Reduce Medical Bills

Understanding the 3 Types of Balance Billing

March 11, 2020

Resolve Team

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Balance billing is one of the more common hospital billing errors that we come across as well as one of the most confusing to identify and understand.

We’ll be writing a series of posts discussing the different elements of balance billing, what’s being done by policy makers and insurance companies, and what you can do to protect yourself against these types of issues.

To start, in this post we’ll define balance billing as well as identify the 3 types of balance billing. Future posts will more deeply address regulations, protections, and what you as the patient can do both to protect yourself from this happening and fight it when it does happen.

What is Balance Billing?

Balance billing occurs when a medical provider bills a patient the difference between the hospital chargemaster rate and the insurance company allowed amount.

The above statement, while a comprehensive definition, is fairly dense and full of jargon, so we’ll unpack it here (for another explanation complete with a bill to refer to, take a look at Part 1 of our Guide to Lowering Your Medical Bills).

When you have insurance and receive a bill from a hospital, there are a number of line items, notably:

The Chargemaster Rate- this is the ‘rack’ rate that the hospital charges for services provided. Every hospital keeps a database with these rates and is required by law to post it online (though good luck finding it without a degree in computer science and a custom built web-scraper).

The chargemaster rate in most cases is completely disassociated with reality. It averages over 4x the hospitals’ actual costs and nearly 3.5x what insurance companies actually pay for these services (though we frequently see pricing in the 10-20x cost range as well).

The Allowed Amount - this is the price negotiated between the insurance company hospital (for in-network charges), or the price that the insurance company allows for the procedure. This is almost always a significant discount from the chargemaster rate, and that discount is often called the contractual discount.

Patient Balance - this is the amount that a patient owes. This is the difference between the allowed amount and the amount that the insurance company actually charges (quite often hospital bills will bundle the discount they gave the insurance company and the amount the insurance company paid together - so it may take some digging to really understand).

The patient balance portion on your Explanation of Benefits (EOB) from the insurance company and the hospital bill should be the same. If not, call your insurance company.

So again, balance billing occurs when a medical provider charges a patient the difference between what the insurance company allowed amount is and what the hospital chargemaster rate is.

With that in mind, there are three broad situations where we see Balance Billing (there are also more edge case situations, but that’s a different post).

In-Network Balance Billing

Not illegal, but goes against contract between the provider and insurance company.

This is the most straightforward type of balance billing and generally the easiest to adjudicate.

In-Network Balance Billing occurs when a patient goes to an in-network provider for medical services and is billed the difference between the contractually allowed rate (the rate the insurance company has negotiated with the hospital) and the chargemaster rate.

To take an example - let’s say Jane goes to an in-network Doctor’s office for a series of tests. The chargemaster rate (the rate the Doctor’s office lists as their charges) for these tests is $4,000, while Jane’s insurance company has negotiated a $3,500 discount for these exact same tests - creating an allowed amount of $500 (this level of reduction is not at all uncommon). Jane’s insurance pays the $500 allowed amount, but the Doctor’s office still bills Jane for the $3,500. This is in-network balance billing.

While there are no laws that deal specifically with this situation, this type of billing explicitly goes against the contract that the insurance company will have with the medical provider. A few calls to your insurance company and a request to help them fix this with the medical provider should be all that’s required to get this fixed.

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Out of Network Provider - Emergency Situation

Illegal in some states.

This type of balance billing is slightly more complex but also more regulated at the federal level. In this case, the patient goes to an out of network medical provider for treatment in an emergency situation.

In this case, ACA compliant insurance plans (if you have a plan through your employer or purchased of the government healthcare exchange, your plan almost certainly is ACA compliant) require that the insurance company pay for these services at an in-network rate - the theory being that once hospitals receive a fair market rate (in this case an in-network rate) they’ll consider that sufficient coverage.

Adjusting our example from above - Jane is on vacation and falls and breaks her arm. She ends up in the ER. Even though she is out of network, her insurance company must pay the hospital an in-network rate as this is an emergency situation.

Unfortunately, federal law only regulates what insurance companies must pay hospitals, not what hospitals themselves can charge to patients. In this case, since the hospital is out of network, there’s no contractual agreement governing what the hospital can charge the patient. So we’re in a situation where insurance companies have paid for a procedure but there’s still a large difference between a hospital’s chargemaster rate and the amount that the insurance company paid.

Back to Jane. Jane’s insurance company has paid an in-network rate for the hospital to fix her broken arm. However, there are no federal laws nor contractual obligations that prevent the hospital from billing Jane for the difference between what her insurance company paid and what the hospital chargemaster rate happens to be.

Some states have some laws regulating some of what can be charged (the best thing to do is to google your state balance billing laws to see if these apply). However, in many states these regulations don’t exist and hospitals can legally balance bill.

There are attempts at the federal level to address this (and our opinion this should be addressed as this type of balance billing clearly goes against the spirit of existing federal balance billing regulations).

Out of Network at In-Network Provider - Non-Emergency

Not Illegal, disclosure requirements vary on a state basis

Here the patient goes to what they think is an in-network provider, but one of the entities that work on their case and bill does not have a contract with their insurance company, and thus is out of network.

Piling on the above example - Jane goes to a planned surgery at a surgery center that is in network (she checked with her insurance company beforehand to make sure she was covered). However, the anesthesiologist, pharmacy, labs, surgeon, and operating room facility all bill separately. Unbeknownst to Jane, the anesthesiologist is out of network - so she receives a significant bill from them months after her surgery.

There are no federal laws directly addressing this issue. Some states have laws on the books addressing this, though protections range greatly. In some states this type of inadvertent out of network care at an in-network hospital is heavily regulated to protect the patient. In others, simple disclosures signed ahead of time (and often buried in the mountain of paperwork that many patients are made to feel as if they must sign as a condition of care.

Jane may have signed such an agreement notifying her that the anesthesiologist was out of network, thus making her legally responsible for the bill, even if that agreement was buried in a mountain of paperwork.


Hospital bills are already extremely confusing, and adding the potential to be balance billed depending on in/out of network status of various providers, state laws, and the general whims of the medical providers only adds to this confusion.

While there remains federal legislation in place to address this, it’s important to remain vigilant. If you ever have questions about your bill, give us a call at 877-245-4244 for a Free Consultation.

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