The topic of balance billing has arisen once again, this time in this post by Movin’ Meat about the new health care insurance bill and Emergency Medicine. Without further explanation, “balance billing” is generally thought of as a bad thing; a way for rich doctors to squeeze even more ill-gotten gains from their poor beleaguered patients. And that’s without even realizing what it is. So without further ado, let me do some explaining*:
Say you want to see me as a patient. Say my fee — the price for my services — is $100. If you ask me ahead of time what my fee is, I say, “$100.” If you think that’s too much, you hang up and go somewhere else. Otherwise you come in, we have our visit, you pay me $100 and we all go on our merry way. This is how things work in every other free market service transaction.
But in health care we have this annoying third party called the insurance company. Despite the fact that most people seem to believe it is the insurance company’s job to just pay for things and shut up about it, the fact is that insurance is basically a set of contracts. The company contracts with patients (or their employers) on the one hand, and with physicians, hospitals, and other providers on the other. The contract with patients states that in exchange for payment of a monthly premium, the company will pay for certain specified medical services. The contract with physicians states that in exchange for a physician’s participation with the company’s insurance plans (which typically implies an increased number of patients, as the insurance company uses its marketing capacity to advertise the physician to patients with whom it contracts) the physician will knock something off his regular rates.
“Participation” is a synonym for “signing a contract.” Contracts are supposed to be binding on both parties; that’s kind of the definition of a contract. Leaving aside for the moment the inequity of lil ole me contracting with a local behemoth that shall remain nameless (except that it’s named for a color and a shape), the idea is that by participating with a given insurance company, I agree to accept less than my regular fee for seeing patients who have a contract with them. Theoretically I will make up the difference in volume, because their patients will more willingly see “participating” physicians.
Back to our example above: say the insurance company’s allowance for that particular service is $90. If I have a contract with that company, and if you have a contract with that company, then I write off the $10 difference between my fee of $100 and accept just $90 as payment in full for my services. Precisely where my $90 comes from depends on the other details of YOUR contract; whether or not you have a deductible or co-pay, for example. Regardless, my contract says that I am due $90 for that service. If your contract states that you have to pay the first $500 of covered services, then you you have to pay the whole $90. This is not “balance billing”; this is your responsibility under your insurance contract.
Notice that if you don’t have a contract with that company, though, you still owe me $100. Maybe there’s another company that pays me $88, still another that pays me $93, yet another that pays me $75. Doesn’t matter. My fee is still $100, regardless of what contracts I may have signed with assorted insurance companies.
As an American citizen I have the right to enter into contracts — or not — as I see fit. I may decide that I don’t want to accept only $75 for my services. Nothing compels me to sign any contract if I don’t like the terms, including payment rates.
Now say that a patient has a health insurance contract with the company that only pays $75, and that I have decided NOT to contract with; ie, with whom I am “non-participating”. My fee is still $100. The fact that the insurance company’s allowance is $75 has nothing to do with me. I haven’t signed their contract, remember? So how much does that patient owe me? Answer: $100. That’s my fee. As a practical matter, most doctors send claims for all patients to the insurance companies for them, whether or not we are participating. Patients are welcome to pay us directly and then send a claim to the company to recoup the allowed $75 for themselves. But when the insurance company (with whom I do NOT have a contract) sends me only $75 instead of the full $100 I am due, I can bill the patient for that $25 balance. This is “balance billing”.
So what does is mean to forbid balance billing (like in California)?
It means that there is no such thing as a binding contract between a physician and an insurance company.
What if you could decide you only wanted to pay your plumber 75% of whatever he charged you? What if you only paid your lawyer 50% of his bill? What if you went into a grocery store, walked out with $80 worth of groceries, and only paid $30? Even after signing a contract ahead of time promising to pay for everything in full?
Anyone think that’s fair?
The only way around this, of course, is to eschew all insurance contracts. Cash-only practice is looking better and better all the time.
* Because walking around with the name “Lucy”, I am frequently reminded of how much ‘splaining I’ve got to do.
Musings of a Dinosaur 
The whole post made perfect sense, right up until the bit about sending the bill to the insurance company even if you don’t participate in their payment plan.
If you don’t have a contract with the insurer, why would you send the bill to them? Surely they’d just say “nope, not one of our doctors” and tell you where to go? It’d presumably simplify things immensely if people who didn’t have “appropriate” insurance and came to see you got your bills directly, and it’s then the patient’s responsibility to claim whatever they can off their insurance company?
It’s probably that whole “simplification” thing that makes it a non-starter. Health insurance (regardless of country) has never made any sense to me.
By: Matt Palmer on May 21, 2010
at 3:03 am
Good summary of the intricacies of dealing with insurance companies.
Just got a proposal today from a plan that wants to reimburse about 5% above Medicare rates. What to do, what to do?
