February 14, 2020
Enrolling in a medical plan is one thing. Understanding your plan is another. Educating your employees to become smarter about their healthcare can translate into healthier employees and cost savings.
One area of confusion involves employees being able to read their Explanation of Benefits (EOB). Here is a common employee scenario:
You recently went to a surgical center for outpatient surgery. You know there is a lot of paperwork involved, but you’re a bit surprised when you receive a letter titled “Explanation of Benefits” that looks like a billing statement. Before you decide to write a check, you should know that an Explanation of Benefits (EOB) is actually not a bill. Instead, its a document that helps you understand how your benefits apply to and pay for your latest medical expense.
Think of an EOB as a way to quickly see:
- The actual cost of your medical bill that is based on the retail or list price of the procedure(s).
- Your insurance company’s negotiated discounted price for that procedure; how much your insurance provider will cover based on this negotiated discounted price.
- What part of this negotiated discounted price you are responsible for.
To better understand your EOB, here are some essential terms to know:
TERMS TO KNOW
- Allowable Amounts: Next to the actual cost of your bill, you should notice something called “allowable amount.” This is the negotiated discounted amount your insurance will allow for a healthcare provider to charge you for a medical service. If the cost of the service charged is higher than the allowable amount, you are not responsible for the difference and this amount is written off by the provider as a contractual agreement, if the provider is in-network.
- Cost-Sharing: Simply put, cost-sharing is your share of the “allowable amount” that you are responsible for. You will likely share these costs in three ways which are defined below here (remember that these all are included in your EOB).
- Deductible: A deductible is the amount you’ll have to pay before your policy will help cover your bill. It is often an annual amount or an amount based on a 12 month period that you are responsible for. For example, if the allowable amount for your minor surgery above is $1,400, but you have not paid any of your $1,500 deductible, you would pay the full $1,400 and still have another $100 to pay before you have met your policy’s deductible. If you have paid the amount of your deductible, then your coinsurance would kick in.
- Coinsurance: Once you have paid your deductible, you will need to think about coinsurance. Coinsurance is a percentage of your bill that you will need to pay of the allowable amount (for instance, 20% or 30%).
- Co-payment (Copay): Unlike deductibles and coinsurance, a co-payment is a fixed amount that you must pay for a healthcare service determined by your insurance plan. For example, a health insurance company may set a $40 copay for a regular office visit.
- Out of Pocket: These expenses are what you, not the insurance company, pays for healthcare services in total for an annual or plan year period. You will find how much you’ve paid out of pocket on your insurance policy on your EOB. More importantly, you do have a safety net called an “out-of-pocket maximum. Once you’ve hit this maximum amount in a benefit or calendar year, there is no more for you to pay and the insurance company pays for all covered services going forward until a new benefit or calendar year begins. However, be aware that your out-of-pocket maximum sometimes do not apply to co-payments paid by you. The good news is, if co-payments don’t apply, for most services, they fall under $100 for standard health needs and will not break the bank.
Just because EOB’s aren’t bills doesn’t mean they don’t belong in your filing cabinet. In fact, we strongly recommend that you file your EOBs with the corresponding bills for the matching dates of service that the healthcare services were provided to help confirm that you were billed the correct amount and to prove your medical expenses.
Having your employees understand their health plan is important so that they truly value the benefit and can feel confident they are getting the most out of their plan. The experienced team at MY-Employee Benefits Plus is here to help. We work with our clients to put in place effective and repeatable employee benefit plan education. Let’s start a conversation that will lead your employees to know, like, understand and ultimately have positive, valued experience with their employee benefits.