A Healthcare Consumer Guide to Understanding and Managing Balance Billing


Balance Billing is very confusing and poses a significant financial risk for the healthcare consumer.  The typical healthcare consumer doesn’t know what is balance billing.  Many consumers assume the medical bill is correct and pay it without a review or challenge.   In 2015, the Consumers Union conducted a study and found nearly 33% of privately insured Americans received an unanticipated bill when their health plan paid less than expected for medical services within a two-year period.  Balance billing is becoming an epidemic that is costing the healthcare consumer a significant amount of out of pocket expense.

One major contributing reason for balance billing is that the healthcare provider is not in the network of the healthcare consumer.  A recent study by the Kaiser Family Foundation/New York Times found nearly 70% of individuals with unaffordable out of network medical bills did not know the healthcare provider was not in their plan’s network at the time of care.

In addition, medical bad debt is increasing due to balance billing. In the Kaiser Family Foundation study, about 33% of the non-elderly insured were struggling to pay their medical bills because of out of network bills.

As reported recently in the Consumer Trends Navigator section of this web site, insurance companies are narrowing their networks to manage premiums increases.  Physician networks have been affected the most.

Furthermore, in a 2011 Health Services Research survey, about 68% of healthcare consumers who had out of network encounters said it happened during an emergency room visit.  The major reason for emergency room physicians leaving health plans is low payments.

Overall the healthcare consumers’ exposure to receiving a balance bill is very high as evidenced by the above studies.  The following will help the consumer to understand, how to avoid and manage through the balancing billing process.

What is Balancing Billing?

Balance Billing occurs after you have paid your deductible, co-insurance or co-payments and your health insurance company has also paid everything it is obligated to pay toward your medical bill.  If there is still a balanced owed on that bill and the doctor or hospital expects you to pay that balance, you’re being balance billed. The billing to the consumer could be right or wrong.  The following sections will explain both.

Is Balance Billing Legal or Not?

The following section will help define if the bill you are receiving is legal or not.  Always review your medical bills before making any payments.

Balance billing is generally illegal:

  • When you have Medicare aind you’re using a health care provider that accepts Medicare assignment.
  • When you have Medicaid and your health care provider has an agreement with Medicaid.
  • When your doctor or hospital has a contract with your health plan and is billing you more than that contract allows.
  • REMEMBER: The billing to you occurs after you have paid your co payments, co-insurance, and deductibles and your insurance has paid.

In each of these cases, the agreement between the health care provider and Medicare, Medicaid, or your insurance company includes a clause that prohibits balance billing.

Balance billing is usually legal:

  • When you’re using a health care provider that  does not have a relationship or contract with your insurer, Medicare, or Medicaid.d
  • When you’re getting services that aren’t covered by your health insurance policy, even if you’re getting those services from a provider that has a contract with your health plan. This situation is common for cosmetic procedures that aren’t medically necessary. In this case, you’ll be responsible for the entire bill.
  • REMEMBER: Your health insurance has out of network benefits.  Make sure they have been billed and paid correctly.

Since health insurance is regulated by each state, a state’s laws can impact whether and when balance billing is legal. Some states have specific laws about balance billing that differ from the basic principles above. Learn more about state laws on balance billing from Consumer Reports. The following web site has an online tool and state map that the healthcare consumer can use as a reference site.  The on-line tool is state specific with web sites, telephone numbers and consumer tips.  The state map displays which states have passed legislation about balance billing and what protection the consumer can expect.

Consumer Reports Web Site:   http://www.consumerreports.org/health-insurance/states-work-to-limit-out-of-network-medical-bills/

How Balance Billing Works

When you receive care from a doctor, hospital, or other health care provider that isn’t part of your insurer’s provider network,(or, if you have Medicare, from a provider that doesn’t accept Medicare assignment) that health care provider can charge you whatever he or she wants to charge you. Since your insurance company hasn’t negotiated any rates with that provider, he or she isn’t bound by a contract with your health plan.

If your health insurance company agrees to pay a percentage of your out-of-network care, the health plan doesn’t pay a percentage of what’s actually billed. Instead, it pays a percentage of what it says should have been billed, otherwise known as a reasonable and customary amount.

