Deductibles, Coinsurance and New York Insurance Fraud Law: What Providers Should Know

Many medical practices struggle with collecting deductibles and coinsurance, particularly as patient responsibility continues to increase. Some providers may choose not to pursue these balances because they don't want to create a financial burden for their patients.

But in New York, routinely waiving patient responsibility can create a compliance issue.

There is an important distinction at the outset: New York does not have a statute that simply says every deductible, copayment or coinsurance must be collected. The legal issue instead comes from New York's insurance-fraud laws and how the New York State Department of Financial Services (DFS) has applied those laws to patient cost-sharing.

The New York Laws

New York Penal Law §176.05 defines insurance fraud. In connection with health insurance claims, the statute addresses knowingly and intentionally presenting materially false information, or concealing material information for the purpose of misleading an insurer.

New York Insurance Law §403 incorporates that definition of a fraudulent insurance act and makes committing such an act a violation of the Insurance Law.

Neither statute specifically says, “Providers must collect deductibles and coinsurance.” The connection to patient responsibility comes from DFS guidance interpreting how these laws apply to provider billing practices.

What DFS Says About Waiving Patient Responsibility

In OGC Opinion No. 08-04-04, Health Insurance – Waiver of Deductibles and Co-Insurance, DFS considered whether an out-of-network provider could waive patient cost-sharing because some patients were having difficulty affording it.

DFS explained that, depending on the circumstances, waiving otherwise applicable patient cost-sharing can constitute insurance fraud.

Why?

Consider an out-of-network provider who charges $100. The insurance company pays $80 with the understanding that the patient is responsible for the remaining $20.

If the provider routinely waives the $20, the provider may effectively be accepting $80 as payment in full. If $80 is actually the provider's charge, an insurer responsible for 80% arguably should have paid $64, not $80.

The problem isn't simply that the provider was generous to the patient. The problem is that the insurer calculated its payment based on a financial arrangement that may not reflect what the provider actually intended to collect.

That is why DFS specifically identifies waiving patient cost-sharing “as a general business practice” as potentially problematic.

Individual Patient Circumstances Are Different

This does not prevent a provider from working with patients who genuinely cannot afford their bills.

DFS recognizes circumstances in which different fees may be based on a patient's financial situation, provided the insurance carrier is not misled about the provider's actual charges. Payment arrangements and legitimate individual financial-hardship decisions are therefore very different from maintaining a blanket policy of routinely disregarding patient responsibility.

Transparency is the key issue.

What This Means for Out-of-Network Billing

For an out-of-network provider, there can be two different components to a patient's balance.

First, the insurance carrier may assign a deductible, coinsurance, copayment or other patient responsibility on the EOB.

Second, where balance billing is legally permitted, the patient may be responsible for the difference between the provider's billed charge and the insurer's allowed amount.

These amounts should not be confused. A practice's billing records should clearly identify what the insurance carrier determined to be patient responsibility and what additional amount, if any, the provider is billing under its out-of-network policy.

There are important exceptions. New York and federal surprise-billing protections restrict balance billing for certain emergency services and certain out-of-network services associated with in-network facilities. Those claims require separate consideration.

What Should a Practice Do?

A consistent billing policy is important. Practices should collect applicable copayments and bill legitimate deductible and coinsurance amounts rather than maintaining a blanket policy of automatically waiving them.

When an individual patient has difficulty paying, the practice can address that situation individually through payment arrangements, financial-hardship policies or other appropriate options.

For out-of-network practices, patients should also understand their OON status and potential financial responsibility before receiving services whenever applicable.

The Bottom Line

New York's concern is not simply whether a medical practice successfully collects every patient balance. The issue is whether the financial arrangement represented to the insurance carrier is truthful and consistent with the practice's actual billing practices.

New York's insurance-fraud statutes prohibit knowingly submitting materially false or misleading information in connection with insurance claims, and DFS has specifically applied those principles to the routine waiver of patient cost-sharing.

For medical practices, the practical takeaway is straightforward: bill patient responsibility consistently, document it accurately, and handle legitimate individual exceptions as individual exceptions, not as a blanket billing policy.