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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