Common Medical Billing Terms Explained
Confused by medical billing terms? Learn what allowed amount, deductible, coinsurance, EOB, patient responsibility, billing codes, and more mean.
MEDICAL BILLINGHEALTH INSURANCE
Common Medical Billing Terms Explained
Medical bills and insurance statements can feel like they’re written in another language. Terms like allowed amount, coinsurance, contractual adjustment, and patient responsibility can appear on the same document, making it difficult to understand how your healthcare costs were calculated.
You don’t need to become a medical billing expert to make sense of them.
Understanding the most common medical billing and health insurance terms can make it easier to read your medical bills, review your Explanation of Benefits (EOB), and know what questions to ask when something doesn’t look right.
This guide explains common medical billing terms in plain English, including what they mean and why they matter to your healthcare costs.
Medical Bill Terms You Should Know
Billed Charge
The billed charge is the amount a healthcare provider or facility initially charges for a service.
For example, a hospital might charge $1,000 for a procedure. That does not necessarily mean you will owe $1,000.
If you have insurance, the claim may be processed according to your health plan’s rates and coverage rules. The amount you’re ultimately responsible for can therefore be very different from the provider’s original charge.
Why it matters: Don’t assume the provider’s original billed charge is automatically the amount you need to pay. The billed charge is the starting price for the service, which can be very different from the balance you may actually owe.
Balance Due
The balance due is the amount the provider’s bill says remains unpaid. You may also see it described as patient responsibility or amount due.
The balance may reflect insurance payments, adjustments, and payments you’ve already made.
But don’t treat the balance due as a number you should automatically pay without reviewing the rest of the bill.
If you used insurance, compare the bill with your EOB. Check that the claim has been processed and that the services and amounts on the documents make sense.
Why it matters: The balance due is the amount the provider is requesting you pay. Understanding how the provider arrived at that number can help you determine whether you need to ask questions before paying.
Allowed Amount
The allowed amount is the maximum amount recognized under a health plan for a covered healthcare service. It may also be called the eligible expense, payment allowance, or negotiated rate.
The allowed amount is used to determine how the cost is divided between you and your health plan. It isn’t necessarily the amount the insurer itself pays.
Here’s a simple example:
Provider charge: $1,000
Allowed amount: $700
The $1,000 charge and the $700 allowed amount are not the same thing. Depending on your plan and the circumstances of the claim, the $700 allowed amount can be divided between your health plan and you.
For an in-network provider, the provider’s contract with the health plan generally determines how the difference between the original charge and the allowed amount is handled. The difference may appear on your bill as an adjustment.
Out-of-network billing can work differently, and patients may sometimes be responsible for amounts above the plan’s allowed amount, subject to applicable protections against certain types of balance billing.
Why it matters: The provider’s original charge alone doesn’t tell you what your final financial responsibility will be.
Contractual Adjustment
A contractual adjustment is an amount subtracted from a provider’s original charge based on an agreement between the provider and a health plan.
Returning to our example:
Provider charge: $1,000
Allowed amount: $700
Contractual adjustment: $300
In this simplified example, the provider’s agreement with the health plan reduces the $1,000 charge by $300, leaving an allowed amount of $700.
An adjustment is different from an insurance payment. An adjustment reduces the amount of the original charge being considered, while an insurance payment is money the health plan pays toward the claim.
The terminology used on actual medical bills can vary, so different providers may describe adjustments differently.
Why it matters: A reduction from the provider’s original charge doesn’t necessarily represent money paid by your insurance company. Understanding the difference between an adjustment and an insurance payment can make it easier to see how the provider’s original charge became the amount you may actually owe.
Patient Responsibility
Patient responsibility is the portion of healthcare costs assigned to you under your health plan after a claim is processed. It can include amounts associated with your deductible, copay, or coinsurance.
For example:
Allowed amount: $700
Insurance pays: $500
Patient responsibility: $200
Your EOB may use wording such as What You Owe or Patient Balance.
Importantly, the amount shown on an EOB may not reflect money you’ve already paid directly to the provider.
Suppose your EOB shows $200 as your patient responsibility, but you already paid $50 to the provider. You would want to check whether that $50 payment has been properly credited to your provider account when reviewing the bill rather than simply paying another $200.
Why it matters: Patient responsibility is one of the most important numbers to compare between your EOB and medical bill—but you should also account for payments you’ve already made.
Itemized Bill
An itemized bill provides a detailed breakdown of the individual services, procedures, supplies, medications, or other charges associated with your care.
Instead of seeing only:
Hospital services: $4,850
an itemized bill may break that total into individual charges.
