In order to be clear on the payment of a medical billing claim, the physician must have complete knowledge of different insurance plans that insurance companies are offering, and the laws & regulations that preside over them. Large insurance companies can have up to 15 different plans contracted with one physician. That is why the amount is settled between the physician and the company before he provides his services and is paid according to the each contract that has its own fee schedule, billing rules and billing address.
Based on the amount negotiated by the doctor and the insurance company, the original charge is reduced. The amount that is paid by the insurance is known as an allowable. For example, although a psychiatrist may charge $80.00 for a medication management session, the insurance may only allow $50.00, so a $30 reduction would be assessed or otherwise called provider write off.
The insurance payment is further reduced if the patient has a copay, deductible, or a coinsurance. If the patient in the previous example had a $5.00 copay, the doctor would be paid $45 by the insurance. The doctor is then responsible for collecting the out-of-pocket expense from the patient. If the patient had a $500.00 deductible, the patient would have to pay the contracted rate of $50 ten times until the deductible was met, at which point the insurance would begin to cover a portion of the charge.
A coinsurance is a percentage of the allowed amount that the patient must pay. It is most often applied to surgical and/or diagnostic procedures. Using the above example, a coinsurance of 20% would have the patient owing $10 and the insurance company owing $40.
In Medicare the physician can either be 'Participating' in which he will receive 80% of the allowable Medicare fee and 20% will be sent to the patient or can be ‘Nonparticipating’ in which the physician will receive 80% of the fee, and may bill patients for 15% or more on the scheduled amount.
For example the regular fee for a particular service is $100, while Medicare’s fee structure is $70. Therefore the physician will get $56, and the patient will pay $14. Similarly Medicaid has its own set of policies which are slightly more complex than Medicare.