By: ndenunz on May 21, 2010
at 10:41 am
You’re leaving out something huge: Usually the markup for non-insured patients isn’t from 90 to 100, but much larger. (If yours is 90 to 100, thank you for not exploiting the uninsured. I wish I could say the same about others.)
I had a lab test in which the insurance rate was $76. Having not yet met my deductible, I paid $76 and insurance paid nothing.
The “regular” charge was $781. I kid you not. The mere fact I had insurance, even though I paid everything, saved me over 90%.
Though most insured vs. uninsured gaps haven’t been as extreme, markups of 3 to 4 times aren’t uncommon for office consultations and procedures.
So the people who can least afford to pay the bills are also receive the highest prices.
By: MM on May 21, 2010
at 12:11 pm
Do doctors actually make up the difference in fee by increased volume of patients? It seems to me that there’s a break even point, or at least a sort of gray zone of diminishing returns in which depending on the fee difference, a doctor could never physically see enough patients to make up the lost revenue…… Which I suppose means that the onus is on the doctor to think about such things before entering into a contract? And here I thought I was done with complex math…..
By: Chilimuffin on May 21, 2010
at 1:15 pm
Hey, ndenunz
In California, I’d kill for a contract to get 5% MORE than Medicare. A number of insurances (and Workman’s Compensation) only offer 80-95% of Medicare rates!
By: Hashmd on May 21, 2010
at 2:22 pm
The problem is, the insurance/patient contract states that the insurer will pay for the services. The insurance/doctor contract states that they will pay 75% (in your example) of the services. The patient then blames the doctor for the fact the insurer did not fulfill their contract with the patient when the doctor didn’t accept the other end of the contract.
The other issue is higher costs. Not so much for primary care, but all the Fancy-Shiny-Toy Tests that specialists like to request. Insurance companies say how ridiculous the prices are (not just for the FSTTs, but for all doctors) and pay whatever they feel like. The result is balance billing. I don’t understand why people are so against regulation when price differences cause everyone pain and money.
By: NinjaBaker on May 21, 2010
at 3:16 pm
Okay, so that all makes sense. So can you explain why when I go to an “in network doctor” with my insurance company, the doctor (normally a specialist) still want to bill me the $5, $10, whatever balance, despite paying my copay and my insurance paying their portion? I then have to call the insurance company, which tells me not to pay, and then I assume slaps the doctors hand? I believe that doctors deserve far better payment from insurance companies, however, as a patient, I’d like to know what I’m going to pay and not recieve a balance bill for some amount later.
Previously, I was seeing an ID specialist for a rather weird infection. I saw her 3-4x a week for about 10 weeks due to complications and for infusion therapy. Let’s say I saw her 35x over the course of treatment. A year after finishing treatment, I was balance billed over a thousand bucks for the difference between her rate and my insurance payments and copay. Thankfully, the insurance company worked it out, but I nearly needed a cardiologist when I opened that bill!
By: Jennifer on May 21, 2010
at 6:07 pm
[…] on it is an idiot or a thief); just a few miscellaneous oil spill items; miscellaneous medical items; some choice financial “reform” items (Banking index didn’t crash? We’re […]
By: ShortWoman» Blog Archive » Learning By Osmosis on May 22, 2010
at 5:11 pm
It is absolutely fair.
There is a big difference between the way doctors, lawyers, and plumbers charge.
A lawyer and a plumber charge based on the amount of work done.
A doctor charges every patient, regardless of what the issue is, just for opening the door to the office. $100 regardless if it’s ear wax removal, pick up a prescription renewal. $100 for five minutes or thirty minutes. Basically, I can wait until I’m good and sick and have a number of different problems – an infected cut, strep throat, pink eye, a broken toe – and I’ll still be charged $100, the same as a person coming in with just the sniffles.
Furthermore, a plumber and a lawyer will let clients know BEFORE extra work how much the labor and parts will cost. They would not go and replace the toilet without first talking with the homeowner and they wouldn’t file court documents without giving the client a list of the fees associated with it.
A doctor NEVER does this. With all the doctors I’ve seen, I have never been given a list or told how much something will cost. I may be told that the fee for visiting the doctor is $100 but when I get there, the doctor then wants a blood test to see if my simple cold is not anything more. She takes blood right their in the office and then I go to the counter to pay. I’m expecting $100 because that’s what I was told when I called to make the appointment, and there’s even a sign at the front desk saying the appointment is $100. Unexpectedly, I’m given a bill for $450. Without letting me know or giving me a list of fees, the doctor decides to charge an extra $350. And the crazy thing is, it’s not even illegal for them to do that, not like it would be for a plumber or lawyer.
That is unfair.