That additional detail can make it easier to identify services you don’t recognize, charges that appear to be duplicates, or other items you want the provider to explain.
If your bill doesn’t provide enough detail, ask the provider’s billing department for a detailed bill that lists the costs for each medical item or service you’re being billed for.
Why it matters: If your medical bill doesn’t provide enough information to understand the charges, an itemized bill can give you a clearer picture of what you’re being asked to pay for.
Health Insurance Costs You Should Know
If you have health insurance, the amount you pay for healthcare depends in part on how your health plan divides costs between you and the insurer.
Terms such as premium, deductible, copay, coinsurance, and out-of-pocket maximum describe different parts of that arrangement. Understanding the differences can make it much easier to figure out why your insurance paid a certain amount and why part of a medical bill was assigned to you.
Premium
A premium is the amount you pay to maintain your health insurance coverage, typically each month.
Your premium is different from the costs you may pay when you actually receive healthcare. Even if you pay a monthly premium, you may still have a deductible, copays, coinsurance, and other out-of-pocket expenses.
For example, you might have:
Monthly premium: $450
Doctor visit copay: $30
Annual deductible: $2,000
Paying the $450 premium keeps your coverage in effect, but it does not mean all of your healthcare services will be provided without additional cost.
Why it matters: Your premium is the cost of maintaining your insurance coverage. It is separate from the deductible, copays, and coinsurance you may pay when you receive healthcare, and premiums do not count toward your plan's out-of-pocket maximum.
Cost Sharing
Cost sharing is the portion of the cost of covered healthcare services that you are responsible for paying under your health plan.
Common forms of cost sharing include:
Deductibles
Copays
Coinsurance
Premiums generally aren't considered cost sharing. Costs for services your plan doesn't cover and balance-billed amounts from out-of-network providers generally aren't considered cost sharing either.
Why it matters: When your insurance documents refer to “cost sharing,” they're generally talking about the portion of covered healthcare costs assigned to you—not your monthly premium.
Deductible
A deductible is the amount you may have to pay for covered healthcare services during a coverage period before your health plan begins paying for services that are subject to the deductible.
Suppose your health plan has a:
$2,000 annual deductible
If you receive a covered service that's subject to your deductible before you've met it, you may have to pay some or all of the allowed amount yourself.
But having a $2,000 deductible does not necessarily mean you must spend $2,000 before your insurance pays anything at all.
Some services may not be subject to the deductible. Many plans cover certain services before you've met it, and Marketplace plans cover certain preventive services without cost sharing even before the deductible is met. Some plans also have separate deductibles for certain services, such as prescription drugs.
Why it matters: If a larger-than-expected portion of a medical bill is assigned to you, check whether some or all of the allowed amount was applied to your deductible.
Copay (Copayment)
A copay, short for copayment, is a fixed amount you may pay for a covered healthcare service, depending on the terms of your health plan.
For example, your plan might require:
Primary care visit: $25 copay
Specialist visit: $50 copay
Urgent care visit: $75 copay
Copays can vary depending on the service and your specific health plan.
You may pay a copay when you receive care, but that doesn't necessarily mean your financial responsibility for the entire encounter has been settled. Additional services—such as lab work or imaging—may be processed separately according to your plan.
Why it matters: Keep track of copays you've already paid. When reviewing a later medical bill, make sure payments you've made to the provider have been properly accounted for.
Coinsurance
Coinsurance is the percentage of the allowed amount for a covered healthcare service that you are responsible for paying when coinsurance applies.
Unlike a copay, which is generally a fixed dollar amount, coinsurance is calculated as a percentage.
Suppose:
Allowed amount: $1,000
Your coinsurance: 20%
If you've satisfied your deductible and the service is subject to 20% coinsurance, your share would be:
$1,000 × 20% = $200
In this simplified example, your health plan would pay the remaining $800 of the allowed amount.
This is another reason the allowed amount discussed earlier matters. Coinsurance is generally calculated using the allowed amount rather than simply the provider's original billed charge.
Why it matters: A percentage can produce a substantial bill when the allowed amount is high. If your EOB assigns an amount to coinsurance, check the allowed amount and coinsurance percentage to understand how your share was calculated.
Out-of-Pocket Costs
Out-of-pocket costs are healthcare expenses that you pay yourself and that aren't reimbursed by insurance.
They can include deductibles, copays, and coinsurance for covered services, as well as costs for services your plan doesn't cover.
This term is broader than cost sharing.
For example, money you spend on a service your insurance doesn't cover is an out-of-pocket expense, but it generally isn't considered cost sharing for a covered service.
