Understanding balance billing, a primer for patients

The topic of balance billing has arisen once again, this time in this post by Movin’ Meat about the new health care insurance bill and emergency medicine.

Without further explanation, “balance billing” is generally thought of as a bad thing; a way for rich doctors to squeeze even more ill-gotten gains from their poor beleaguered patients. And that’s without even realizing what it is. So without further ado, let me do some explaining.

Say you want to see me as a patient. Say my fee — the price for my services — is $100. If you ask me ahead of time what my fee is, I say, “$100.” If you think that’s too much, you hang up and go somewhere else. Otherwise you come in, we have our visit, you pay me $100 and we all go on our merry way. This is how things work in every other free market service transaction.

But in health care we have this annoying third party called the insurance company. Despite the fact that most people seem to believe it is the insurance company’s job to just pay for things and shut up about it, the fact is that insurance is basically a set of contracts. The company contracts with patients (or their employers) on the one hand, and with physicians, hospitals, and other providers on the other. The contract with patients states that in exchange for payment of a monthly premium, the company will pay for certain specified medical services. The contract with physicians states that in exchange for a physician’s participation with the company’s insurance plans (which typically implies an increased number of patients, as the insurance company uses its marketing capacity to advertise the physician to patients with whom it contracts) the physician will knock something off his regular rates.

“Participation” is a synonym for “signing a contract.” Contracts are supposed to be binding on both parties; that’s kind of the definition of a contract. Leaving aside for the moment the inequity of ‘lil ole me contracting with a local behemoth that shall remain nameless (except that it’s named for a color and a shape), the idea is that by participating with a given insurance company, I agree to accept less than my regular fee for seeing patients who have a contract with them. Theoretically I will make up the difference in volume, because their patients will more willingly see “participating” physicians.

Back to our example above: say the insurance company’s allowance for that particular service is $90. If I have a contract with that company, and if you have a contract with that company, then I write off the $10 difference between my fee of $100 and accept just $90 as payment in full for my services. Precisely where my $90 comes from depends on the other details of YOUR contract; whether or not you have a deductible or co-pay, for example. Regardless, my contract says that I am due $90 for that service. If your contract states that you have to pay the first $500 of covered services, then you you have to pay the whole $90. This is not “balance billing”; this is your responsibility under your insurance contract.

Notice that if you don’t have a contract with that company, though, you still owe me $100. Maybe there’s another company that pays me $88, still another that pays me $93, yet another that pays me $75. Doesn’t matter. My fee is still $100, regardless of what contracts I may have signed with assorted insurance companies.

As an American citizen I have the right to enter into contracts — or not — as I see fit. I may decide that I don’t want to accept only $75 for my services. Nothing compels me to sign any contract if I don’t like the terms, including payment rates.

Now say that a patient has a health insurance contract with the company that only pays $75, and that I have decided NOT to contract with; ie, with whom I am “non-participating”. My fee is still $100. The fact that the insurance company’s allowance is $75 has nothing to do with me. I haven’t signed their contract, remember? So how much does that patient owe me? Answer: $100. That’s my fee.

As a practical matter, most doctors send claims for all patients to the insurance companies for them, whether or not we are participating. Patients are welcome to pay us directly and then send a claim to the company to recoup the allowed $75 for themselves. But when the insurance company (with whom I do NOT have a contract) sends me only $75 instead of the full $100 I am due, I can bill the patient for that $25 balance. This is “balance billing”.

So what does is mean to forbid balance billing (like in California)?

It means that there is no such thing as a binding contract between a physician and an insurance company.

What if you could decide you only wanted to pay your plumber 75% of whatever he charged you? What if you only paid your lawyer 50% of his bill? What if you went into a grocery store, walked out with $80 worth of groceries, and only paid $30? Even after signing a contract ahead of time promising to pay for everything in full?

Anyone think that’s fair?

The only way around this, of course, is to eschew all insurance contracts. Cash-only practice is looking better and better all the time.

Lucy Hornstein is a family physician who blogs at Musings of a Dinosaur, and is the author of Declarations of a Dinosaur: 10 Laws I’ve Learned as a Family Doctor.

