On Balance Billing

Bob recently posted about the act of balance billing by providers.

While I would never question Bob’s expertise in the field of insurance, I would like to clarify some points about balance billing. To begin, we need to understand how we have the health care payment system that is currently in place. The insurance structure that exists today came about during World War II. At the time, there was a wage freeze on American business, so in order to attract new employees, the benefit of paying for the employee’s health insurance was introduced. As employer-sponsored health insurance become more popular, the revenue cycle of medical care changed. Instead of the patient paying for the entire service at the time of treatment, the patient would pay a small amount of the medical bill and the insurance would pay the rest. Then patients began to ask the providers to submit the bill prior to them paying. The patients were tired of doing the paperwork to be reimbursed by the insurance company. (I remember sitting at my dining room table filling in my Champus forms for reimbursement for my daughter’s treatment.) The providers agreed, which created an entire medical billing industry. Then suddenly there were no monies due at time of service, or a nominal charge of $10.00, and the patient agreed to pay the provider whatever the insurance company stated was their responsibility. These changes dramatically affected how Americans viewed health care. First, by not paying the premium, they no longer had the knowledge of the cost of premiums. Secondly, by not paying for the medical care at the time of service, they no longer had the knowledge of the cost of health care.

From this system, we now have several terms: co-pay, deductibles, out-of-pocket and co-insurance. All of these terms refer to monies owed by the patient to the provider under the insurance contract system. Co-pays are the monies paid by the patient at the time of service. The other types of monies are determined after the claim has been submitted to the carrier as the patients responsibility. These are legal monies owed to the provider by the patient.

Balance billing is not legal. Balance billing is the act by the provider of billing the patient the write off amount or the negotiated reduction between what the provider bills and what the insurance company pays. When a provider signs a contract with an insurance company, they are accepting the negotiated fee payment for the opportunity of having more patients directed to him by the insurance company. In this way the provider will make up in quantity the monies lost between the charges and the payments. This sounded like a great idea to physicians and they signed on by the bucketload. What happened was that the physicians set their charges based on the financial needs of the business and were getting paid 70% of that charge. The physicians were suddenly writing off 30% of each visit charge and finding that the increased number of patients were not bringing in the needed revenue. So what was a physician to do? The idea of balance billing was created. The reasoning was that the money was owed the provider since it was part of the original charge and since the insurance will not pay, then the patient must be obligated. However, the provider signed a contract with the insurance company that they would not seek the difference from the patient.

Non-participating (non-par) providers do not practice balance billing, as there is no contractual agreement for payment, as opposed to participating providers who do sign a contract. A non-par provider is free to charge the patient the entire charge without discounts. Additionally, there are no co-pays, deductibles, co-insurances or out-of-pocket expenses with a non-par provider. A non-par provider is one that does not have a signed contract with your insurance company, and as such the contract for payment for services rendered is strictly between you and the provider. However, you still can't negotiate prices with this non-par provider if the provider has a contract with Medicare; as a provider's contract with Medicare stipulates that the provider will treat all patients equal in regards to payment, whether they are a Medicare patient or not.

Many times patients feel that the provider is balance billing because they are receiving a bill after they already paid at time of service. The provider is actually billing the patient the difference between what the insurance paid of the negotiated rate and what is still owed. This is not balance billing, as the insurance company has determined that the patient still owes the monies, not the provider.