That distinction becomes especially important when discussing your out-of-pocket maximum.
Why it matters: “Out-of-pocket” doesn't necessarily mean “counts toward your out-of-pocket maximum.” Some healthcare expenses you pay yourself don't count toward that limit.
Out-of-Pocket Maximum
The out-of-pocket maximum, also called the out-of-pocket limit, is the most you may have to pay during a plan year for covered services that count toward the limit.
Costs that commonly count toward the limit include deductibles, copays, and coinsurance for covered in-network care. After you reach your out-of-pocket maximum, your health plan generally pays 100% of the costs of covered in-network benefits for the remainder of the plan year.
However, some healthcare expenses generally don't count toward the out-of-pocket maximum. These can include:
Monthly insurance premiums
Services your plan doesn't cover
Out-of-network care and services
Certain amounts a provider charges above the plan's allowed amount
For example, suppose your plan has a $6,000 out-of-pocket maximum. If the expenses that count toward that maximum reach $6,000 during the plan year, your health plan generally pays the covered in-network costs subject to the limit for the remainder of that year.
That does not mean every healthcare-related expense becomes free. You could still be responsible for premiums, non-covered services, out-of-network care, or other expenses that don't count toward the limit.
Why it matters: The out-of-pocket maximum provides important financial protection against high costs for covered care, but not every healthcare expense you pay counts toward it.
EOB and Insurance Claim Terms You Should Know
When a healthcare provider submits a claim to your health plan, the insurer processes it according to your coverage. The result is often summarized in an Explanation of Benefits (EOB).
Understanding the terms on claims and EOBs can help you see what the provider charged, what insurance paid, and what portion may be your responsibility.
Claim
A claim is a request for coverage or payment submitted to a health insurance plan for healthcare services.
In many cases, your healthcare provider submits the claim on your behalf. A claim may include information such as:
The patient
The healthcare provider
The date of service
The services provided
The amounts charged
After the claim is processed, your health plan will generally provide an EOB explaining how it handled the claim.
Why it matters: Your medical bill and insurance benefits can depend on how the claim was submitted and processed. If you receive a medical bill but haven't received an EOB, contact your health plan to make sure the provider or facility submitted the claim and that the plan received it.
Explanation of Benefits (EOB)
An Explanation of Benefits, commonly called an EOB, is a statement from your health plan that explains how it processed a claim and how the costs were divided between the plan and you.
An EOB typically includes information about the services you received, the provider's charges, the amount allowed under your plan, what the insurer paid, and the amount you may owe. It may arrive by mail or be available electronically through your insurer.
On an EOB, the provider's original billed amount may appear as Provider Charges or similar wording.
Most importantly:
An EOB is not a medical bill.
It explains how your insurance handled the claim. A medical bill comes from the healthcare provider or facility and requests payment.
For a more detailed comparison, see Medical Bill vs. EOB: What's the Difference?
Why it matters: Your EOB helps you understand how insurance processed the claim. Comparing it with your medical bill can help you spot amounts or services that need further explanation.
Claim Number
A claim number is a reference number associated with a particular insurance claim.
You may see it on your EOB along with information about the patient, provider, health plan, and date of service.
If you contact your insurance company with a question about how a claim was processed, having the claim number available can make it easier for the representative to locate the correct claim.
Why it matters: Keep the claim number handy when contacting your insurer. It helps identify the specific claim you're asking about, particularly if you've had several services from the same provider.
Insurance Payment
An insurance payment is the amount your health plan pays toward covered costs on a claim. On an EOB, you may see this labeled Paid by Insurer, Plan Paid, Insurance Paid, or similar wording.
For example:
Allowed amount: $700
Insurance payment: $500
Amount you may owe: $200
The $500 represents the insurer's payment toward the claim. It is different from a contractual adjustment and from the amount assigned to you.
Why it matters: Looking at the insurance payment alongside the allowed amount and your responsibility can help you understand how the cost of the claim was divided.
Amount You May Owe
Amount You May Owe is wording commonly used on an EOB for the amount the health plan has assigned to you after processing the claim. Depending on the insurer, you may see similar labels such as What You Owe, Patient Balance, or Your Responsibility.
As discussed earlier under Patient Responsibility, this amount may include costs associated with your deductible, copay, coinsurance, or other amounts assigned to you under your plan. It also may not reflect payments you've already made directly to the provider.
Why it matters: Compare this amount with the provider's bill and account for payments you've already made.
Remark Code
A remark code is a code or notation on an EOB that provides additional information about how the claim was processed.