By: Lisa on May 22, 2010
at 6:53 pm
I’m confused. I thought balance billing bans meant that if you have a contract with an insurer who pays only 80% of your fee, you couldn’t bill patients covered by that insurance for the remaining 20%–which is why patients sign up with insurers. I assumed that if you DIDN’T have a contract with an insurer, they would simply reject your claim so you’d bill the patient for 100% of your fee.
Or is this a PPO in-network/out-of-network thing? I never understood those.
By: Finn on May 23, 2010
at 5:36 pm
Lisa,
I am sorry that your understanding of medical economics is so poor.
1)there is not one price for any office visit. The price depends on what is done. According to Medicare(and all insurances base their payments/vist levels/etc off of Medicare) there are 5 basic level of office visit service. It can be very hard to tell based just on the complaint what level of visit you may ultimately require as shortness of breath may be just a cold or it might be an active heart attak.
2)doctors(once again because of Medicare law) aren’t allowed to advertise their rates
3)a plumber may quote you $60 to come out and then $75/hr but there will be a charge for parts on top of that.
4) I don’t know what routine labs you had but $350 is a lot. Of course in most cases the doctor has no say in what the lab company charges and usually no knowledge either(see Medicare rules above as well as doctor not knowing the details of your insurance companies contract with the lab company)
By: JustADoc on May 23, 2010
at 7:20 pm
It could not be more obvious that the $100 you mention as being your fee is an inflated amount that you calculated knowing that you would receive, on average, only “x” percent of that amount. You determine what you want to make and then inflate that number so that you net what you want to net. It doesn’t take much to draw that conclusion. So no, balance billing is not fair. Not at all.
By: Joe on May 24, 2010
at 2:36 am
I agree my knowledge of medical economics is poor. My knowledge of medical law is poorer. I have not spent the time to clearly understand it and I think, for the most part, the general population will not be able to find the time or resources to understand all of it.
But I’d like to respond to your comments.
1.)re: doctors not advertising rates. First, I retract my previous statement that doctors never give me a list of the exact costs because it hasn’t been true in every case. Can you provide a source that states doctors can’t list their rates? Does this vary by state or county or is it a national law? Does it vary depending on specialty?
I ask because I no longer carry insurance. It is far more affordable to keep myself as healthy as possible on my own and pay out of pocket for care. The only care I routinely receive, that isn’t acute or life threatening, is through a psychiatrist to help treat my bipolar disorder. His rates are listed very clearly in paperwork I requested before selecting him and they are also posted prominently throughout the office. I must pay before even setting my little tush on a chair or coach in front of him. It’s like this with every shrink I’ve been to.
When I must see my GP, I’m told of an average cost, a guesstimate if you will. But if labs are done, maybe a throat swab or blood drawn, they refuse to tell me how much it will cost until I get to the front desk to pay. This is out of pocket for me and I believe absolutely that these sorts of costs on top of the base fee (the base fee never changes whether its for ear wax removal or a a potential heart attack in progress) should be made clear to the patient before receiving routine care. Of course, care that happens for immediately life threatening issues is different.
3.) re: plumbers. Yes, a plumber will have a rate to come to my home if my toilet stops up, she may have an hourly rate on top of that, and I may need parts that will also have a cost. Yes, I am required, morally and legally, to pay this fee. The difference between plumbers and and doctor rates is that the plumber will tell you BEFORE doing anything what the cost will be. A decision to continue with the plumbers services depends upon my ability to repair the toilet on my own as well as the cost.
Maybe the plumber comparison was just a poor one since you state that doctors operate under a different fee claiming agreement.
4.)I honestly do not understand how most labs are taken care of. For my own personal visits to my shrink and GP, when I needs labs for simple things, they are done right in office. Nothing is sent out as they coincidentally both have a small lab in their offices for simple testing. The shrink lists the price clearly and I was told of it before beginning any medication regiment. The GP does not tell me the cost even when she’s stated she’s only testing for one thing and it’s completed within less than an hour. I know there is a master list that would have all of the prices for everything; there’s a cost for picking up a Q-tip, for using the robes, for the new paper pulled out on tables. I think patients receiving care in a place other than the emergency room should be privy to this list.
I do agree with you that the reform recently passed is nothing more than insurance reform. In 2014, I’ll be paying the fine rather than buying into a health policy. I wish more doctors would speak up about how ridiculous it is that we are reforming the rules of insurance companies when it’s the type of people training to be doctors that should be reformed and the lack of care that people provide for their own health that should be reformed.
By: Lisa on May 24, 2010
at 4:32 am
Makes me think how lucky I am to live in Europe. We may not have access to the latest medical services but we do not have to worry about medical bills.
By: Fossil on May 24, 2010
at 8:54 pm
Around here (Michigan) many doctors do not do balance billing, they write off the balance. Because if my doc charged me the balance (which he legally can) I will go to another doctor who won’t.
