July 23, 2015
Balance Billing in Private Health Insurance Plans
What is balance billing?
Balance billing is when a health care provider bills a
consumer for charges (other than cost sharing) that exceed
the health insurance plan’s payment for a covered service.
Charge: The dollar amount a provider sets for services rendered before
negotiating any discounts.
Negotiated Payment: The maximum amount on which payment is
based for covered health care services. The payment may be negotiated
by the health plan or the consumer.
In-Network: The facilities, providers, and suppliers with which a health
plan has contracted to provide health care services.
Out-of-Network: The facilities, providers, and suppliers with which a
health plan has not contracted to provide health care services.
Premium: The amount paid for health insurance, often on a monthly
Cost Sharing: Also referred to as out-of-pocket costs for the consumer.
The amount an insured consumer pays for health care services according
to the terms indicated in the health plan. A plan’s cost-sharing
requirements may include deductibles, coinsurance, and co-payments.
Coinsurance: The share of costs, figured in percentage form, an insured
consumer pays for a health service.
Co-payment: A fixed amount an insured consumer pays for a health
Usual, Customary, and Reasonable (UCR) Fee: The amount
determined by the plan to be paid for a medical service based on what
providers in the area usually charge for the same or similar service.
How does the billing process work for consumers
with private health insurance?
Many privately insured consumers are covered through
some type of managed care organization (MCO), such as a
health maintenance organization (HMO) or preferred
provider organization (PPO). MCOs contract with a wide
range of providers that consequently are regarded to be in a
plan’s network. These providers accept the plan’s
negotiated payment in full for services to the plan’s
consumers. This group of providers is in-network; providers
that have not contracted with the plan are out-of-network.
In addition to paying their health insurance premium,
consumers often are required to pay an amount for health
care services (i.e., cost sharing) via coinsurance or a copayment.
The cost-sharing amount often is dependent on the network
infrastructure. In general, health insurance plans want
consumers to utilize in-network providers because those
providers have met the plan’s standards and give the plan a
discount. Thus, consumers typically have lower cost
sharing for covered services obtained in-network.
Consumers who seek care out-of-network likely have
higher cost sharing because out-of-network providers have
not agreed with the plan’s negotiated payment.
In addition to the higher cost sharing for out-of-network
services, a plan may pay only its usual, customary, and
reasonable (UCR) fee for such services. Some plans may
not offer any out-of-network benefits and thus would not
pay for any charges associated with out-of-network
Why does balance billing occur?
When a plan’s negotiated payment or UCR fee is less than
the provider’s charge for a given health care service, some
providers, if allowed under federal or state law, may bill a
consumer for the amount of that difference. This payment
differential is known as balance billing. In-network
providers often are contractually prohibited from balance
billing health plan consumers.
What does balance billing mean for consumers?
Balance billing also can be attributed to the difficulty of
determining which provider is in a plan’s network. For
example, providers may leave a plan’s network mid-year.
Accordingly, provider directories available from the plan
may be out-of-date. Additionally, a physician group may be
in-network while some individual physicians in the group
may be out-of-network. A physician also may be part of
multiple practices, and those practices in turn may accept
different insurance plans.
What are some examples of balance billing?
There are a number of scenarios that result in balance
billing. The following are two illustrative balance billing
Illustrative Scenario One: An insured consumer chooses to
receive care from an out-of-network provider. In addition to
the higher cost sharing, as a result of going out-of-network
the provider balance bills the consumer for the remaining
charge. (See Table 1 for an illustrative example of such a
Illustrative Scenario Two: An insured consumer checks a
health plan’s website to verify that a hospital was innetwork and thus assumes that the health care services
www.crs.gov | 7-5700
Balance Billing in Private Health Insurance Plans
received at the hospital will be included in the plan’s innetwork covered benefits. The consumer receives care from
an out-of-network physician at the in-network hospital. The
out-of-network physician who provided care during the
service may bill the consumer for the remaining charges.
Table 1. Illustrative Example of Balance Billing
(20% coinsurance for in-network services and 40%
coinsurance for out-of-network services)
No negotiated discount
because provider is outof-network
(80% of plan’s
(60% of plan’s reasonable
and customary fee)
(20% of plan’s
(40% of plan’s UCR fee)
(coinsurance plus balance
(provider charge minus
plan’s UCR fee)
Source: CRS illustrative example.
Notes: Coinsurance rates for in-network and out-of-network
services may vary by plan type. Some plans do not offer out-ofnetwork benefits and thus do not pay for charges associated with
What is the relationship between balance billing
and surprise medical bills?
Balance billing often is cited as a reason for surprise
medical bills. A surprise medical bill is any bill for which a
health plan paid less than a consumer expected. However,
not every balance bill is a surprise medical bill. While a
variety of circumstances may make a consumer vulnerable
to unexpected medical expenses, surprise medical bill
scenarios generally are a result of not understanding a
plan’s provider network and inadvertently using out-ofnetwork services.
Who has jurisdiction over balance billing?
Private health insurance is regulated primarily at the state
level. Individual states have established standards and
regulations overseeing the business of insurance. Despite
the states’ role as the primary regulators of health
insurance, federal requirements may overlap. However,
federal laws often establish federal minimum requirements
while generally giving states the authority to enforce and
expand those requirements.
What are some state approaches to balance billing?
Approaches to address balance billing vary from state to
state, may differ depending on the type of plan, and may
make distinctions between emergency and nonemergency
One of the most comprehensive state approaches to balance
billing is in New York. In April 2014, New York enacted
the Emergency Medical Services and Surprise Bills law.
The law bans balance billing for out-of-network emergency
care. For out-of-network nonemergency services, the law
requires plans to let consumers see out-of-network
providers at in-network costs when an in-network provider
is unavailable. New York also established an independent
arbitration process to review balance billing discrepancies.
Furthermore, the law includes additional provisions related
to provider network disclosure. MCOs in New York now
are required to provide comprehensive contact information
in their provider directory lists and update those lists
regularly. According to the law, health care providers must
provide consumers with plan and hospital affiliation
information at the time of the appointment for
How does federal law address balance billing?
Federal law does not prohibit balance billing in the private
health insurance market. The Patient Protection and
Affordable Care Act (ACA; P.L. 111-148, as amended)
addresses cost-sharing issues as they relate to emergency
health services obtained out-of-network for all nongrandfathered private health insurance plans. In an
emergency situation, consumers do not need to obtain prior
authorization, regardless of whether the provider is innetwork or out-of-network.
For out-of-network emergency situations, health plans must
pay the greatest of the following three amounts: the amount
the plan would pay in-network; an amount that is calculated
using the same method the plan uses to determine payments
for out-of-network services, excluding co-payments or
coinsurance; or the amount Medicare would pay for the
service. Nonetheless, a consumer may be required to pay, in
addition to the in-network cost sharing, the balance bill.
Namrata K. Uberoi, firstname.lastname@example.org, 7-0688
www.crs.gov | 7-5700