It can help explain costs, charges, payments, or other aspects of the insurer's decision. A remark code is typically accompanied by a description elsewhere on the EOB.
If you see a remark code you don't understand, look for the corresponding description or notes section on your EOB. If the explanation still isn't clear, contact your health plan.
Why it matters: Don't ignore unfamiliar remark codes or notes. They may contain useful information about why your insurer processed the claim the way it did.
Claim Denial
A claim denial occurs when your health plan refuses to cover or pay some or all of a claim.
A denial does not necessarily mean you should immediately pay the entire resulting provider balance yourself. First, determine why the claim was denied and whether there are steps available to address the denial.
Your insurer generally must explain why it denied coverage and provide information about how you can appeal its decision.
Depending on the reason, the next step might involve correcting information, contacting the provider about a claim issue, providing additional documentation, or appealing the health plan's decision.
Why it matters: If a claim is denied, find out why before assuming the resulting provider balance is necessarily your final responsibility.
Appeal
An appeal is a request for your health insurance company to review a decision denying a benefit or payment.
For example, if your insurer denies coverage for a service and you believe that service should be covered under your plan, you may be able to file an internal appeal asking the insurer to reconsider its decision.
If the health plan continues to deny the claim after the internal appeals process, you may have the right to request an external review, in which an independent third party reviews the health plan's decision. Eligibility and procedures can depend on the type of denial and your health plan.
Your denial notice and health plan documents should provide information about the applicable appeal process.
Why it matters: An insurer's initial denial isn't necessarily the end of the process. If you believe a claim was incorrectly denied, review the reason for the denial and your available appeal rights.
Provider and Network Terms You Should Know
Whether a provider is in network or out of network can significantly affect what you pay. Health plans contract with certain providers and facilities to create networks, and your costs can vary depending on whether you receive care within that network.
Understanding these terms can help you interpret your bills and EOBs—and recognize when an unexpected out-of-network charge deserves a closer look.
In-Network Provider
An in-network provider is a healthcare provider or facility that has a contract with your health plan to provide services to plan members at negotiated rates. You may also see terms such as participating provider or preferred provider, although terminology can vary by plan.
In-network care generally costs less than out-of-network care because the provider has agreed to your health plan's negotiated rates, although your actual costs depend on your plan's coverage and cost-sharing rules.
Your deductible, copay, coinsurance, and other plan rules can still affect how much you owe for in-network care.
Why it matters: Checking whether a provider is in your plan's network can help you anticipate how your insurance will cover the service and what your share of the cost may be.
Out-of-Network Provider
An out-of-network provider is a healthcare provider or facility that does not have a contract with your health plan to provide services under your plan's network terms. You may also see terms such as nonpreferred provider or non-participating provider.
Depending on your plan, out-of-network care may result in higher deductibles, copays, or coinsurance, and some plans may provide limited or no coverage for certain out-of-network services.
There can also be circumstances in which an out-of-network provider charges more than your health plan's allowed amount.
Federal protections under the No Surprises Act prohibit many types of surprise out-of-network bills, including most out-of-network emergency services, certain non-emergency services provided by out-of-network providers during a visit to an in-network facility, and out-of-network air ambulance services. State laws may provide additional protections.
Why it matters: If a bill or EOB identifies a provider as out of network, review your plan and the circumstances of the care before assuming the entire amount billed is your responsibility.
Facility Fee
A facility fee is a charge associated with the facility where you receive healthcare, such as a hospital or hospital outpatient department.
It can appear separately from the professional fee charged by the doctor or other healthcare professional who treated you.
For example, a hospital may charge for use of its facility, equipment, supplies, or other resources associated with your care, while the physician who treated you bills separately for professional services.
This means a single visit or procedure can sometimes generate more than one legitimate charge or bill.
Why it matters: If you receive a facility fee in addition to a bill from your healthcare professional, it doesn't necessarily mean you've been charged twice for the same thing. Review what each charge covers and ask the provider for clarification if you're unsure.
Professional Fee
A professional fee is a charge for services provided by a physician or other healthcare professional and may be billed separately from charges associated with the facility where you received care.
For example, after a hospital procedure, you might receive separate bills from the hospital and from professionals involved in your care, such as a physician, anesthesiologist, or radiologist.
Those bills may represent different parts of the same episode of care rather than duplicate charges.
Why it matters: Multiple bills from one episode of care don't necessarily mean you've been charged twice. Check who issued each bill and what services it covers.
Balance Billing
Balance billing occurs when a provider bills you for the difference between the provider's charge and the amount your health plan recognizes or allows for the service.