The reasonable and customary amount is usually lower than the amount you’re actually billed. The balance bill comes from the gap between what your insurer says is reasonable and customary, and what the doctor or hospital actually charges.

Here’s an example for a hospitalization with 20% coinsurance for in-network hospitalization and 40% coinsurance for out-of-network hospitalization:

In-network hospital (20% coinsurance) Out-of-network hospital (40% coinsurance) with balance bill
The Hospital charges $20,000 $20,000
Insurer negotiates a discounted rate of $8,000 There is no discount because this hospital is out-of-network
Insurer’s reasonable and customary rate $10,000
Insurer pays $6,400 (80% of the $8,000 discounted rate) $6,000 (60% of the $10,000 reasonable and customary rate)
You pay coinsurance of $1,600 (20% of $8,000) $4,000 (40% of $10,000)
Balance billed amount $0 $10,000 (The hospital’s original bill minus insurance and coinsurance payments)
When paid in-full, you’ve paid $1,600 $14,000 (Your coinsurance plus the remaining balance.)

REMEMBER:  You can negotiate with the healthcare provider for a reduced amount.  One strategy that generally works is:  Compare the amount of payment the healthcare provider would of received if they were in network.  In the example above, the insurer paid $400 more than the out of net work payment.  Given that, the healthcare provider would remain even if the consumer paid $400 more plus the $1,600 or $2,000.

When Does Balance Billing Happen? THE SURPRISE BILL!!!

Balance billing usually happens when you receive care from a doctor or hospital that isn’t part of your health insurance company’s provider network or doesn’t accept Medicare assignment.

This can happen unexpectedly, even when you try to stay in-network. For example, you go to an in-network hospital, but the radiologist who reads your x-rays isn’t in-network. The bill from the hospital reflects the in-network rate and isn’t subject to balance billing, but the radiologist, since he doesn’t have a contract with your insurer, can charge you whatever he wants and is free to balance bill. Similar situations arise with:

  • Anesthesiologists
  • Pathologists (laboratory doctors)
  • Neonatologists (doctors for newborns)
  • Intensivists (doctors who specialize in ICU patients)
  • Hospitalists (doctors who specialize in hospitalized patients)
  • Radiologists (doctors who interpret x-rays and scans)
  • Free Standing Emergency Rooms
  • Free Standing Urgent Care Centers
  • Free Standing Surgery Centers
  • Services received from a provider chosen by someone else. This can happen when you have a pap-smear or a biopsy done in your doctor’s office, or blood drawn by your home health nurse. If your doctor or nurse sends the specimen to an out-of-network lab, that lab can balance bill you.

Balance billing doesn’t usually happen with in-network providers or providers that accept Medicare assignment because, if they balance bill you, they’re violating the terms of their contract with your insurer or Medicare. They could lose the contract, face fines, suffer severe penalties, and even face criminal charges in some cases.

An exception to this occurs when you’re using an in-network provider, but you’re getting a service that isn’t covered by your health insurance. Since an insurer doesn’t negotiate rates for services it doesn’t cover, you’re not protected by that insurer-negotiated discount. The provider can charge whatever he or she wishes, and you’re responsible for the entire bill.

The Following is a Step by Step Process if You’re Being Balance Billed

If you’ve received a balance bill or are considering getting health care services that will result in a balance bill, you have some options as to how to handle the situation.

1.  If You’re Being Balance Billed Illegally

Don’t pay the balance-billed portion of the medical bill if you’re being balance-billed illegally. In some cases, illegal balance billing has severe, even criminal, penalties. You have several options for how to respond if you suspect you’re being balance billed illegally:

  • Speak with the health care provider and discuss the situation. With this approach, you’re basically giving your provider the benefit of the doubt, approaching the issue as though it’s a simple billing error. Explain why you feel balance billing is prohibited in this case, and ask the provider to correct the billing error.
  • If your discussion with the provider doesn’t fix the problem, complain to your insurance company, Medicare, or Medicaid, whichever provides your coverage. Tell the insurance company you’re being balance-billed, and ask it to intervene on your behalf. If you have Medicare or Medicaid, contact the Center for Medicare and Medicaid Services.
  • In addition, you may complain to the regulating authority for the health care provider. In the case of a physician, this is likely your state’s Board of Medicine. Find contact information for each state’s Board of Medicine Get information on the regulatory authority for each state’s hospitals from the Empowered Patient Coalition. If you feel you’re not being treated fairly by your health insurer, complain to your state’s Department of Insurance.

