Balance Billing Explained

This article is general information, not insurance, medical, legal or financial advice. Rules about this practice vary widely by country, state, plan type and the kind of care involved, so check what applies to you.

Balance billing happens when a provider charges you for the difference between its own price and the amount your health plan agreed to pay. The “balance” is whatever is left after the plan has paid its share and after any cost-sharing you owe under the plan’s own terms.

How the gap arises

Providers set their own list prices. Health plans, in turn, decide how much they will recognize for a given service. That recognized figure is commonly called the allowed amount, though plans use different terms for it.

When a provider has a contract with your plan, the contract usually says the provider will accept the plan’s allowed amount as payment in full, apart from your deductible, copay or coinsurance. In that situation, the provider generally writes off the rest. When there is no contract, the provider has no agreement to limit what it asks of you, and the gap can fall to the patient.

A hypothetical example

The numbers below are made up only to show the arithmetic and are not typical of any real service.

• The provider charges $1,000 for a service.
• Your plan’s allowed amount is $600.
• The plan pays 80 percent of the allowed amount, which is $480.
• Your coinsurance is the other 20 percent of the allowed amount, which is $120.

If the provider has a contract with your plan, you would owe $120, and the remaining $400 (the $1,000 charge minus the $600 allowed) would be written off.

If the provider has no contract and is permitted to balance bill, you could be asked to pay the $120 plus the $400 gap, for $520 in total. Your plan’s payment would not change. Only the provider’s willingness to accept the allowed amount changes.

Check the arithmetic: $480 plus $120 equals $600, and $600 plus $400 equals $1,000.

Balance billing is not the same as cost sharing

It is easy to confuse these two.

• Cost sharing is what your plan’s design assigns to you: deductibles, copays and coinsurance. See copay and coinsurance for the difference between the last two.
• Balance billing is an extra amount on top, based on the gap between the provider’s price and the plan’s allowed amount.

A related point: amounts you pay on balance bills often do not count toward your deductible or your out-of-pocket maximum, because the plan did not recognize them as covered charges. Plans differ on this, so confirm in your policy documents.

When it tends to come up

Balance billing is mostly associated with out-of-network care, where the provider has no agreement with your plan. Common situations include:

• choosing a provider who is not part of your plan’s network
• receiving emergency care at a facility or from a clinician outside your network
• being treated by an out-of-network specialist, such as an anesthesiologist or radiologist, while at an in-network hospital
• ambulance transport, where networks can be limited

Some plan types do not cover out-of-network care at all except in emergencies, in which case you might owe the entire bill rather than just a gap. How network design works in general is explained under provider networks.

Protections that may exist

Many places have laws, regulations or contract rules that limit balance billing in certain situations, particularly emergencies or care at in-network facilities. Whether protections apply can depend on your plan type (for example, some employer plans that fund their own benefits follow different rules from fully insured plans), the setting where you received care, and where you live. The topic of unexpected out-of-network charges is covered more fully under surprise billing.

Providers who are in a plan’s network typically agree in their contracts not to bill members for amounts above the allowed amount, other than the member’s cost sharing. That is one reason checking a provider’s status before a planned visit is worth the effort.

Questions worth asking

If a bill seems higher than your plan’s paperwork suggests:

1. Is this provider in my plan’s network, and was it in network on the date of service?
2. What is the allowed amount for this service according to my insurer?
3. Is the provider billing me only my share, or the full difference?
4. Was this emergency or involuntary out-of-network care, and does any rule limit what I can be charged?
5. Can the provider accept the allowed amount, or a reduced amount, as payment?

Your insurer’s processing statement, often called an explanation of benefits, usually shows the allowed amount, the plan payment and your share. Comparing it with the provider’s bill is a quick way to see whether a gap is being billed.

Practical steps

• Ask the provider for an itemized bill and compare it with your insurer’s statement.
• Ask your insurer whether the claim was processed as in network or out of network, and why.
• If the claim was processed incorrectly, you may be able to file a claim appeal.
• If the provider is not bound by a network contract, you can still ask for a lower price. Some will agree, especially for prompt payment or hardship. General approaches are described under bill negotiation.
• Keep notes of calls and copies of letters.

Outcomes are uncertain, and results vary by provider, plan and location. Asking clear, specific questions and getting answers in writing tends to be the most useful starting point.