For example:
Provider charge: $1,000
Health plan allowed amount: $700
Difference: $300
In circumstances where balance billing is permitted, the provider may seek payment of some or all of that $300 difference in addition to other amounts you may owe under your plan.
Balance billing is generally associated with out-of-network care. For covered services, in-network providers generally agree to accept the health plan's negotiated rate and cannot balance bill you for the difference between their original charge and the plan's allowed amount.
Federal law also protects patients from balance billing in certain situations. Under the No Surprises Act, balance billing is generally prohibited for most emergency services, certain non-emergency services provided by out-of-network providers during a visit to an in-network facility, and out-of-network air ambulance services. State laws may provide additional protections.
Why it matters: If you receive an unexpected bill for an amount above your plan's allowed amount—especially after emergency care or care at an in-network facility—investigate it before paying. Federal or state protections may apply.
Medical Billing and Coding Terms You Should Know
Medical bills and EOBs sometimes contain codes that identify the services you received, why you received them, or where your care took place.
You don't need to become a medical coding expert. Understanding what the most common codes represent can help you review an itemized bill and ask better questions about charges you don't recognize.
CPT Code
CPT, which stands for Current Procedural Terminology, is a standardized code set used to identify and report medical services and procedures.
CPT is maintained by the American Medical Association and is widely used to report healthcare services for purposes including claims processing and reimbursement. CPT codes make up Level I of the Healthcare Common Procedure Coding System (HCPCS).
For example, CPT codes can identify office visits, diagnostic tests, surgeries, and many other medical services and procedures.
If you request an itemized bill, you may see CPT codes associated with individual services. Your EOB may also contain procedure or service codes.
Why it matters: CPT codes can help you identify what services were reported. If you don't recognize a service, ask the provider what the code represents and whether it corresponds to the care you received.
HCPCS Code
The Healthcare Common Procedure Coding System (HCPCS) is divided into two main levels.
HCPCS Level I consists of CPT codes, which are maintained by the American Medical Association.
HCPCS Level II codes are maintained by CMS and are used primarily to identify products, supplies, and services not included in CPT, such as ambulance services, durable medical equipment, prosthetics, orthotics, and certain medical supplies. HCPCS Level II codes are generally alphanumeric, consisting of one letter followed by four numbers.
You don't need to know which coding system applies to every charge. What matters is recognizing that a code on your bill or insurance documents may identify a particular service, supply, or item.
Why it matters: If you see an unfamiliar HCPCS code, ask what service, supply, or equipment it represents and whether it corresponds to something you actually received.
ICD-10-CM Code
An ICD-10-CM code is part of a standardized system used to code and classify diagnoses and other health conditions. The National Center for Health Statistics, part of the CDC, is responsible for ICD-10-CM in the United States.
In simple terms:
CPT/HCPCS codes generally help describe what service or item was provided.
ICD-10-CM codes help describe why the service was provided.
For example, a claim might include a procedure code identifying a medical service and one or more diagnosis codes describing the condition or reason associated with that service.
Why it matters: If a claim is denied or processed unexpectedly, the diagnosis information associated with the claim may be one thing worth reviewing with the provider or insurer.
Revenue Code
A revenue code is used on certain institutional claims, such as hospital claims, to identify the category of service or department associated with a charge.
For example, revenue codes may be associated with categories such as laboratory services, radiology, emergency room services, or room and board.
A revenue code is different from a CPT or HCPCS code. Depending on the service and claim, these codes can appear together and provide different information about a charge.
Why it matters: Revenue codes can provide additional information about the category of service associated with a hospital or facility charge.
Modifier
A modifier is additional information attached to certain procedure codes that provides more detail about how or under what circumstances a service was performed.
For example, a modifier may provide additional information about which side of the body was involved, whether multiple procedures were performed, or other circumstances relevant to the service.
Why it matters: A modifier can affect how a service is interpreted or processed. If one is relevant to a billing question, ask the provider or insurer what it means for your particular claim.
Place of Service Code
A place of service (POS) code is a two-digit code used on professional healthcare claims to identify the type of setting where a service was provided. CMS maintains the standardized POS codes used on professional claims.
Examples include a physician's office, hospital, emergency department, or other healthcare setting.
The setting can matter because where you receive a service can affect how the claim is processed and how much the service costs.
Why it matters: If the place of service shown on a claim doesn't seem consistent with where you received care, it's reasonable to ask the provider or insurer for an explanation.
Other Health Insurance Terms You May Encounter
Some health insurance terms can affect whether a service is covered, how a claim is processed, or what options you have when you're facing a medical bill.
Understanding these terms can help you know what questions to ask when coverage or billing doesn't go as expected.