2.  If You Know In Advance You’ll Be Legally Balance Billed

First, try to prevent balance billing by staying in-network and making sure your insurance company covers the services you’re getting. If you’re having x-rays, MRIs, CT scans, or PET scans, make sure both the imaging facility and the radiologist who will read your scan are in-network. If you’re planning to have surgery, ask whether the anesthesiologists are in-network.

If you know in advance that you’ll be using an out-of-network provider or a provider that doesn’t accept Medicare assignment, you have some options. However, none of them are easy and all require some negotiating.

Ask for an estimate of the provider’s charges. Next, ask your insurer what they consider the reasonable and customary charge for this service to be. Getting an answer to this might be tough, but be persistent.

Once you have estimates of what your provider will charge and what your insurance company will pay, you’ll know how far apart the numbers are and what your financial risk is.

With this information, you can narrow the gap. There are only two ways to do this: get your provider to charge less or get your insurer to pay more.

Ask the provider if he or she will accept your insurance company’s reasonable and customary rate as payment in full. If so, get the agreement in writing, including a no-balance-billing clause.

If your provider won’t accept the reasonable and customary rate as payment in full, start working on your insurer. Ask your insurer to increase the amount they’re calling reasonable and customary for this particular case. Present a convincing argument by pointing out why your case is more complicated, difficult, or time-consuming to treat than the average case the insurer bases its reasonable and customary charge on.

Another option is to ask your insurer to negotiate a single-case contract with your out-of-network provider for this specific service. Sometimes they can agree upon a single-case contract for the amount your insurer usually pays its in-network providers. Sometimes they’ll agree on a single-case contract at the discount rate your doctor accepts from the insurance companies she’s already in-network with. Or, sometimes they can agree on a single-case contract for a percentage of the provider’s billed charges. Whatever the agreement, make sure it includes a no-balance-billing clause.

If all of these options fail, you can ask your insurer to cover this out-of-network care using your in-network coinsurance rate. While this won’t prevent balance billing, at least your insurer will be paying a higher percentage of the bill since your coinsurance for in-network care is lower than for out-of-network care.

If you pursue this option, have a convincing argument as to why the insurer should treat this as in-network. For example, there are no local in-network surgeons experienced in your particular surgical procedure, or the complication rates of the in-network surgeons are significantly higher than those of your out-of-network surgeon.

3.  If You Don’t Discover the Problem Until After You’ve Gotten the Care

Negotiating after-the-fact when you’ve gotten a legal balance bill is more difficult, but you still have options.

You can negotiate the balance-billed portion with your provider. Remember, your provider wants to get paid and would prefer to get his or her money quickly and without having to pay a portion of it to a collection agency. This means a provider might agree to decrease the total amount billed to the discount rate that she receives from the insurance companies she’s in-network with, if you agree to pay your share immediately. Or, your provider might accept a portion of the remaining balance as payment in full if you agree to pay in cash immediately. Some will allow you to set up a payment plan.

You can negotiate with your insurer. If your insurer has already paid the out-of-network rate on the reasonable and customary charge, you’ll have difficulty filing a formal appeal since the insurer didn’t actually deny your claim. It paid your claim, but at the out-of-network rate. Instead, request a reconsideration. You want your insurance company to reconsider the decision to cover this as out-of-network care, and instead cover it as in-network care. You’ll have more luck with this approach if you had a compelling medical or logistical reason for choosing an out-of-network provider.

If you feel like you’ve been treated unfairly by your insurance company, follow your health plan’s internal complaint resolution process. You can get information about your insurer’s complaint resolution process in your benefits handbook or from your human resources department. If this doesn’t resolve the problem, you can complain to your state’s Department of Insurance. Find contact information for your Department of Insurance by clicking your state on this map.

If your health plan is self-funded, meaning your employer is the entity paying the medical bills even though an insurance company may administer the plan, then your health plan may not fall under the authority of your state’s department of insurance. Self-funded plans usually fall under the authority of the Department of Labor’s Employee Benefit Services Administration. Get more information from the EBSA’s consumer assistance web page or by calling an EBSA benefits advisor at 1-866-444-3272.


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