The terms used to describe medical billing and reimbursement may seem complicated at first, but they are really not very complicated once you know what they mean. This is by no means a comprehensive list, but represents many of our most commonly asked questions:
How Does My Health Insurance Work?
Generally speaking you have one of two plan types – a PPO or an HMO.
PPO Plans – Freedom Isn’t Free
PPO plans allow you to pick most everything about your care: who you see, what kind of provider you see, when you want to be seen, etc. However, depending on the choices you make, the charges can vary.
For example, if you are in a PPO, you hurt your knee, and you want to see an orthopedic surgeon out of your network, you may be more – signficantly more – than if you stayed in your provider network.
PPO plans usually have a deductible that has to be met. If you are seeing an in-network provider, you’ll pay a discounted rate for your care, called an allowable or contracted rate. That amount was negotiated between the provider you’re seeing and your insurance company. Once your yearly expenses exceed your deductible amount, then your insurance requires that you pay a coinsurance. See the Glossary below for definitions.
All of these charges are based on the allowable, or contracted rate, negotiated between your insurance plan and the provider you are seeing.
For example, you have a deductible of $500 and your coinsurance is 20% of allowable charges after the deductible. You see a provider and the total charges are $1500, however, the allowable (discounted) rate is only $1000. For that service, you would owe the provider $500 for the deductible, plus another $100 for the coinsurance, which is 20% of the remaining allowable charges of $500. The total you’d pay out of pocket would be $600 for this visit. After this visit, until the end of the year, you’d only be responsible for paying the 20% coinsurance each visit. For example, if the allowable charge was $100, you’d be responsible for $20 of that.
It can get a little tricky though, because each provider (even of the same type) may have a different rate that was negotiated with the insurance plan. Generally speaking, hospitals negotiate better rates for themselves. So the same service that had an allowable rate of $100 at one clinic, may have an allowable rate of $200 at another clinic that is operated by a hospital. In other words, if you have a PPO plan, it may be twice as expensive to visit the hospital provider.
If you choose a hospital or provider that is out of your network, the coinsurance may be higher, and that provider will not be subject to a negotiated allowable rate. So you may have 20% coinsurance in network, but for an out of network provider, that amount may be 40%. Instead of an allowable rate of $100, the out of network provider may charge $400 for the same service, leaving you to pay $160 at the time of service.
HMO Plans – Locked-in at a Fixed Price
HMO plans restrict who you can see and when you can be seen, but save you (and the insurance plan) money by limiting your choices.
Rather than a deductible and coinsurance, most HMO plans have a set copayment each visit. So if you visit a hospital-operated provider or a private provider of the same type, you’ll still pay the same amount.
However, if you see an out of network provider, you’re on your own. HMO plans do not pay for out of network providers.
Additionally, HMO plans usually require referrals, in order to see anyone but your primary care physician. If you choose to see another provider without that referral, your insurance plan will not cover it at all.
So if you hurt your knee and you want to see an orthopedic surgeon, you will be required to see your primary care physician first, and obtain a referral to see the orthopedic surgeon that is in your insurance network. You’ll pay a copayment ($30, for example) for the primary care physician, but a different copayment ($50 for example) for the orthopedic surgeon.
Your insurance plan may have other requirements, such as seeing a physical therapist before being allowed to obtain an MRI, or undergoing a shoulder injection and therapy before a shoulder MRI.
Your visits will also be counted and limited. When seeing a therapist, you will pay the same copayment each time, but you may be limited to a specific number of visits (5-6 normally) before your therapist must fill out a pre-authorization to request that additional visits are covered by your insurance plan.
Medical/Therapy Billing Glossary
8-Minute Rule – Medicare and other federally-funded insurance programs stipulate that no timed therapy code can be billed until at least 8 minutes have been spent delivering that service. The same applies for multiple units. For example, a timed code is defined in 15 minute increments. 5 minutes of service does not allow a bill to be generated, while 20 minutes is billed as one unit. 23 minutes, on the other hand, is billed as two units.
Allowable Charges – See Contracted Fee Schedule.
Benefit Amount – This is the payment that the insurance plan makes to the healthcare provider. It is the allowable amount less the deductible, coinsurance, or copayment. In some cases the benefit amount is capped, even though the allowable amount is significantly more. Unicare is one insurer that is notorious for this type of therapy benefit. Their allowable for a therapy visit may be as high as $100, but the cap on the insurance benefit is $30, leaving the other $70 to be paid by the patient.
Balance Billing – The unethical (and illegal) practice of billing the patient for the difference between the standard fee schedule and the allowable amount – billing the patient for the “write-off” that the healthcare provider agreed to take as a term of membership to an insurance network.
Bundled CPT Codes – A “Bundled” code is not paid separately by the insurance company – it’s considered as a component of another service. The most common bundled code is 97010 – hot or cold therapy. This code is many times not billable on it’s own – it must be billed in conjunction with another treatment code, such as 97110 (therapeutic exercise) and even then it is not reimbursed. The payment for 97110 is considered to include an allowance for 97010 as part of that treatment. The patient cannot be billed for 97010 since that is part of the agreement between the insurer and the provider.
