What does the Explanation of Benefits really mean?

I recently had some physical therapy for a minor injury. Since the office forgot to charge my co-pay the first time I went in I received a so-called Explanation of Benefits (EOB) from my insurance carrier, BlueCross BlueShield of Massachusetts.  EOBs are a holdover from the mainframe era: arcane, inflexible reports that are hard to interpret. They may have done their job in the day when their only purpose was to let a member know they owed money, but they’re woefully inadequate in the era of consumer driven health care and transparency.

What does the Explanation of Benefits really mean?

The main section of my EOB has 4 lines and each one says the exact same thing: “PHYSICAL THERAPY 08/31/11 – 08/31/11.” That’s not very useful. However, my guess is that it represents a series of specific, billable activities that were undertaken on my visit, such as therapeutic ultrasound, massage, and electrical stimulation.

There is also an “amount charged” column, representing the reimbursement level sought by the provider. In my case the first line says $75 and the others are $50 each. This column adds up to $225.

Then there is an “amount allowed” column, which is the negotiated rate for each service. The numbers range from $18.63 to $21.74. There is no apparent correlation between the charged amount and the allowed amount. The highest charge ($75) has the lowest allowed amount ($18.63). Other columns include my $25 office visit co-pay –in this case inexplicably distributed between the first two items– a co-insurance column (zero for me) and a benefits column, representing the negotiated rate minus my co-pay. The “your balance” column shows the co-pay, which was uncollected at the time of this visit.

Despite the user-unfriendliness of the EOB it still provided me with some useful information. In particular, it’s interesting to see that I would have been charged $225 if I lacked insurance. The BCBS rate is about 2/3 lower. So in fact the real economic benefit to me of the insurance is much more than the $56.31 portrayed in the “benefits” column. For me the economic value is really $200 –the amount charged minus my copay. That’s a number worth appreciating for so-called freeloaders who wait to get insurance until after they have medical expenses. If they do have to pay out-of-pocket for services without the benefit of BlueCross’s negotiating power they are going to get overcharged.

I asked BCBS to comment on the EOB and public relations director Tara Murray replied:

We’re required by law to send an explanation of benefits to our members. We send it so that a member can be aware if there is any remaining balance after a claim is processed. However, we understand there is more we need to do to simplify communications for our members. Your inquiry is timely as we’re currently looking at redesigning our explanation of benefits notification.

Those changes will be driven by member needs but also new rules that are part of the Patient Protection and Affordable Care Act. One thing I’d really like to see is the impact to the member and to BCBS of choosing one provider over another. With my current plan it doesn’t really matter where I go as long as it’s in network. But that’s bound to change in the future and we need tools to support that shift.

David E. Williams is co-founder of MedPharma Partners and blogs at the Health Business Blog.

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  • http://twitter.com/DarrellWhite Darrell White

    “If they do have to pay out-of-pocket for services without the benefit of BlueCross’s negotiating power they are going to get overcharged.”
    So, Mr. Williams, the simple fact that the retail price of the services provided to you is greater than the negotiated fee paid by BSCB is de facto proof that anyone w/out insurance will be “overcharged”? Do I have that correct? Not just “charged more” but “overcharged?”

    That sentence encompasses so much of what is wrong with medical economics in the U.S. that it could be poetry. An econ Haiku, perhaps. Where should we start? How about the discounted fee. What do you know of the structure of the physical therapy operation? Is it possible that the negotiated fee covers only overhead? Could it actually be a loss leader? Might it be that there is literally no profit, no vigorish for the house to compensate the owner/developer for her investment? Why would the owners participate in such a plan? Could it be that they are required to do so in order that they can participate in other, non-PPO BCBS plans in which they make a profit?

    And what of the full price? How did the center arrive at those numbers? If they are anything like the rest of American medicine the prices are, indeed, artificially high because the owners chased the “maximum allowable charge” or MAC of the Medicare of yore, and now they are locked in due to other insurance contracts. Do they actually ever collect the full charge? Is there a cash price for people w/out insurance? 

    Why is this center in your plan? Who is NOT in your plan? Why not? What are the qualitative and quantitative differences between these centers? What does you EOB tell you about the contracted center other than that they accepted the fee schedule for this particular PPO? 

    Such a disappointing conclusion from what started out as such a helpful primer on reading an EOB and the hidden economic benefit of having what we in America call “Health Insurance”. 

    • http://twitter.com/HealthBizBlog David Williams

      This wasn’t an essay on overall practice economics. But since you asked, BCBS MA is the dominant commercial carrier here in Massachusetts. Their rates tend to be higher than Medicare and Medicaid, and the carrier is often called on by providers to pay more to subsidize losses from other programs. If the PT clinic is using BCBS as a loss leader it would put them in a small minority of providers.

      Is “overcharged” too strong a word? Perhaps. But as a cash customer I would be upset by paying almost 3x the going rate.

  • http://www.facebook.com/stephen.rockower Stephen Rockower

    This seems to be a trick of ALL Blue Cross programs to deliberately obfuscate what they are paying for.  “Physical Therapy”, “Surgery”, “Office Services”, “Lab”.  They often state the allowed amount is the “negotiated” discount that they have so graciously obtained for their members.  BULL!  Their idea of negotiation is “Take it or Leave it”.  Many other plans are much more transparent in their descriptions, even including CPT codes.
    And the “charged” column is a total fabrication.  As a physician/surgeon, I haven’t raised my “charges” in over 10 years, as the insurance companies dictate what they will pay anyway.  If I were out of plans, the amount charged would be much more in line with realities.  Our real cash customers (ie no insurance) certainly get a substantial discount.

  • Anonymous

    All I have to say…all of these enigmatic charges, EOB, insurance coverage…etc etc… leaves an important piece out.  The patient.  I am in Long Term Care and it is upsetting to see how insurances are not truly transparent and not offering products that are BEST for the patient.  I see it day in and day out, patients are non compliant because they cannot ‘afford’ treatment with insurance coverage = sad.  And for healthcare providers – the shift has changed into what can be done to ‘survive’ to withstand financial cuts and be at the beck and call of some insurances (compromising the quality of care given).

  • Mary Russell

    Hello, they would not have charged you $225 for your physical therapy appointment. More likely the $55. I believe the charges are their attempt to get somewhere near adequate compensation from the insurance company for the services provided. If they charged the insurance company their “cash pay” fees they would have likely gotten paid $7.28 for the visit. I am told that this would be considered insurance fraud but I see it all the time. Remember (not that long ago) when without insurance a MD visit was like $55? Now it is like $200 for that 15 min of their precious time. And more and more it seems I am misdiagnosed or am not diagnosed on the first visit. It just had a 2 visit yeast infection that was ultimately cleared up with yogurt when the medication did not do the trick. Oh and the medication, that cost another $20 (insured). So that pesky yeast infection cost me $80 and 2 visits to get cleared up. Oh, wait… add the $2.85 for the big container of plain yogurt (I couldn’t find a individual size cup so had to buy the larger). Just sayin, that is what our medical world is coming to. No wonder it is in such crisis.

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