Insurance Basics

Insurance billing is a highly complex topic. One can actually earn a degree in medical coding and billing. Thankfully, understanding the basics and reading your statement aren't quite so difficult. I will attempt to explain the basic process and detail a typical statement you may receive from our office.

First, let's cover terminology.

  • Billed Amount – this is the amount our office bills the insurance company for each procedure code. Sometimes called the Usual and Customary Charge or the Fee Schedule Amount.
  • Allowed Amount – this is the amount your insurance company allows us to receive for services rendered. Each insurance company has their own pricing, and pricing is different for each provider and facility.
  • Contractual Adjustment – this is the amount the insurance company discounts from our billed amount. Sometimes called the insurance company write off.
  • Date of Service – this is the date on which services were rendered in our office. All dates in the insurance world revolve around this date of service. Patients are sometimes worried that their insurance in changing in a couple of weeks, and that we won't have the claim submitted before their coverage terminates. When the claim is submitted and processed does not matter, only that the patient is covered on that date of service.
  • Procedure Code – Often called the Current Procedural Terminology (CPT) code. Every single procedure in all of medicine can be identified with a specific CPT code. From brain surgery to wart treatment, everything has a CPT code. This is standard across all insurance companies, and allows them and physicians to all bill uniformly. A 99203 is a 99203 at our office or any other office anywhere in the country.
  • Diagnosis Code – Often called the International Classification of Diseases (ICD-x) code. We are currently using the ICD-9 code set or the ninth iteration. This is a standardized diagnosis code set. Every possible condition or disease that it's possible for a person to have is described by this code set from warts on the fingers to tumors.
  • Explanation of Benefits – Otherwise known as the EOB. The EOB is a statement you receive from the insurance company detailing the claim received from your physician. The EOB should match the statement you received from you physician's office.

The following terms deal with amount patients may be asked to pay by their insurance companies. It's easiest to think of these fees as applying in a tiered system.

  • Co payment – This is a fixed amount patient pay for access to physicians. Please keep in mind that this amount is not in addition to the allowed amount, but is included in the allowed amount. For example if the allowed amount for your office visit is $67.00 and your co payment amount is $50.00, you pay $50.00 and your insurance pays $17.00. We do not collect $67.00 + $50.00 = $117.00. Co payment amounts are determined by the insurance company and not the physician. As an aside, it is considered insurance fraud if a physician waives a co payment.
  • Deductible – An amount the patient must pay out of pocket before insurance pays anything. Sometimes a patient may have a certain number of office visits covered per year outside their deductible or other features pertaining to their deductible. The options are numerous. Again, call your insurance company for the details of your plan.
  • Coinsurance - A percentage (usually) of the allowed amount for which the patient is responsible. For example insurance pays 80% of the allowed amount, the patient pays 20%.
  • Out of Pocket Maximum – once the patient has paid this amount, insurance usually pays at 100% with no co payments, coinsurance, or deductibles.

Tier 1 – Deductible and Out of Pocket Maximum Not Met. Insurance Pays Nothing

    Patient may be asked to pay the co payment and the allowed amounts in total.

Tier 2 – Deductible Met, Out of Pocket Maximum Not Met. Insurance Pays Part

    Patient may be asked to pay the co payment and some coinsurance amount.

Tier 3 – Deductible and Out of Pocket Maximum Met. Insurance Pays All

    Generally, insurance now pays at 100%.

Let's move on to discuss the process of submitting your claim. After your visit is complete, Dr. Wyatt codes the visit. She translates what she did for you into CPT codes, and the condition you have into ICD-9 codes. Billed amounts and ICD-9 codes are assigned to each CPT code. So for every procedure Dr. Wyatt performs, she assigns a dollar amount and diagnosis code. Once complete, we submit that information to your insurance company. This information essentially represents the claim. The insurance company receives that information, then reprices it. Repricing entail the insurance company applying their allowed amounts to each CPT code on the claim. They also determine what payment, if any, they are going to make and the total amount, if any, to be transferred to the patient. They then send out an EOB both to our office and to you. We receive the EOB and transfer the information to your billing account. If you have a balance a bill is then sent out to you. In a nutshell that is how claims are created, submitted, and billed to you.