Prior Authorization
Prior authorization is approval from a health plan that may be required before you receive certain healthcare services or fill certain prescriptions for them to be covered under your plan. You may also see terms such as preauthorization, prior approval, or precertification.
An important distinction is that receiving prior authorization does not guarantee that your health plan will ultimately pay the claim. Other coverage requirements can still apply.
Why it matters: If a claim is denied because prior authorization was required, find out whether the service required prior authorization under your plan and whether it was obtained. If something doesn't look right, ask your provider and health plan what happened before assuming the resulting bill is your final responsibility.
Medical Necessity
Medical necessity generally refers to healthcare services or supplies needed to diagnose or treat an illness, injury, condition, disease, or its symptoms and that meet accepted standards of medicine.
Health plans may use medical-necessity criteria when determining whether certain services qualify for coverage.
If a claim is denied as not medically necessary, that doesn't necessarily mean your healthcare provider believes the care was unnecessary. It means the health plan made a coverage determination based on its medical-necessity criteria.
Depending on the circumstances and your plan, you may have the right to appeal that decision.
Why it matters: If a claim is denied as not medically necessary, review the insurer's explanation and your appeal rights before assuming the resulting bill is necessarily your final responsibility.
Referral
A referral is an order from a primary care provider directing you to see a specialist or receive certain medical services. Depending on your health plan, a referral may be required for the care to be covered.
Referrals are particularly important with some types of health plans. For example, many Health Maintenance Organizations (HMOs) require a referral before you receive certain care from someone other than your primary care provider. If a required referral isn't obtained, the plan may not pay for the services.
A referral is different from prior authorization. A referral generally comes from a healthcare provider, while prior authorization generally involves approval from the health plan.
Why it matters: Before seeing a specialist or scheduling certain services, check whether your plan requires a referral. Missing a required referral can affect how the resulting claim is covered.
Coordination of Benefits
Coordination of benefits, often abbreviated COB, is the process used to determine which health plan pays first when you're covered by two or more plans.
One plan generally processes the claim as the primary plan, and another may then process eligible remaining costs as the secondary plan according to its coverage rules.
Why it matters: If you have more than one health plan and a claim isn't being paid as expected, check whether both insurers have current information about your coverage and which plan should process the claim first.
Self-Pay
Self-pay generally means paying for healthcare yourself rather than having a health insurance plan pay for the care.
You might be self-pay because you don't have insurance, because a service isn't covered, or because you choose not to use insurance for a particular service.
If you don't have health insurance or choose not to use it for your care, federal law generally gives you the right to receive a good faith estimate of expected charges when you schedule care at least 3 business days in advance or when you request an estimate. These requirements generally don't apply to emergency care.
If the final bill from a provider or facility is at least $400 more than the good faith estimate you received from that provider or facility, you may be eligible to use the federal patient-provider dispute resolution process.
Some providers may also offer different prices or discounts to patients paying directly, although policies vary.
Why it matters: If you're paying for care without using insurance, ask about the expected price, available self-pay discounts, and your right to receive a good faith estimate for scheduled care.
Financial Assistance (Charity Care)
Financial assistance is help offered by a hospital or other healthcare facility that can reduce the amount an eligible patient must pay. You may also hear it called charity care.
Tax-exempt nonprofit hospitals generally must maintain written financial assistance policies describing the free or discounted care available to eligible patients. Other healthcare facilities may offer financial assistance as well. Eligibility requirements vary by facility.
If you're having difficulty paying a hospital bill, ask the billing department for its financial assistance policy and application. Review the eligibility requirements, what types of care are covered, the application process, and any applicable deadlines.
Why it matters: A medical bill isn't always limited to a choice between paying the full balance or entering a payment plan. If you qualify, financial assistance may reduce what you owe.
How These Medical Billing Terms Work Together
Medical billing terms make more sense when you see how they work together.
The exact way a claim is processed depends on your health plan, but this simplified example shows how several of these terms can fit together.
Suppose you receive a covered medical service from an in-network provider. The service is subject to your deductible and coinsurance.
Step 1: The Provider Submits a $1,000 Charge
The provider submits a claim to your health plan with a:
Billed charge: $1,000
This is the provider's original charge—not necessarily the amount you or your health plan will ultimately pay.
Step 2: Your Health Plan Applies the Allowed Amount
Because the provider is in network, the provider has agreed to your health plan's negotiated rates.
Suppose the health plan's allowed amount for the service is:
Allowed amount: $700
The difference between the provider's original charge and the allowed amount is:
$1,000 − $700 = $300
In this simplified example, that $300 appears as a contractual adjustment.
