Medical billing has its own very specific vocabulary. Before you can effectively negotiate your medical bill, it’s important that you know what you are talking about. Let’s discuss a few key healthcare terms to help you understand the medical billing process.
Allowed Amount: The amount an insurance company will pay to cover a healthcare service or medical procedure. You are responsible for paying the balance that is not covered by insurance.
Appeal: A filing made by the patient or the healthcare provider to try to persuade an insurance company to pay more for a claim. This is the next step after a claim has been either denied or rejected.
Applied to Deductible (ATD): The amount of money a patient owes a healthcare provider that is applied toward their annual insurance deductible. Ask your insurance provider for the total individual annual deductible and the total family annual deductible for your policy. These vary depending on your insurance policy.
Assignment of Benefits: Insurance payments that are paid directly to the healthcare provider.
Capitation: A negotiated arrangement between the healthcare provider and the insurance company that pays the provider a fixed rate for every patient they treat. This generally occurs within an HMO (Health Maintenance Organization), and providers are paid based on a patient’s health risks, age, history, race, etc.
Clearinghouse: A third-party vendor in the billing process that is separate from the healthcare provider and the insurance company. This vendor reviews, edits and formats your medical bills prior to sending them to the insurance company.
Centers for Medicaid and Medicare Services: A U.S. federal agency that manages and oversees healthcare coverage through Medicare and Medicaid. The agency oversees the healthcare of more than 100 million Americans.
CMS-1500: A paper form used to submit medical claims to Medicare and Medicaid. Insurance companies require providers to submit their claims using a CMS-1500, which makes this one of the most important tools in the medical billing process.
COBRA: Insurance that employers are federally required to offer to a person who has terminated their employment. COBRA allows you to retain your health insurance for up to 18 months (or up to three years if you are disabled).
Co-Insurance: An insurance arrangement between the insurance company and the patient that splits the payment for medical services by percentage. This is a fixed arrangement, with the insurance company’s percentage listed first and the patient’s percentage listed second (e.g., 70% / 30%).
Co-Pay: A fixed amount a patient owes.
Explanation of Benefits (EOB): A document outlining for the healthcare provider and the patient which services an insurance company will cover.
Fiscal Intermediary: A Medicare representative who processes Medicare claims.
Healthcare Portability and Accountability Act (HIPAA): An act signed into law by President Bill Clinton on August 21, 1996, which provides data privacy and security provisions for safeguarding medical information.
Health Maintenance Organization (HMO): An organization that gives you access to certain doctors and hospitals within its network. A network is made up of providers that have agreed to lower their rates for plan members and also to meet quality standards. Care under an HMO plan is covered only if you see a provider within that HMO’s network.
Independent Practice Association (IPA): An organization of physicians or healthcare providers who have a contract with an HMO to provide services to members of the HMO’s network.
Managed Care Plan: A type of health insurance that contracts with specific healthcare providers and medical facilities to provide care for members at reduced costs. HMOs and IPAs are included in the managed care system.
Medicare: A federal health insurance program that began in 1965 for:
- People who are 65 or older
- Certain younger people with disabilities
- People with end-stage renal disease (permanent kidney failure requiring dialysis or a transplant, sometimes called ESRD)
Medicare provides coverage to more than 50 million Americans.
Medicaid: A program that provides insurance coverage to low-income families and individuals. Medicaid is funded at the state and federal levels. Each state is required to have its own version of Medicaid that must operate above the minimum requirements established by federal law.
Point of Service Plan (POS): A type of managed care health insurance plan that combines characteristics of the health maintenance organization (HMO) and the preferred provider organization (PPO). The POS is based on a managed care foundation – lower medical costs in exchange for more limited choices.
Preferred Provider Organization: A type of health plan that contracts with healthcare providers to create a network of participating providers. You pay less if you use providers that belong to the plan’s network.
Triple Option Plan (TOP): An insurance plan that allows the patient to decide between an HMO, a PPO, and a POS.
TRICARE: A federal insurance plan for active service members, retired service members, and their families.
Utilization Limit: A yearly limit placed by Medicare on certain medical services. When a patient exceeds the yearly utilization limit, they may become ineligible for Medicare coverage for that procedure or service.
What do all these acronyms mean?
Managed care plans (MCP) are a type of health insurance. They have contracts with health care providers and medical facilities to provide care for members at reduced costs. How much of your care the plan will pay for depends on the network’s rules. Plans that restrict your choices usually cost you less; if you want a flexible plan, it will probably cost more. There are three types of managed care plans: HMO, POS, and PPO.
HMO stands for “health maintenance organization”; POS stands for “point of service”; and PPO stands for “preferred provider organization.” Each of these plans use a network of doctors and hospitals. The difference is how big the networks are and how they are used.
When you have an HMO plan, you choose a primary care physician who works as your partner. They coordinate all your care and refer you to trusted doctors and specialists in your network. Most healthcare outside your network is not covered by an HMO plan. That means if you’re traveling outside your coverage area, only emergency or urgent care will be covered in most cases. Some states require that you establish a residency of six to twelve months out of the year to purchase an HMO plan.
An Independent Practice Association (IPA) is an organization of physicians or healthcare providers who have a contract with an HMO to provide services to members of the HMO’s network. The selection of these providers is controlled by your HMO network.
POS plans work a lot like HMO plans. The main difference is that you can see doctors outside your network in some cases. That’s where the “POS,” or “point of service,” part comes in. Each insurance company implements this a little differently. Because most POS plans have a national network of physicians, they allow you to get routine healthcare when traveling within the U.S.
PPO plans have more flexibility than HMO plans. They do not require you to have a primary care physician, and you can go to a specialist directly without a referral. You can see doctors inside or outside your network. But if you stay in your network, you’ll pay less.
Got all that? Great!