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If you’ve had the unfortunate experience of receiving an unexpectedly large medical bill, you may have had to learn what balance billing means. Balance billing occurs when patients are billed the difference between the provider’s total billed charges (i.e. the amount that your doctor or other provider charged for a service you received) and what your health insurance plan allowed and paid. This billing practice most often occurs when you receive out-of-network services.
Why does balance billing happen?
Let’s start with a history lesson. Prior to the growth of managed care plans in the 1970s, “indemnity” health plans were the predominant type of health insurance. These plans worked like this: Patients paid doctors or hospitals directly for their care and submitted claims to their “indemnity” health plan for reimbursement. Plans did not always pay the full amount, so patients were left with the balance.
The next generation of health insurance brought managed care organizations, in which providers began contracting directly with health plans and agreed to provide discounts on their prices in exchange for more patient volume and faster payment. These contracts limited a provider’s ability to bill patients for more than what a plan allowed — largely through what are referred to as “hold harmless” clauses. This means that contracts between health insurance companies and providers did not allow the providers to bill the patient for charges beyond what was contracted for the given health insurance plan — a fix for the issue we saw with indemnity plans in which patients were left with remaining balances, even with insurance.
The problem here comes with out-of-network care. These providers are not held to the same contractual requirements because they’ve chosen not to be included as in-network providers. In the absence of state-mandated limitations, they are free to collect up to the amount billed. Your health insurance may only “allow” and pay up to a certain amount of charges, and any remaining balance beyond the paid amount will be left for you to pay — hence the term “balance billing.”
Say your health insurance covers 100% of allowed charges for in-network care, but only 50% for out-of-network care. You have an imaging procedure performed at an out-of-network facility, and the provider bills you $2,000. Your health insurance only “allows” $400 for the procedure.
Since you went out of network, your insurance only pays 50% of the $400 allowed charge, leaving you with a $200 responsibility. However, the provider still expects to be paid the full $2,000 that was charged, increasing your total bill by $2,000 minus $400, or $1,600. Therefore, you would end up paying $1,800 for your scan.
Why is balance billing such an issue?
- It’s complicated. As the above example shows, balance billing can make it difficult to predict out-of-pocket costs. When presented with a similar example, fewer than 16% of Americans correctly calculated their expected expenses from out-of-network care correctly, according to the Kaiser Family Foundation. Also, regulations on balance billing vary by state.
- Staying in-network isn’t always easy. Sure, finding a doctor for your preventive care visit who is in-network may not be all that complicated. But when it comes to an emergency or even planned procedure that involves many doctors and facilities, you may not even know you’re going out of network. The anesthesiologist or surgeon who comes in to give a second opinion, for example, may not be in-network, even if your main surgeon is. If your procedure involves lab or pathology work, many hospitals will send samples to outside groups that may or may not be in-network.
- Charges vary widely. Consumers face an opaque pricing system with a wide variation in charges from one provider to the next. For example, one NerdWallet Health study found that hospitals might charge up to 50 times more for the same procedure. Balance billing exposes patients to the full force of an unpredictable billing system.
- Networks are getting smaller. While it’s unclear how many patients seek care out-of-network, a 2006 California Healthcare Foundation study found that 11% of patients go out-of-network each year. The Affordable Care Act has sparked the rise of narrow provider networks, potentially increasing the use of out-of-network services.
- Out-of-pocket maximums from the Affordable Care Act only apply to in-network care. Out-of-pocket maximums are positive in that they help to protect you from expensive medical care, but they do not apply to out-of-network care. This means you could end up with tens of thousands in medical bills and your insurance company would not be held responsible.
Did you get balance billed? Here are some options:
- Appeal to your insurance plan for additional coverage. Here are tips for appealing a denied health insurance claim.
- Negotiate with providers for a discount or, if the balance billing is unwarranted, a complete write-off.
- Appeal to a state-based external appeals board. If your insurance and providers refuse to help, consider going to the government.
Balance image courtesy of Shutterstock.