Writing off a small amount per transaction allows the doc to keep his patient, because it is VERY expensive to get new patients.
By: ChuckInMI on May 26, 2010
at 12:34 pm
[…] if you want a good explanation of what “balance billing” is all about, head on over to DinoDoc’s blog – and check out her new book while you’re at […]
By: Healthcare Update — 05-26-2010 | WhiteCoat's Call Room on May 26, 2010
at 2:11 pm
I thought balance billing ban only applys to in-network doctors, where a “contract” does exist. When a doctor agrees to join say, Blue Cross Blue Shield, they agreed on a rate they are willing to accept to see a BCBS patient. If you bill $100 and your agreement with BCBS was to reimburse you for $80, then you can’t bill the remaining $20 to the patient.
For your example though, patient is out of network. In that case, I don’t even see how the patient’s insurance company is willing to process your claim and pay even the discounted rate. I would assume they would deny the claim and pay $0, in which case you have every right to bill the patient.
By: Monkey on May 26, 2010
at 5:00 pm
What I dislike is going to a doctor who is in your insurance plan, ending up in the hospital under that doctor’s care, and being assigned other doctors (like the anesthesiologist who keeps you asleep while your doctor performs surgery) and the other doctor is NOT on your insurance, unbeknownst to you (am I really supposed to ask him 5 minutes before he puts me under if he takes my insurance?!) and then receiving a big bill in the mail afterwards for uncovered services (ie balance billing). Ouch.
But yeah, I hear ya. The whole 3rd party billing thing is a nightmare.
By: Jon on May 27, 2010
at 12:16 pm
I think it’s important to note that the ban on balance billing is limited to emergency services. This distinction seems to have been lost in the initial example and many of the comments.
I agree with Dino and the majority of the comments that banning balance billing in a non-emergency context is unfair. For routine, non-emergent care, patients should shop around, and doctors should feel free to charge as much as they like.
Emergency situations are unusual, for at least two reasons. First, there is increased urgency, which precludes the kind of comparison shopping and negotiation that accompanies typical transactions. Second, the patient is likely to be significantly distracted or impaired by the medical emergency, and thus incapable of acting as an informed consumer.
Also, most people do not routinely receive emergency medical care. It seems reasonable to have insurers, who deal with many more of these situations, work with providers to hash out a reasonable and fair payment scheme. (Thus, the parts of the decision requiring a process with the insurer for providers to dispute payments.)
By: David on May 28, 2010
at 4:01 am
I don’t think insurance works either.
Last weekend we went to Philly zoo (8yo wanted to go). It was fun. Going home, on the way to the parking lot, a bedraggled guy was standing silently on the sidewalk with a battered cardboard box, with a handwritten sign that said something like: “Please help pay for artificial hand.” After reading the sign I then noticed that the arm holding the box ended in a stump.
I gave him what was in my pocket after a day at the zoo, but I wish my taxes were paying for his artificial hand instead of for Wall Street’s bonuses.
Insurance is unfair. Single-payer would be fair.
By: votermom on June 2, 2010
at 11:56 am
Wow I did not realize people in the industry were so confused about physician’s fees. let say a doctor contracts with Cigna, Blue and Aetna and each insurance offered the physician $50, $55 and $58 respectively for a new level 2 office visit, meaning doc spent less that 5 minutes with you. If the doc was smart he/she would set his professional fees to $60.00 or somewhere above the highest allowed. He/she would do this because lets say he bills Blues $50.00 even though they allow $55; Blue will only consider the billed amount of $50.00. This is an automatic loss of $5 per visit.
The allowed amount may also be part of patient cost-share and the product is chosen by the patient or the patient’s company. So you may get a great premium, maybe even $100 a month for a single person. But what benefits do you get for this fee? This is something most patient’s do not look closely at when it is time to re-up their insurance.
Let’s say patient loves the $100.00 month rate, it fits perfectly in his/her budget. What he/she may not know is that his/her chosen benefits has a $5000.00 deductible that applies to all services before any dollars are paid by the insurance company. So if you are a healthy individual, you may never exceed the $5000.00, but you are now out $1200 for the year.
Also understand, the doctor does not get paid at all from the insurance company and the patient is responsible for the total allowed for services rendered.
By: Anonymous on August 6, 2014
at 9:58 am
How about this? You are drowning and the fee to use my rope is $100,000. You are free to contract with another rope provider but my fee is fixed. Since you are a doctor you can come up with the dough can’t you? After all your life is at stake. See any parallel here you S.O.B When health care is subject to the free market you charge all you can and for your life you will have to cough up all of it if some rules are not in place.
By: Clyde Ankle on February 20, 2016
at 12:39 am
You are absolutely spot on, Clyde.
By: notdeaddinosaur on February 23, 2016
at 3:34 pm