So far:
Billed charge: $1,000
Contractual adjustment: −$300
Allowed amount: $700
The $300 adjustment isn't an insurance payment. It represents the portion of the provider's original charge removed under the provider's agreement with the health plan.
Step 3: Your Deductible Is Applied
Now suppose you have:
$200 remaining on your annual deductible
Because this service is subject to the deductible, the first $200 of the $700 allowed amount is assigned to you.
That leaves:
Allowed amount: $700
Applied to deductible: $200
Remaining allowed amount: $500
You are responsible for the $200 applied to your deductible.
Step 4: Coinsurance Is Applied
After your remaining deductible has been satisfied, suppose your health plan applies:
20% coinsurance
to the remaining $500 allowed amount.
Your coinsurance would be:
$500 × 20% = $100
Your health plan would pay the remaining:
$500 − $100 = $400
Step 5: Calculate Your Total Patient Responsibility
Your total responsibility in this example would be:
Deductible: $200
Coinsurance: $100
Total patient responsibility: $300
Your health plan pays:
Insurance payment: $400
Together:
$300 patient responsibility + $400 insurance payment = $700 allowed amount
The entire $700 allowed amount has now been accounted for.
Step 6: Compare Your EOB With Your Medical Bill
Your EOB should show how the health plan processed the claim, including the provider's charge, the allowed amount, what the health plan paid, and the amount assigned to you.
In this example, your EOB might show:
Provider charge: $1,000
Allowed amount: $700
Insurance payment: $400
Amount you may owe: $300
When you receive the provider's medical bill, compare it with your EOB.
If your EOB shows $300 as your responsibility, the provider's bill should generally be consistent with that amount after accounting for any payments you've already made to the provider.
Putting It All Together
Here's the complete example:
Provider's billed charge: $1,000
Contractual adjustment: −$300
Allowed amount: $700
Applied to deductible: $200
Coinsurance: $100
Insurance payment: $400
Total patient responsibility: $300
The important lesson is that you don't simply owe the provider's original $1,000 charge.
In this example, the provider's network agreement, the health plan's allowed amount, your remaining deductible, and your plan's coinsurance rules all affect how the final responsibility is calculated.
Once you understand how these numbers relate to one another, a medical bill and EOB can become much easier to interpret.
What to Do When You Don't Understand a Medical Billing Term
Even after learning the most common medical billing terms, you may still encounter unfamiliar language, codes, or charges on a medical bill or EOB.
You don't need to understand everything immediately. The goal is to identify what you don't understand, gather the information you need, and ask questions until you understand what you're being asked to pay and why.
Here are six steps you can take.
Step 1: Compare Your Medical Bill With Your EOB
If you used health insurance, compare your medical bill with the Explanation of Benefits you received from your health plan.
Look at information such as:
Dates of service
Provider or facility
Services or supplies
Provider charges
Allowed amount
Insurance payment
Patient responsibility
Payments you've already made
Pay particular attention to the amount your EOB says you may owe and compare it with the amount the provider is billing you.
Remember that an EOB may not reflect money you've already paid directly to the provider. Make sure any copays or other payments you've already made have been properly credited to your provider account.
Step 2: Request an Itemized Bill
If your bill only shows a total balance or doesn't provide enough detail to understand the charges, contact the provider's billing department and request an itemized or detailed bill.
An itemized bill can make it easier to identify:
Services or supplies you don't recognize
Charges that may need clarification
Possible duplicate charges
Billing codes associated with individual services
Individual charges that make up the total bill
Keep in mind that multiple charges from the same episode of care aren't necessarily duplicates. For example, a hospital and a physician may legitimately bill separately for different parts of your care.
Step 3: Look Up Unfamiliar Codes and Terms
If your bill or EOB contains a code or term you don't recognize, look it up or ask what it means.
For example, you might encounter:
CPT or HCPCS codes
ICD-10-CM codes
Revenue codes
Modifiers
Place of service codes
Remark codes
Looking up a code can help you understand what it generally represents, but medical coding can be complicated. A code that seems unfamiliar or unexpected isn't necessarily evidence that the bill is incorrect.
If a code doesn't seem consistent with the care you received, ask the provider's billing department to explain what the code represents and why it appears on your bill or claim.
Step 4: Call the Provider's Billing Department
If something on the medical bill doesn't make sense, contact the provider or facility's billing department.
You might ask questions such as:
What does this charge represent?
What service does this billing code correspond to?
Why is this amount different from the amount shown on my EOB?
Has a payment I already made been credited to my account?
