As a business traveler, when I am focused solely on my work, I am continually angered by the “resort fee” often added to my hotel bill. Generally, I select accommodation close to my meeting venues, sometimes even in that same hotel. I never seem to use any of those “resort” facilities and usually do not even know what they are. Banks also love to charge all kinds of fees – from minimum balance to overdraft fees way out of proportion to the cost (particularly when you have significant deposits in other accounts under the same name), lots of “transaction fees,” all the while generating interest income to their coffers that they seldom share with you. Medical add-ons for all kinds of reasons (out-hospital specialist, etc.) plague hospital invoices, particularly for emergency admissions when an unconscious patient wakes up to find add-ons that turn out to be excluded under that patient’s healthcare policy. Don’t even talk to me about cruise lines!
The harsh reality is that many of these fees are not clearly disclosed upfront, even when they are charged 100% of the time. President Biden has been railing against “junk fees” throughout his administration and managed to pass some protection against “balance billing” from medical facilities. The federal Consolidated Appropriations Act of 2021 was enacted signed into law on December 27, 2020 and contains many provisions to help protect consumers from surprise bills, including the No Surprises Act. Some states have their own, more restrictive laws on their books.
The Mayo Clinic explains the gist of this federal statute on its Website: “‘Surprise billing’ is an unexpected balance bill. This can happen when you cannot control who is involved in your care — like when you have an emergency or when you schedule a visit at an in-network facility but are unexpectedly treated by an out-of-network provider. Surprise medical bills could cost thousands of dollars depending on the procedure or service.
“If you have an emergency medical condition and get emergency services from an out-of- network provider or facility, the most they can bill you is your plan's in-network cost-sharing amount (such as copayments, coinsurance and deductibles). You cannot be balance billed for these emergency services. This includes services you may get after you are in stable condition unless you give written consent and give up your protections not to be balanced billed for these post-stabilization services.”
As noted, the Biden administration, getting increasing pushback from the Republican dominated House of Representatives, summarized its goals in this June 15, 2023 White House press release, where the President has been jawboning private sector companies “to end surprise fees by fully disclosing fees to consumers upfront. Together, these companies service millions of consumers each year, all of whom will receive a better shopping experience without surprise fees imposed at checkout.
“Junk fees — hidden, surprise fees that companies sneak onto customer bills — are a pervasive problem in industries across the economy. That’s why the President has been calling on federal agencies, Congress, and private companies to take action to address these fees and provide consumers with honest, transparent pricing. A large body of research has shown that fees charged at the back-end of the buying process, along with other types of junk fees, make it harder to comparison shop, impede competition, and lead to consumers paying more.”
Recently, the big news is that the airline industry has seriously ramped up charging checked baggage and even on-board carry-on luggage fees, a nasty habit that began two decades ago. The reason for that practice is mired not only in the “I want more profits” motivation but in the way our federal tax code is written. Writing for the March 15th The Conversation, Boston University Associate Professor of Markets, Public Policy and Law, Jay L. Zagorsky, explains: “Five out of the six biggest U.S. airlines have raised their checked bag fees since January 2024… Take American Airlines. In 2023, it cost US$30 to check a standard bag in with the airline; today, as of March 2024, it costs $40 at a U.S. airport – a whopping 33% increase.
“As a business school professor who studies travel, I’m often asked why airlines alienate their customers with baggage fees instead of bundling all charges together. There are many reasons, but an important, often overlooked cause is buried in the U.S. tax code… Airlines pay the federal government 7.5% of the ticket price when flying people domestically, alongside other fees. The airlines dislike these charges, with their trade association arguing that they boost the cost to the consumer of a typical air ticket by around one-fifth.
“However, the U.S. Code of Federal Regulations specifically excludes baggage from the 7.5% transportation tax as long as ‘the charge is separable from the payment for the transportation of a person and is shown in the exact amount.’… This means if an airline charges a combined $300 to fly you and a bag round-trip within the U.S., it owes $22.50 in tax. If the airline charges $220 to fly you plus separately charges $40 each way for the bag, then your total cost is the same — but the airline only owes the government $16.50 in taxes. Splitting out baggage charges saves the airline $6.
“Now $6 might not seem like much, but it can add up. Last year, passengers took more than 800 million trips on major airlines. Even if only a fraction of them check their bags, that means large savings for the industry… How large? The government has tracked revenue from bag fees for decades. In 2002, airlines charged passengers a total of $180 million to check bags, which worked out to around 33 cents per passenger.
“Today, as any flyer can attest, bag fees are a lot higher. Airlines collected over 40 times more money in bag fees last year than they did in 2002… When the full data is in for 2023, total bag fees will likely top $7 billion, which is about $9 for the average domestic passenger. By splitting out the cost of bags, airlines avoided paying about half a billion dollars in taxes just last year.” Yup, the cost of checking bags has been steadily and significantly increasing for decades… and it shows no sign of letting up.
The solution of all to these surprise billings could follow the No Suprises Act provisions on medical bills. Require upfront disclosure, consolidate all charges into one cost, adjust any conflicting provisions (like the tax code), and add a requirement of “reasonable and necessary” to these side charges. Ah, but with a “whatever business wants” mantra in the GOP-dominated House, don’t hold your breath. As much as corporate America praises capitalism, they hate level-playing field competition even more than taxes and government regulation. they can pretend they are providing a product or service at one price but charge a whole lot more.
I’m Peter Dekom, and one of the reasons direct government consumer-directive legislation works is that it levels the playing field for similarly situated companies.
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