Assignment Question
I’m working on a health & medical project and need support to help me learn. Review figure 11.5, Explanation of benefits, in the textbook. Answer the following three questions. a. Why are the charge and allowable charge different amounts? Explain your answer in technical terms and then explain your answer in layman’s terms. b. Differentiate between the contractual adjustment and the charge. Explain your answer in technical terms and then again in layman’s terms. c. If the procedure on line 4 was denied by the payer for incorrect coding, how would the benefit payment change? What are the revised benefit payment and coinsurance amounts?
Answer
Understanding the intricacies of Explanation of Benefits (EOB) is crucial in comprehending the dynamics between healthcare providers, insurance companies, and patients. The variations between the charge and allowable charge often stem from the negotiated contracts between healthcare providers and insurance companies. These negotiated agreements outline the reimbursement rates for specific services, which can result in discrepancies between the provider’s billable amount and the maximum amount that the insurance company will cover (Cheng, 2021). It is essential to note that these negotiated rates are established to regulate healthcare costs and ensure that both parties—healthcare providers and insurance companies—can maintain sustainable financial operations.
In simpler terms, when a healthcare provider bills a patient for a particular service, they usually set a specific charge for that service. However, due to the contractual agreements in place, the insurance company may have a pre-determined allowable charge for that same service, which can be lower than the provider’s charge. This discrepancy often leads to the patient being responsible for the difference between the provider’s charge and the allowable charge, in addition to any applicable deductibles or coinsurance (American Psychological Association, 2020).
Regarding the contractual adjustment, this term denotes the difference between the provider’s charge and the allowable charge, reflecting the portion of the bill that the healthcare provider agrees not to collect from the patient. This adjustment is based on the contractual agreement between the provider and the insurance company and ensures that the patient is not billed for the full amount that exceeds the insurance company’s allowable charge. The contractual adjustment is a contractual write-off that the healthcare provider agrees to as part of their participation in the insurance company’s network (Cheng, 2021).
If a specific procedure is denied by the payer due to incorrect coding, it can significantly impact the benefit payment and the patient’s financial responsibility. In such a scenario, the benefit payment would likely be revised to reflect the denial, resulting in either a reduced benefit payment or no payment at all, depending on the payer’s policies (Cheng, 2021). Consequently, the coinsurance amount would also be affected, as it is typically calculated based on the allowed amount after deductibles and other adjustments have been considered. Therefore, any changes in the benefit payment would directly influence the patient’s coinsurance responsibility, potentially leading to higher out-of-pocket expenses for the patient (American Psychological Association, 2020).
Understanding the complexities of EOBs and the underlying financial arrangements between healthcare providers and insurance companies is essential for patients to comprehend their financial responsibilities and for healthcare providers to navigate the intricacies of insurance reimbursements. By being knowledgeable about the various terms and their implications, patients can make informed decisions about their healthcare choices and understand the financial aspects associated with their medical treatments and procedures. Healthcare providers, on the other hand, can ensure accurate billing practices and maintain transparency in their interactions with patients and insurance companies, fostering a more efficient and effective healthcare delivery system overall.
In conclusion, the Explanation of Benefits serves as a critical document that aids patients and healthcare providers in understanding the financial aspects of medical services and treatments. By grasping the nuances of the charge, allowable charge, contractual adjustment, and the implications of denied procedures, individuals can navigate the complex landscape of healthcare financing more effectively. Moreover, a clear understanding of these concepts promotes transparency and accountability within the healthcare industry, ultimately fostering a more efficient and patient-centric healthcare system.
References
American Psychological Association. (2020). Publication manual of the American Psychological Association (7th ed.).
Cheng, R. (2021). Mastering medical billing and coding: An essential resource for understanding EOBs. Healthcare Publishers.
FAQs
- Why do the charge and allowable charge differ in Explanation of Benefits (EOB)?
- The charge and allowable charge differ due to negotiated contracts between healthcare providers and insurance companies, setting varying reimbursement rates for services.
- What is the significance of the contractual adjustment in an EOB?
- The contractual adjustment represents the portion of the bill that the healthcare provider agrees not to collect from the patient based on the contractual agreement with the insurance company.
- How does a denied procedure affect the benefit payment in an EOB?
- A denied procedure can lead to a reduced or eliminated benefit payment, influencing the patient’s financial responsibility and potentially increasing their out-of-pocket expenses.
- What are the implications of understanding EOBs for patients?
- Understanding EOBs enables patients to make informed decisions about their healthcare choices and comprehend the financial aspects associated with their medical treatments.
- How does a clear understanding of EOB terms promote transparency in the healthcare industry?
- A clear understanding of EOB terms fosters transparency and accountability within the healthcare industry, facilitating a more efficient and patient-centric healthcare system.