Can you explain this adjustment or balance?
If I believe a charge is incorrect, what is your process for reviewing it?
Have your medical bill, EOB, account number, and other relevant documents available during the conversation.
The goal isn't necessarily to argue that the bill is wrong. Start by understanding how the provider arrived at the amount you're being asked to pay.
Step 5: Contact Your Health Plan
The provider's billing department can explain the bill, while your health plan can help explain how the insurance claim was processed.
If you don't understand something on your EOB or believe the claim may have been processed incorrectly, contact your health plan.
You might ask:
Why was this amount applied to my deductible?
Why was this service denied?
Was this provider processed as in network or out of network?
What does this remark code mean?
Why did the plan allow this amount?
Do I have appeal rights if I disagree with this coverage decision?
Have your EOB and claim number available when you call.
Step 6: Keep Records
Keep copies of documents related to the bill and insurance claim, including:
Medical bills
EOBs
Itemized bills
Payment receipts
Relevant correspondence
Other documents related to the claim
When you speak with a provider or health plan, consider writing down the date of the conversation, the name of the representative you spoke with, and what you were told.
Good records can make it much easier to follow up later, especially if you're dealing with multiple bills, providers, insurance claims, or conversations.
You don't need to become an expert in medical billing to review a medical bill effectively.
The goal is to understand the major numbers, identify anything you don't recognize, compare the documents you receive, and ask questions until you understand what you're being charged and why.
Frequently Asked Questions About Medical Billing Terms
What is the difference between a medical bill and an EOB?
An Explanation of Benefits (EOB) comes from your health plan and explains how it processed a claim, including what the provider charged, what the plan paid, and what amount may be your responsibility.
A medical bill comes from the healthcare provider or facility and requests payment.
An EOB is not a bill.
What is the difference between a deductible and coinsurance?
A deductible is the amount you may have to pay for covered healthcare services before your health plan begins paying for services that are subject to the deductible.
Coinsurance is a percentage of the allowed amount that you pay when coinsurance applies.
For example, if you have $200 remaining on your deductible, you may first be responsible for that $200. If 20% coinsurance then applies to the remaining allowed amount, you would generally pay 20% of that remaining amount.
What is the difference between a copay and coinsurance?
A copay is generally a fixed dollar amount you pay for a covered healthcare service, such as $30 for a doctor's visit. Coinsurance is a percentage of the allowed amount, such as 20%. Which applies depends on your health plan.
What does allowed amount mean on an EOB?
The allowed amount is the amount your health plan recognizes for a covered healthcare service and uses to determine how the cost is divided between the health plan and you.
It isn't necessarily the amount the insurer itself pays. For example, if the allowed amount is $700, part of that amount might be paid by your health plan while another part is assigned to you through your deductible, copay, or coinsurance.
What is patient responsibility?
Patient responsibility is the portion of healthcare costs assigned to you after your health plan processes a claim. It may include amounts associated with your deductible, copay, or coinsurance.
When reviewing the provider's bill, remember to account for payments you've already made.
Can a provider bill me more than the allowed amount?
Sometimes. If a provider is out of network, you may in some circumstances be billed for the difference between the provider's charge and your health plan's allowed amount. This is called balance billing.
In-network providers generally cannot balance bill you for covered services, and federal or state protections may prohibit balance billing in certain other situations.
Does everything I pay count toward my out-of-pocket maximum?
No. Deductibles, copays, and coinsurance for covered in-network care generally count toward your out-of-pocket maximum.
Premiums, services your plan doesn't cover, out-of-network care and services, and certain amounts a provider charges above the plan's allowed amount generally don't count toward the limit. Check your plan documents for the rules that apply to your coverage.
What should I do if I don't understand a medical bill?
Start by comparing the medical bill with your EOB, if you have one. If you need more detail, request an itemized bill.
Look up unfamiliar terms or codes, and contact the provider's billing department or your health plan if something doesn't make sense.
Keep your bills, EOBs, payment receipts, and notes from conversations so you have a record if you need to follow up.
The goal is to gather enough information to understand what you're being charged and why before deciding what action to take.
Read More Saventra Guides
How to Read a Medical Bill (Step-by-Step Guide)
Learn how to review the key sections of a medical bill and understand the charges, adjustments, payments, and balance you may owe.
What Is an Explanation of Benefits (EOB)? Everything You Need to Know
Learn how to read your EOB and understand how your health plan processed a claim and calculated your share of the cost.
Medical Bill vs. EOB: What’s the Difference?
Learn how medical bills and EOBs differ and how to compare the two documents before paying a medical bill.