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  • David Allen

    Your position is logical and the correct one. Liberals want emergency medicine to be free, which will undermine the quality of emergency/hospital medicine as it becomes further underfunded. If they have their way, more hospitals will close and public medicine will be the only medicine. Perhaps that is what they want?

  • V

    Why do you have to eschew all insurance contracts? Can’t you still take patients that have insurance with companies that you do have contracts with and force all other patients, including those with health insurance that you aren’t a part of, pay upfront?

    That being said, either way, cash-only is going to become more and more popular. For the life of me, I can’t understand how all the paperwork of insurance got turned into the doctor’s responsibility instead of the patient’s.

    • Vox Rusticus

      That came when the doctor became the one waiting to get paid by the insurance company. The patient was off the hook, so to speak. The patient had no interest in seeing through the claim when it was the doctor who had to wait for the payment.

  • AnnR

    So the uninsured pay full freight and most everybody else gets discount.

    Forbidding balance billing might be unfair, but sticking those without an insurer with the full price doesn’t seem quite right either.

    • Mrs. B

      Per contract language of Medicare/Medicaid for participating providers, the allowable rates for uninsured patients cannot fall below Medicare/Medicaid allowables. Most practices allow a discount on services paid up front by uninsured patients which puts them in the ballpark of where their commercial contracts pay. Essentially, patients without insurance get the same benefits, without the large monthly premiums.

      • Vox Rusticus

        Well, not exactly. The insurance company pays the agreed-upon charges (less deductibles and copayments, of course.) That is at least something in return for the premium payment. The patient without insurance pays the whole bill himself.

      • Alina

        The government allows discounts given for upfront payment, and it would be nice if physicians would offer this, but that’s rarely the case. Uninsured patients do not usually get a break on any kind of health care services. In fact this has been documented in the media-a lot! There were even some start-up companies that wanted to put together directories with providers who offer discounts for cash-paying patients. These companies failed b/c lack of participation from physicians and others.
        When it comes to hospital prices I wonder how the regulations work as Medicare pays a higher rate than what the insurance companies pay – by far!

  • http://onhealthtech.blogspot.com/ Margalit Gur-Arie

    But is it really that simple?
    Most out of network balance billing occurs when the patient is taken to the closest ED which happens to be out of network. There is no time to call and find out what the “full price” is and what the insurer will actually pay.
    This wouldn’t be such a big deal, if the “full price” was a few percent higher than the contracted prices. Unfortunately, the “full price” can be several multiples of contractuals. It is not a realistic number because nobody would contract to do work for 20% of what they should be paid.
    And then there is the other sort of “balance billing”, where contracted providers bill patients for the difference between the contractuals and what they think is “fair price”. There are even cases where providers have billed Medicare patients for what Medicare didn’t pay.

    I know primary care docs are not paid nearly enough by any payer out there, particularly Medicare, but “balance billing” is most definitely not the way to rectify this (no idea what the excuse for other specialties and hospitals is). Let’s also remember that in the vast majority of cases, patients are much poorer than their doctors, and we are not talking about $10 here.

  • Vox Rusticus

    In this example, the uninsured pays the full price (the writer did not muddy the discussion with cash-payment discounts, although that is common practice.)

    For uninsured patients that don’t pay on the spot, the risk of not getting paid is very high, so the incentive to offer a discount when the doctor is losing interest by waiting for payment is not as great. “Self pay” is of course synonymous for “not paying,” in most settings. Many people without insurance feel free to behave as if they don’t have to pay their bills at all. I suggest that if you are paying without insurance and you don’t want to pay more that you ask for a fixed price not to exceed and that you pay the full amount on the spot. Doing anything else puts you in the pool of highest-risk of non-payment who should rightly be those least eligible for a discount.

    The only reason to agree to the insurer’s discount–which has to be reasonable–is that enough volume of patient business will result to offset the loss of the discount. That presumes the insurer pays in a timely way and does not deny the claim. Of course neither of those conditions on the insurer actually apply in reality, which is why accepting insurance anymore is of debatable value to a practice.

