The next big ERISA risk? Hidden fees in out-of-network pricing

When a primary care provider suspected Audre’s son, Mason, had autism spectrum disorder, the only specialist in their hometown was out-of-network.

When Sasha decided to enter a rehab facility for a substance use disorder, the nearest inpatient facility within 100 miles was out-of-network.

When Cam needed physical therapy after breaking his leg, he was unable to find a nearby in-network facility.

All three had employer-sponsored health insurance with out-of-network coverage, but, as employees of self-insured companies, they were at risk of receiving steep, inflated bills.

The potential for each to face balance bills from the out-of-network providers stems from a tangled web of hidden pricing formulas, fees charged by third-party administrators known as “shared savings fees,” and opaque negotiations between TPAs, repricers, and providers not in network.

The problem with out-of-network prices is a symptom of deeper dysfunction in the health care system.

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Policies like banning balance billing or capping charges may offer temporary relief for those who pay for health care services, but they do not fix the underlying incentives that drive costs and fees ever higher.

TPAs and health insurers have financial motives to keep out-of-network reimbursements low, often leaving patients with large bills.

In response, Catalyst for Payment Reform launched an eight-month project to better understand the issue and equip self-insured employers with strategies to protect themselves and their employees.

Through literature reviews, expert interviews, and a multi-stakeholder convening, Catalyst for Payment Reform developed recommendations for self-insured employers looking to address these claims and serve their members more effectively.

The size of the problem

Even after the No Surprises Act, out-of-network spending remains significant.

While current numbers are elusive, estimates from experts suggest that annual spending on out-of-network services for commercially insured Americans under age 65 ranges from $100 billion to $186 billion.

These figures do not even account for the extra shared savings fees self-funded employers pay TPAs (who oftentimes pay repricers) for “negotiating” lower out-of-network bills.
This means the actual financial risk to employers is even higher.

For many self-funded employers, these claims make up 5% to 7% of their total health care spending, and TPAs often keep 25% to 50% of any “savings” they generate in negotiating lower out-of-network claims.

Why there’s a problem

For self-funded employers, the costs, fees, and liabilities associated with out-of-network care are not only complex but they are also opaque, making it almost impossible for employers to track where their dollars are going.

TPAs and intermediaries can take advantage of this confusion using convoluted pricing structures, such as “wrap-around” networks, and producing reports that provide untraceable connections between out-of-network claims and associated fees.

Additionally, these fees are now a significant source of revenue for TPAs, which they will strenuously preserve.

So, one must ask: Is it true savings for an employer if the original price was never fair or transparent?

Employer risk

In addition to the excessive system costs tied to out-of-network claims, there are growing legal risks for self-funded employers (aka, plan sponsors).

For example, a class action lawsuit filed in April 2024 by Mayo Clinic employees alleges that the Mayo Clinic, acting as a plan sponsor, breached its fiduciary obligations to plan members under the Employee Retirement Income Security Act of 1974 (ERISA).

The lawsuit centers on out-of-network reimbursement practices, claiming that the amounts paid were arbitrary and inconsistent, which led to unfairly large balance bills for members.

The plaintiffs also assert that the plan sponsor failed to provide members with the information needed to make informed decisions about their health care.

Solutions

Absent setting a ceiling of what out-of-network providers can charge for services, the most effective response to the issue surrounding these claims may be the simplest: transparency.

Many self-funded employers work with large benefits consultants who can help them select a TPA that meets their needs, and they should ask their consultants to help them understand their out-of-network claims liability.

Shining a light on how out-of-network providers set their prices, how claims are negotiated, the fees associated with negotiation and ultimate payment by the employer are the first steps toward rebuilding trust and ensuring incentives between providers, TPAs and their self-funded clients are truly aligned with value and accountability.

Additional recommendations include:

Contract term transparency

Due to the proprietary nature of most TPA contracts, it’s hard to say for certain if fees, including out-of-network fees, are disclosed to plan sponsors.

Experts interviewed by Catalyst for Payment Reform revealed that even when the contract outlines all fees, the fees are often difficult to discern because of the inconsistency of terms.

Employers should contractually require TPAs to provide complete fee disclosure, including all vendor payments (such as payments to repricers), in a single, easy-to-understand format.

Contracts should require TPAs to provide an itemized breakdown of out-of-network claims and associated fees.

Specifically, the TPA should show each shared savings fee and the related claim to ensure the TPA calculated the fee correctly.

Furthermore, the contract language should require annual reconciliation of all out-of-network claims and fees to ensure the TPA charges the appropriate fees.

Claims and fees

Plan sponsors should require their TPA to provide detailed reports with each invoice that clearly separate out-of-network claims, shared savings fees, and other charges from the actual claim payments.

Additionally, during contract renewal periods, they should request and obtain specific reports detailing the activity from their TPA to ensure full transparency, such as reports on comprehensive financial impact, member financial burden, and net savings, in addition to data on the savings-to-cost ratio.

Federal and state policy actions

Plan sponsors can ask the U.S. Department of Labor and state policymakers for greater access to data and help with managing out-of-network costs.

ERISA advocacy groups should push for clearer Labor Department guidance on the Consolidated Appropriations Act’s data-sharing rules, ensuring plan sponsors get full access to claims files.

Policymakers may consider implementing limits on what hospitals and providers can charge for out-of-network services (also referred to as payment limits or price ceilings).

Legislation could attach or peg reimbursement for out-of-network inpatient and outpatient services to a percentage of the Medicare rate for the same service within the same geographic area.

This article was originally published on BenefitsPRO, a sister site of HR Executive. For more content like this delivered to your inbox, sign up for BenefitsPRO newsletters here.