section 9816 to the Internal Revenue Code (Code), section 716 to the Employee Retirement Income Security Act (ERISA), and section

2799A-1 to the Public Health Service Act (PHS Act). Section 104 of the No Surprises Act added sections 2799B-1 and 2799B-2 to the PHS Act. Section 105 of the No Surprises Act added section 9817 to the Code, section 717 to ERISA, and sections 2799A-2 and 2799B-5 to the PHS Act.

[2] Consolidated Appropriations Act, 2021, Pub. L. No. 116-260, 134 Stat. 1182 (2020).

[3] Mark Farrah Associates, “Health Insurance Enrollment Trends; a Third Quarter Segment Comparison,” December 16, 2024, available at: https://www.markfarrah.com/mfa-briefs/health-insurance-enrollment-trends-a-third-quarter-segment-comparison-/(accessed January 6, 2025).

[4] “Types of Out-of-Network Reimbursement,” FAIR Health Consumer, available at: https://www.fairhealthconsumer.org/insurance-basics/your-costs/types-of-out-of-network-reimbursement (accessed January 16, 2025).

[5] 42 U.S.C.A. § 300gg-111(a).

[6] 42 U.S.C.A. § 300gg-111(b).

[7] 42 U.S.C.A. § 300gg-112(a).

[8] 42 U.S.C. § 300gg-111(a)(3)(E) and 42 U.S.C. § 300gg-112(c)(2).

[9] 42 U.S.C. § 300gg-111(a)-(b) and 42 U.S.C. § 300gg-112.

[10] 42 U.S.C. § 300gg-111(c)(5)(C)-(D) and 42 U.S.C. § 300gg-112(b)(5)(C).

[11] 42 U.S.C. § 300gg-111(a)(2)(B)(i).

[12] Tex. Med. Ass’n v. HHS, 120 F.4th 494, 502-503 (5th Cir. 2024).

[13] Tex. Med. Ass’n v. HHS, 2023 WL 5489028 (E.D. Tex. 2023).

[14] Tex. Med. Ass’n v. HHS, 120 F.4th at 504-507.

[15] Clason, Lauren, “Full Fifth Circuit Urged to Rehear Surprise Medical Bill Dispute,” Bloomberg Law, December 17, 2024, available at: https://news.bloomberglaw.com/business-and-practice/full-fifth-circuit-urged-to-rehear-surprise-medical-bill-dispute (accessed January 7, 2025).

[16] 42 U.S.C. § 300gg-111(c)(1)(A) and 42 U.S.C. § 300gg-112(b)(1)(A). 

[17] 42 U.S.C. § 300gg-111(c)(5)(E) and 42 U.S.C. § 300gg-112(b)(5)(D).

[18] 42 U.S.C. § 300gg-111(c)(5)(B) and 42 U.S.C. § 300gg-112(b)(5)(B).

[19] 42 U.S.C. § 300gg-111(c)(5)(C)-(D) and 42 U.S.C. § 300gg-112(b)(5)(C).

[20] 42 U.S.C. § 300gg-111(c)(2)(A) and 42 U.S.C. § 300gg-112(b)(2)(A).

[21] Tex. Med. Ass’n v. HHS, 110 F.4th 762, 775-776 (5th Cir. 2024).

[22] Stovicek, Nadia, “No Surprises Act: Exploring the Impact on Employees, Employers and Costs,” Center on Health Insurance Reforms, March 18, 2024, available at: https://chirblog.org/no-surprises-act-exploring-the-impact-on-employees-employers-and-costs/ (accessed January 13, 2025).

[23] “Report on Prevention of Out-of-Network Ground Ambulance Emergency Service Billing,” Ground Ambulance & Patient Billing Advisory Committee, March 29, 2024, available at: https://www.cms.gov/files/document/report-advisory-committee-ground-ambulance-and-patient-billing.pdf (accessed January 13, 2025).