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.

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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