Explanation of Benefits, Explained

EOBBy Christopher Timm, MBBS, MHSc., MIPC President & Founder

The only thing more painful than getting a shot at a doctor’s appointment is receiving the bill a few weeks later. We have all experienced the shock and horror of staring at a $500 bill for a throat swab, wondering how a Q-tip can be more expensive than your last car payment. However, most people do not realize these “bills” are actually Explanation of Benefits, otherwise known as EOBs, and do not indicate actual prices or fees patients pay.

To clarify, EOBs are detailed explanations of payments for services received through your health care provider. Your insurance company sends you documentation to show what claims they have received from your provider, what your plan will cover, how and why they are covering those fees, and finally what you, the patient, owes. Simple enough, but the format and terms can get a bit confusing without a little background information.

The term “provider” is the doctor, hospital, or facility that provides a health care service. Providers are the entities charging for the services, and do not finance any part of the bill. “Payer” often refers to the insurance company or government agency providing coverage. Finally, the “member” or “patient” refers to you, or the person responsible for the account. It is easy to confuse ‘payer’ responsibilities with those of the patient since technically both are paying money. An easy way to remember the difference is to consider whose pocket you would prefer money to come out of, yours or your insurance company’s?

The single most important value on an EOB is the amount indicated under “Patient Responsibility”. This is how much the patient must pay after adjustments, and includes co-insurance, deductibles, and the remaining balance. This amount is normally significantly lower than the original charges, due to discounts or allowed amounts. These discounts, or allowed amounts, are the result of inflated medical prices. Doctors and hospitals can advertise their costs as high as they want, but will only receive compensation for a certain amount based on their contracts with insurance companies and government agencies.

For example, a doctor’s office can price X-rays at $10,000, but its contracted allowed amount with Cigna insurance is $50. The doctor’s office will only receive $50 every time it provides that service to a Cigna covered patient, regardless of the $10,000 price tag. The remaining $9,950 will be adjusted off by the provider and not billed to the patient or insurance. The $10,000 amount will still show up on the EOB the patient receives, despite the fact that no one pays that billed price.

Here lies the source of the $500 cotton swab anxiety. You may see the $500 price tag, but in reality you are only responsible for a fraction of that amount. Your actual bill depends on your co-insurance, deductible amount, co-pay and remaining balance after insurance payment. Co-pays and con-insurance are both fees incurred every time you seek medical care, and deter overutilization. Seeking medical attention for every bump and bruise drains the resources and efficiency of health care facilities, so mandating a fee ensures patients have actual need. Co-pays are normally a relatively low fixed amount, whereas co-insurance tends to be 10%-20% of the claim. The last portion of the bill a patient might have to pay besides their remaining balance is the deductible, a slightly more complicated fee.

Two people may belong to the same insurance agency, receive the same coverage, submit the same exact claim, but owe different amounts on their EOBs. So what gives? This is due to deductibles, an out of pocket amount the patient must pay each year before their insurance will start paying their claims. When purchasing insurance plans, patients establish their deductibles for the year, which range from $250-$5000 per policy. It is imperative you know your deductible amount! This will save you a few heart attacks opening your first medical bills at the beginning of the year. Once your deductible amount is reached, your insurance company will begin paying your claims, and your bank account will suffer no more (or at least a little less).

Along with providing billing information, EOBs empower patients to review their records for any unnecessary or excessive charges. Regulating fraud and abuse is a responsibility shared by patients and governmental agencies, and benefits everyone long term. Take the time to understand your EOBs and keep track of your records to maintain transparency throughout the reimbursement process. Even if it is unintentional, coding and billing mistakes can happen.

If you still find yourself suffering from heart palpitations opening your EOBs, or if you have any further questions, contact your local health care provider or insurance agency for detailed information about your policy. The following link also contains an example of an EOB, and detailed information for various sections: http://www.aetna.com/provider/eob_samples.htm