What's the Story Behind Medical Billing?
Many of our readers might still be covered by a parent’s health insurance, so you probably haven't considered what happens after you show proof of insurance at the doctor’s office or urgent care. Here’s a simple behind-the-scenes look at how the medical billing process works to prevent confusion (and surprise bills) later.
Co-Pays, Deductibles, Co-Insurance, and Out-of-Pocket Maximums
Your provider confirms that your insurance is active and reviews your plan's coverage. You might pay a copay at check-in, which is a small flat fee some plans require for medical services. Your doctor records what happens during your appointment, which then serves as an official medical claim.
A typical medical claim lists:
What you were treated for
What procedures or tests were done
The provider’s full (pre-negotiated) charge
Once your health insurance provider receives the medical claim, they decide how much they will pay and how much you might owe. If you haven’t met your plan deductible, you could owe additional costs beyond your copay and coinsurance for the medical care you received.
What is a deductible? The amount you pay for covered health care services before your insurance plan starts to pay. With a $2,000 deductible, for example, you pay the first $2,000 of covered services yourself (HealthCare.gov).
Assuming the deductible has been met, coinsurance applies, meaning you and your insurance share the cost of care (for example, you pay 20% while they pay 80%). Finally, there’s your out-of-pocket maximum, which acts as your safety cap. Once the total amount you’ve paid in deductibles, copays, and coinsurance reaches that limit for the year, your insurance covers 100% of eligible expenses.
Explanation of Benefits (EOBs)
You (or whoever's insurance you're on) might receive a statement in the mail— it may say at the very top, 'This is not a bill.' However, it will list items such as:
Services provided
All charges
What your insurance covered and did not cover
What your insurance agreed to pay
Any amounts you may be responsible for
Consider keeping these EOBs; they help you identify billing errors.
Basic Medical Expense Example
Again, we will assume that the deductible has been met and that co-insurance is 20%/80%. This is a simplified example for educational purposes only.
You visit an urgent care facility for a sprained ankle. Total cost of care = $250.
You pay your co-pay (e.g., $40) to the medical provider during your visit.
Your insurance provider reviews the claim and may apply a contractual adjustment, such as lowering the allowable amount to $200 (e.g., the maximum your insurer will pay for a specific covered service).
Assuming a 20% coinsurance, you might then owe 20% of the allowed amount (i.e., 20% of $200 = $40).
Your total out-of-pocket cost for the visit would be a $40 copay and $40 coinsurance, totaling $80. And remember, every payment you make, including copays and coinsurance, counts toward your out-of-pocket maximum for the year.
Balances Due
It’s important to remember that after your insurance provider finishes its review, you might be billed for any remaining costs, such as unpaid copays, deductible amounts, or coinsurance. In these situations, you won’t pay the insurance company directly; instead, you pay the doctor, clinic, hospital, or lab.
Key Takeaway
Understanding when copays, deductibles, coinsurance, and out-of-pocket maximums occur helps you understand your bills and, hopefully, increases confidence in navigating the healthcare system, especially as you begin managing your own coverage.
Disclaimer: Creek & Lyells Financial Literacy Foundation does not provide financial services, nor does it recommend or advise visitors to open accounts or buy or sell securities. All content on this blog is for educational purposes only. While we strive to provide accurate, relevant, and well-vetted information, visitors should consult a licensed financial professional and carefully evaluate the risks of any financial decision before taking action.