The biggest source of confusion for patients revolves around the billed amount, the allowed amount, and the contractual adjustment. The billed amount is determined by our office. It is roughly 2.5 times the Medicare fee schedule. It is a very large amount which we do not expect to be paid, nor do we ask patients to pay these amounts. The reason the billed amounts are so high is that insurance companies pay us the lesser of the allowed amount or the billed amount. Say for a typical office visit the allowed amount is $99.00. If we bill the insurance company $50.00, we only received $50.00 not $99.00. Since the allowed amounts are so low to begin with, we always want to exceed them. There's no way for us to bill the exact allowed amounts for every insurance company, hence the standardized fee schedule amount.

The allowed amounts are what physicians agree to accept as payment in full from the insurance company in exchange for being a part of their provider network. The insurance company funnels their members to us, we accept a lower rate. Physicians are not permitted to bill the patient for the difference of the billed amount and the allowed amount. This is termed balance billing, and is considered insurance fraud. Each insurance company has their own allowable fee schedule for different parts of the country, different specialties, even different doctors in the same city. Dr. Wyatt may be paid $50.00 for procedure X and Dr. Smith may be paid $100.00 for the exact same procedure. The allowed fee schedules are considered confidential information by the insurance company and physicians are not permitted to disclose their allowed amounts.

The contractual adjustment is simply a portion of the physician's fee schedule amount that they write off. This is the different of the billed amount and the allowed amount. This is the same as the “balance” discussed above and physicians are generally not permitted to “balance bill” this amount.

Let's now examine an example statement in order to solidify these definitions.

On your bill you will see something like the following:


DATE DESCRIPTION2 CHGS/CREDITS OUTSTANDING
01/01/111 OFFICE OR OTHER OUTPATIENT VISIT $157.933
01/13/11 CREDIT INSURANCE ADJUSTMENT4 -$90.484

ACCORDING TO YOUR INSURANCE, PATIENT BALANCE DUE IS:


PATIENT BALANCE DUE - DEDUCTIBLE5
$67.456
01/01/111 DESTRUCTION, OF BENIGN LESIONS OTHER $243.483
01/13/11 CREDIT INSURANCE ADJUSTMENT4 -$185.684
01/13/11 CREDIT INSURANCE PAYMENT7 -$51.498

ACCORDING TO YOUR INSURANCE, PATIENT BALANCE DUE IS:


PATIENT BALANCE DUE - COINSURANCE5
$6.316
  1. Date of service.
  2. This is the text description of the CPT code.
  3. Billed amount/Fee schedule amount/Usual and customary charge
  4. THIS IS NOT A PAYMENT. This is the contractual adjustment. Unless this line contains the work PAYMENT, it is not a payment.
  5. This is the reason why your insurance transferred a balance to you. You may see here:
    • COINSURANCE
    • COPAY
    • DEDUCTIBLE
  6. The amount transferred to the patient. This is an amount for which the patient is responsible. This amount should match the amount shown on the EOB you receive from your insurance company.
  7. This DOES indicate a payment by the insurance company.
  8. Amount we were paid.

From the statement, notice what's missing. Nowhere does it list the allowed amount. However, knowing what we now know, we can infer the allowed amount from the provided information. Consider the office visit example above. Since there was only a contractual adjustment and no payments, we know the insurance company transferred the entire allowed amount to the patient. So the allowed amount is $67.45. For the second procedure, insurance paid $51.49 and transferred $6.31 to the patient. The allowed amount is $51.49 + $6.31 = $57.80.

The important thing to remember is that no matter which portion insurance pays or which portion the patient pays, the physician is never paid more than the allowed amount. This applies to co payments as well. For example, if a patient has a $50.00 co payment, but the allowed amount for the visit is only $35.00, we actually issue a refund check for $15.00.

I'm always happy to educate patients about billing issues. If you have any questions, please don't hesitate to call the office and speak to me directly.