Balance Billing—What It Is & How It Works

Image of a past-due billing invoice.
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Balance billing happens after you’ve paid your deductible, coinsurance or copayment and your insurance company has also paid everything it’s obligated to pay toward your medical bill. If there is still a balance owed on that bill and the doctor or hospital expects you to pay that balance, you’re being balance billed.

Is Balance Billing Legal or Not?

Sometimes it’s legal, and sometimes it isn’t; it depends on the circumstances and your state’s insurance laws.

Balance billing is generally illegal:

  • When you have Medicare and 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.

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. For example, when a hospital signs up with Medicare to see Medicare patients, it must agree to accept the Medicare negotiated rate, including your deductible payment, as payment in full. This is called accepting Medicare assignment.

Balance billing is usually legal:

  • When you’re using a health care provider that doesn’t have a relationship or contract with your insurer, Medicare, or Medicaid. This is common in concierge medical practices, and it's also the case if you seek care outside of your health insurance plan's network. Your plan may cover some out-of-network costs, but the out-of-network provider is not obligated to accept your insurer's payment as payment in full; they can send you a bill for the remainder of the charges, even if it's more than your plan's out-of-network copay or deductible.
  • 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.

    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 the Kaiser Family Foundation.

    How Balance Billing Works

    When you get 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. As you might guess, 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$60,000$60,000
    Insurer negotiates a discounted rate of$40,000There is no discount because this hospital is out-of-network
    Insurer's reasonable and customary rate $45,000
    Insurer pays$32,000 (80% of the $40,000 discounted rate)$27,000 (60% of the $45,000 reasonable and customary rate)
    You pay coinsurance of$8,000 (20% of $40,000)$18,000 (40% of $45,000)
    Balance billed amount$0$15,000 (The hospital's original bill minus insurance and coinsurance payments)
    When paid in-full, you’ve paid$8,000$33,000 (Your coinsurance plus the remaining balance.)

    When Does Balance Billing Happen?

    In the United States, balance billing usually happens when you get care from a doctor or hospital that isn’t part of your health insurance company’s provider network or doesn’t accept Medicare assignment.

    Surprise Balance Billing: Out-of-Network Providers Working at In-Network Facilities

    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)
    • ER doctors
    • Durable medical equipment suppliers (ie, the company that provides the crutches, braces, wheelchairs, etc. that people need after a medical procedure)
    • 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.

    These "surprise" balance billing situations are particularly infuriating for patients, who often believe that as long as they've selected an in-network medical facility, all of their care will be covered under the in-network terms of their health plan. To address this situation, several states have enacted consumer protection rules that limit surprise balance billing (it's important to note that state rules generally only apply to state-regulated health plans. Self-insured plans, which are what most large employers use, are regulated by federal law, under ERISA):

    • Arizona enacted Senate Bill 1441 in 2017. It will take effect in 2019, and will allow patients who receive a surprise balance bill (from an out-of-network provider who performed services at an in-network facility) of $1,000 or more to seek arbitration. The arbitration process will ultimately resolve the issue between the medical provider and the insurance company, thus absolving the patient of responsibility for the balance bill.  
    • New York has protected patients from surprise balance billing since 2015.
    • California enacted AB72 in 2016; it applies to plans issued or renewed on or after July 1, 2017, and prevents patients from having to pay out-of-network charges for care received at in-network facilities.
    • Florida enacted HB221 in 2016. The legislation protects patients from surprise balance billing in emergency situations and in situations where the patient seeks care at an in-network facility and is then treated—without another option—by an out-of-network provider within the facility.
    • Maryland, Illinois, and Connecticut also have regulations protecting consumers from surprise balance billing. Numerous other states have partial protections in place.

    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.

    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. Learn what your options are and what strategies you can use to handle balance billing in “Balance Billing—How To Handle It, What to Do.”

    Sources:

    Commonwealth Fund. Balance Billing by Health Care Providers: Assessing Consumer Protections Across States

    United States Department of Labor. Employee Retirement Income Security Act.

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