An increasing source of public unhappiness with the private health insurance system in the U.S. involves the prevalence of large “surprise bills.” This happens when an out-of-network provider does not take your insurance company’s reimbursement as payment in full, and instead bills you extra. Politicians, ever eager to help, have proposed new regulatory legislation. But a key source of confusion about the phenomenon and the remedies is what causes it — who has allowed this to happen? A recent New York Times column by a physician-journalist reviews the history and motivations of the players and concluded that the culprits were several players — physicians, hospital systems, and private insurers — who were “basically fine” with the current arrangement and, to make things worse, are unwilling and unlikely to make the “types of big concessions that would change them.”

This conclusion, and the logic and history behind it, is wrong. Here’s why: More than 95% of us get our private health insurance as a job-based benefit. Your employer, or in some cases your union, chooses the details of the policies you will be able to get. Not only that, more than half of covered workers (usually in large firms) get coverage that is “self-insured” by their employer — while an insurance company may administer the coverage, ultimately the employer pays for whatever claims are submitted. In addition, most private Blue Cross insurance is sold by non-profit plans (like our own Independence Blue Cross). This means that the scary vision of a profit-seeking insurer denying benefits to make more money is not what most of us face — either our insurance does not have stockholders or lower benefits make more money for our boss. What we do face is whatever insurance choices our employer’s HR department has (presumably) scrutinized and offered to us. How should they screen?

Even before Obamacare put in some gentle regulations and mandates of this kind of insurance, the great majority of employers paid their workers with benefits as well as money wages, choosing the level of both to attract and retain the best quality workers for the money. So why would they want to offer insurance that makes their employees mad and fearful? The answer (as usual) is cost — in this case the additional cost to avoid these infrequent events. But even if the premium is lower for an insurance riddled with loopholes and sharp practices, that will not be good for the employer who wants to keep workers, especially in today’s tight labor market.

One way for you to get stuck with a surprise bill is to use a hospital that is in the network for your job-based plan but which has not contracted with all the doctors and other franchised providers of care it permits to treat you. Sometimes this happens because you did not know an out-of-network provider participated in your care, or you were offered a service for an illness that is not an emergency — had you known, you might have done something else (or at least complained). However, if your employer’s benefits managers are doing their job, they should have known (better than you could) and prevented this from happening in the first place as long as it does not cost too much — by selecting a less-tricky network, or (if a large employer) negotiating with the health system.

Dealing with the case in which you have an emergency far from home is harder. You are injured in an accident and you cannot be expected to shop for a medical provider. You could have a big surprise bill. Your boss could have bought a plan with a nationwide price-limited network (such as the Blue plans have), but that might cost too much (and remember, most of this employer-paid insurance cost comes out of your wages). Or it could contract with an insurer with a more discerning policy to pay whatever it costs for a basic set of emergency services (such as those set by the federal law requiring ER care up to a point) and then transferring you to an in-network provider for any additional services. You and your boss might even prefer a plan that negotiates for you over the amount to be paid with arbitration and thus limits your own liability. If it was up to me, I would still rather rely on my employer than the lawyers or even the physician members of Congress to choose what I would get in such a situation.

So, what should you check that your boss is doing? Here are several things:

  • Did HR read the fine print, and know what kind of surprise bills would happen?
  • Does it keep track of such bills when they (inevitably) occur and help workers?
  • Does it use this data next year to drop certain hospitals from its network? If I could have my own way, I would also want the insurance card to have a big box with red print saying “Caution! With this insurance plan you are at risk for surprise bills,” if that is true. (This is like the “black box” warning the FDA requires for dangerous drugs.)

There is a broader health reform point here. There have always been problems with unexpected bills and uncovered bills in private health insurance (worse in the old days when it only covered inpatient care). As overall medical costs are rising, the people currently in charge — employers and those who advise them — need to step up their game if they hope to continue to play. It is a difficult job: if you have a policy that pays all out-of-network bills in full, your workers will not prefer in-network doctors, and then no doctor will gain by being in network. People have different opinions on whether there is some better alternative than what the Times article describes as the status quo (there does not have to be). But those with the job of paying for and choosing worker private insurance (employers and unions) ought to do their job right, explain to us workers what they determined to be the best in an imperfect world, and help us out when we are unlucky.

Mark V. Pauly is Bendheim Professor in the department of health care management, professor of health-care management, and professor of business economics and public policy at the Wharton School, and professor of economics in the School of Arts and Sciences at the University of Pennsylvania. He is also a member of the Inquirer’s Health Advisory Panel.