    • Alina

      Hospitals, physicians, and other service providers say they offer a lower rate to insurance companies in exchange for their volume. But this is not really the case, as an insurer cannot possibly predict any kind of volume. Saying that they have a certain membership certainly doesn’t equate to an actual volume of business for any of the providers. An insurance company can’t possibly predict how many people will need a specific service at any given time. In addition their network feature a fairly large number of providers and they do not asign members to one provider or another. So the whole performance type contracts (lower rate in exchange of volume) doesn’t really apply to the health care field.

      Cash-paying practice only? So the patients would now have to pay their health insurance premiums through their employer (anywhere from $100 to $1,200, depending on the insurance plan), then pay all the co-pays & co-insurance (higher and higher everyday) and on top of everything else pay a concierge fee for the physicians. I wish we would all have that kind of money to be able to afford all of this. WOW!

      • Vox Rusticus

        Actually, they do exactly that. While it is true that no practice can predict how many patients with a particular carrier will present for services, it is possible to at least estimate that more will come when the practice participates with a carrier than if the practice does not participate, at least as long as there are competing practices that do the same. Just like vendors and Wal Mart, even though the retailer squeezes the vendor on the cost, the vendor knows that significant sales will result from a presence at that chain, or it at least guesses that it does. Just as with the manufacturer of
        the product at Wal Mart, the hope is to clear enough business without diluting the value of the brand. With the insurance companies anymore, there is also a loss factor from the non-performance of the insurer–denials–that also have to be added to whatever is lost from the “negotiated” discount. If a major local employer has a contract with a major health insurance carrier, there is at least one reason to consider participating with that carrier, not that it is always worth the participation. The same is true with manufacturers. Goodyear might not know how many tires it will be able to sell at Wal Mart, but if the retailer carries its competitors brands and they are the largest-volume retailer in every community where they are located, then similar consideration has to be given to selling their product there, discounts to the retailer notwithstanding. In either case, performance analysis has to bear out in the balance sheet. It makes no sense to sell your product at such a discount that it closes off by competition your sales through other outlets. so participation arrangements need to be treated with great and continuous scrutiny.

        The wrench thrown into the machine here is that the insurer besides demanding a contractual discount to the fee also extracts an imputed discount by denials and non-performance–an an act of deliberate bad faith when it is a routine practice–and that is why there is so much interest in a cash-only alternative.

        I agree, patients will be stuck with this, just as doctors have been. but our elected officials seem particularly beholden to the interests of the insurance companies, otherwise we would have seen far more effective insurance industry reforms by now with far more effective enforcement. So far, nothing significant at all.

        • Alina

          Can’t speculate on WalMart’s contracts as I don’t have any knowledge of the way they structure their agreements.

          There is a huge difference between:

          Access contracts = provider is listed on a directory with no business guarantees from the payer.

          Performance contracts = provider gives a discount in exchange of a specific amount of business (via volume, market share, etc).

          The contracts between physicians and insurance companies are access based, not performance. To say that physicians give discounts to insurance companies in exchange of the volume they bring in, is just not accurate, and begs the question as to why an uninsured would not receive the same discounts. Neither one guarantees an actual volume of any kind (visits, number of patients, etc). Also, in the business world there are prompt pay agreements, and hearing many doctors constantly complaining about reimbursement delays, denials, etc encountered when dealing with insurance companies it would make sense to offer at least a prompt pay discount for an uninsured who pays the bill on the spot.

          Agree with your last statement regarding insurance companies and the government. Insurance companies are called third-party for a reason; they are the middle man and should be treated as such. They should not be allowed to dictate the rules to physicians or patients.

  • John

    Actually it would be cheaper since you are only paying for catastrophic problems. It hearkens back to what insurance was supposed to be for. Emergencies. You pay homeowners insurance in case of a fire or flood, not for minor repairs. You pay your doc for routine visits and your insurance for when something bad happens.

  • http://practicemanagersolutions.com Rebecca Morehead

    Such a simple contract negotiation that so many have interpreted over and over in different ways. If only the patients understood how it worked.

    A physician is ultimately an entrepreneur who should have the ability to charge whatever he wants for his fees. No one questions the fees of an attorney. You just know you how good they are by the price they charge. And you pay it when you NEED it.

    A negotiated contractual amount to that fee is one thing, but when a service is provided the fee is the fee, period.