By Jonny Lupsha, News Writer

A Senate group will vote June 26 on limiting surprise medical charges, CBS News reported. The proposed legislation will shut a loophole often used to add major last-minute expenses to various medical bills. However, insurers may not be at fault.

According to the CBS News article, the Senate Health, Education, Labor, and Pensions Committee is primed to vote on a bipartisan bill that aims to limit the excessive charges often tacked onto medical co-pays and deductibles. For example, at a White House event in May, one doctor told his daughter’s story of receiving an $18,000 bill for a urine test after she underwent back surgery. Surprisingly, the onus may not lie only at the feet of insurance companies, as coverage can be far more complex than one might assume.

Rethinking Insurers

Many of us basically think of insurance companies as our personal fixers. We give them money monthly or annually and, in exchange, they make our bills and bill collectors go away when something goes wrong. This is why so many people get angry when additional bills show up for which we’re responsible. However, if we use fire insurance as an example, we can understand why we spend the money to have coverage.

“If we didn’t have access to commercial insurance, we would have to self-insure by setting money aside in a savings account that we would use in case we had a house fire,” said Dr. Connel Fullenkamp, Professor of the Practice and Director of Undergraduate Studies in the Department of Economics at Duke University. “But if you or I had to save this money by ourselves, we could only do it little by little over a long time, because our incomes aren’t that high and there are lots of other bills we have to pay. In the meantime, there’s a good chance that the fire would happen well before we had a significant amount saved up, let alone enough to pay for a new home.”

On the other hand, insurance companies hire actuaries—who, Dr. Fullenkamp said, typically attend four years of schooling after obtaining their undergraduate degrees—to decide what to charge us for our policies. We pay our premiums along with millions of other homeowners, which means that the risk is shared and much more of the expense is covered than the hypothetical uninsured out-of-savings costs.

Breaking Down Health Insurance

Most insurance premiums feature a deductible that must be met before the company will pay out the insured’s benefits. But why? “The purpose of a deductible is to mitigate the so-called ‘moral hazard’ problem,” Dr. Fullenkamp said. “The idea is that if you have to pay your own money before the insurance company pays, then you’ll be more careful. If you didn’t have to pay a deductible, then you’d be tempted to be much less careful, which is the classic moral hazard problem.” Evidence of this is seen in the inversely proportionate costs of a premium and its deductible. The lower a deductible, the higher the premium, and vice-versa.

Health insurance is made more complex by the fact that it combines two very separate products into one plan. “One product is what we could call a maintenance contract that covers routine checkups,” Dr. Fullenkamp said. “The other product is actual insurance protection against large expenses from being treated for illnesses or accidents.” He also said that, generally, it doesn’t help to separate the two, since bundling the coverage for checkups helps prevent illnesses or detect them early on, which in turn leads to lower treatment costs than waiting until the last minute for treatment.

Surprise medical bills often result from a patient ending up at a hospital that isn’t covered by their insurer or being treated by a doctor or anesthesiologist who’s not associated with their insurer or the patient’s insurance plan. These out-of-network hospitals or doctors then bill the patient directly, leading to the unmitigated costs one would expect from being uninsured. With today’s vote, the Senate HELP Committee will take a new step in deciding whether insurers or doctors are to blame for these discrepancies in coverage.

Dr. Connel Fullenkamp contributed to this article. Dr. Fullenkamp is Professor of the Practice and Director of Undergraduate Studies in the Department of Economics at Duke University. He earned his undergraduate degree in Economics from Michigan State University and his master’s and doctorate degrees in Economics from Harvard University.