Case Rate – This is a method of billing that pays one lump sum for the entire course of care that a patient may need for a given problem. The most commonly encountered case rates in therapy are home health care reimbursed by Medicare or out patient therapy reimbursed by Aetna (American Therapy Administrators). In these cases, the provider is paid a lump sum based on the severity “rating” of the patient’s problem for all the care that patient will require over a 60-day period.
Coinsurance – This is the amount that the patient must pay – usually expressed as a portion of allowable charges. For example, if the allowable charge for a service is $100, and the patient has a policy which pays 80% of allowable charges, then the patient is responsible for paying the 20% coinsurance, or in this case, $20. The coinsurance is (most of the time) not due from the patient until the provider receives an EOB from the insurer explaining how much of the bill was applied to coinsurance, deductible, and copayments.
Common Procedural Terminology (CPT) Code – CPT codes are basically accounting codes used to describe a service provided by a healthcare provider. These include services that your insurance company does and does not pay for. The meaning of most codes can be found online, by searching for “CPT Code” and the code number. For instance, searching “CPT Code 97110” returns this list on Google. The exact definitions can be hard to come by, because they are property of the American Medical Association. CPT Codes are listed on your medical bills and insurance explanation of benefits (EOB) beside the description of the code.
Contracted Fee Schedule – As part of an agreement between an insurance company and a healthcare provider, a separate fee schedule may be established where the healthcare provider agrees to accept a discounted rate for patients that are members of that insurance plan or network. The amount billed to the insurance company is still the standard fee schedule (in most cases) while the “allowable charge” on the EOB reflects the contracted fee schedule and the “write-off” or “non-allowed charges” are the amount the standard fee schedule is over the contracted fee schedule. For instance, a healthcare provider normally charges $50 for a service, however, a large insurance network tells him that membership in their network will ensure that he gets more patients, but they only wish to pay $40 for that service. The provider still bills $50 (in most cases) while the allowable charge on the EOB is $40. The $10 over the allowable amount is “written off” and not billable to the patient.
Copayment – This is an amount that they patient must pay at the time of service, per appointment. This amount is not expressed as a portion of allowable expenses, but as a flat dollar amount due at the time of service. This amount is then subtracted from the payable benefit on the EOB. For example, if the allowable charge for a service is $100, and the patient has a copayment of $25, then that $25 is paid at the time of the appointment, and the remaining $75 is paid by the insurance company. If the next appointment had an allowable charge of $125, then the patient would still pay $25, and the benefit amount would be $100. Benefits tied to a copayment usually do not have a coinsurance, but are covered at 100% after the copayment.
Deductible – This is the amount of money that the insured must spend out of pocket before their insurance plan pays any benefit. For example, if a patient has a deductible of $250, they must pay for $250 of allowable expenses before any amount will be paid by the insurance company.
Explanation of Benefits (EOB) – The EOB is a letter returned to the insured and the healthcare provider as an explanation of who owes what. It will indicate the date of service, the amount billed, the allowable amount, the write-off, and the payable benefit, as well as any deductible or coinsurance left to be paid by the insured.
Out of Pocket Maximum (Limit) – This is the limit of the insured’s liability. It is a feature of most insurance plans that have a coinsurance. For example, an insurance plan has a deductible of $100, with a coinsurance of 20%, and an out of pocket limit of $500. That means that the first $100 will be paid by the patient (to satisfy the deductible) then the patient will be responsible for 20% of the bills until he/she has spent $500 total for the year. Then all services after that point are covered. In this case, the amount the patient would spend would be $20 for every $100 of allowable charges – meaning that the out of pocket limit would be hit after $4,500 in allowable charges.
Standard Fee Schedule – A fee schedule resembles a restaurant menu – it lists the services provided by the clinic, and the standard charge. The standard charge is what is charged to any insurance company, or any patient who does not pay at the time of service.
Timed CPT Codes – These are CPT codes for services that are timed for purposes of billing. They are usually in 15-minute increments, starting at 1 minute through 15 minutes. For example, a particular service that is timed is billed once per 15 minutes of service. 20 minutes of that service were provided, so two units are billed.
Untimed CPT Codes – These are CPT codes for services that are untimed. Regardless of the amount spent in the delivery of a service described by an untimed code, the charge is the same. Mechanical traction is an untimed code – the patient may have spent 10 minutes of 45 minutes on the device, however, only one charge is billed for mechanical traction. The same concept is true of the Group Therapy code – leading some unethical providers to alternatively substitute a one-on-one treatment code to gain additional reimbursement from the patient and insurance plan.
Upcoding – This is a process by which an unethical provider substitutes codes that pay a higher rate than the actual service that was provided. Services are to be billed by the CPT code that most closely describes the service provided. Sometimes more than one code could apply. In these cases the provider picks the higher-paying code to maximize the amount of money collected from the patient and insurance company for that service.
I pledge to:
- Contact your insurance company to obtain an explanation of your therapy benefits
- Explain your therapy benefits to you
- Provide you with an estimate of what you will owe
- Submit your claims to the insurer in a timely manner
- Post all payments and cash checks in a timely manner
- Speak with you regarding alternate payment arrangements prior to initiating collection efforts, should they be needed
Contact me to schedule an initial evaluation. If physical therapy is recommended, we will contact your physician in writing regarding the recommended plan of care, allowing him or her to make the most informed decision possible for your care.
