What does an Explanation of Benefits (EOB) actually explain?

I recently had some physical therapy for a minor injury. Since the office forgot to charge my co-pay the first time I went in I received a so-called Explanation of Benefits (EOB) from my insurance carrier, BlueCross BlueShield of Massachusetts.  EOBs are a holdover from the mainframe era: arcane, inflexible reports that are hard to interpret. They may have done their job in the day when their only purpose was to let a member know they owed money, but they’re woefully inadequate in the era of consumer driven health care and transparency.


The main section of my EOB has 4 lines and each one says the exact same thing: “PHYSICAL THERAPY 08/31/11 – 08/31/11.” That’s not very useful. However, my guess is that it represents a series of specific, billable activities that were undertaken on my visit, such as therapeutic ultrasound, massage, and electrical stimulation.

There is also an “amount charged” column, representing the reimbursement level sought by the provider. In my case the first line says $75 and the others are $50 each. This column adds up to $225.

Then there is an “amount allowed” column, which is the negotiated rate for each service. The numbers range from $18.63 to $21.74. There is no apparent correlation between the charged amount and the allowed amount. The highest charge ($75) has the lowest allowed amount ($18.63). Other columns include my $25 office visit co-pay –in this case inexplicably distributed between the first two items– a co-insurance column (zero for me) and a benefits column, representing the negotiated rate minus my co-pay. The “your balance” column shows the co-pay, which was uncollected at the time of this visit.

Despite the user-unfriendliness of the EOB it still provided me with some useful information. In particular, it’s interesting to see that I would have been charged $225 if I lacked insurance. The BCBS rate is about 2/3 lower. So in fact the real economic benefit to me of the insurance is much more than the $56.31 portrayed in the “benefits” column. For me the economic value is really $200 –the amount charged minus my copay. That’s a number worth appreciating for so-called freeloaders who wait to get insurance until after they have medical expenses. If they do have to pay out-of-pocket for services without the benefit of BlueCross’s negotiating power they are going to get overcharged.

I asked BCBS to comment on the EOB and public relations director Tara Murray replied:

“We’re required by law to send an explanation of benefits to our members. We send it so that a member can be aware if there is any remaining balance after a claim is processed. However, we understand there is more we need to do to simplify communications for our members. Your inquiry is timely as we’re currently looking at redesigning our explanation of benefits notification.”

Those changes will be driven by member needs but also new rules that are part of the Patient Protection and Affordable Care Act. One thing I’d really like to see is the impact to the member and to BCBS of choosing one provider over another. With my current plan it doesn’t really matter where I go as long as it’s in network. But that’s bound to change in the future and we need tools to support that shift.

October 5, 2011

16 thoughts on “What does an Explanation of Benefits (EOB) actually explain?”

  1. Well first, hope you’re better 🙂

    Second, something I just learned recently is that the non-negotiated rate (“I would have been charged $225 if I lacked insurance”) is more a function of Medicare rules than insured/uninsured. Providers are required to have “posted” (IIR the term correctly) rates that are charged across the board, then each insurer/MC pay their previously-agreed-upon amount.

  2. I often wonder how much of the retail price is fiction and how much is reality. When I dealt with government billing, you always wanted to post a high retail price, even if you never intended to charge that amount. A high price gives you some negotiating leverage and goodwill with deep discounts. Small percentage increases also yield larger dollar recapture. The government is usually either not street wise or restricted by law to negotiate real pricing. Companies cough up inflated prices and have distorted meaningful discussions on the costs of health care delivery. It is a strategy that any smart CEO employee.

  3. I’m not sure you would have been charged $225 if you were uninsured. I understand the Medicare regulations to which hgstern refers. However, I suspect that if you had presented yourself as uninsured and willing to pay on the spot, you would have paid significantly less than $225. BCBS may be legally required to send you an EOB, but it also allows them to claim that they have added value by discounting the cost through their network negotiations.

    With respect to the physical therapist not even collecting the $25 co-pay at time of service, I wonder if this is one of those providers constantly complaining how difficult it is to get paid!

  4. Pingback: More explanation of the Explanation of Benefits (EOB) | Health Blog
  5. Businesses generally have one thing in common, they charge more than they need to. As someone has mentioned before this is often so they can have constant sales or offer deep discounts when necessary.

    If these places know they need to offer discounts to the insurers, then they will almost certainly buff up their prices in order to make the insurer feel like they “won” while still making a profit. Very clever really, but woe betide the uninsured.

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