The Ultimate Guide to Lowering Your Medical Bills

Regardless of how well your hospital treated your illness or injury, sadly the healthcare system’s billing structure is designed to screw the patient over in the end.

The reality is, healthcare is expensive, and hospitals and insurance companies are multi-million-dollar businesses that surround themselves with highly skilled people to protect their interests and bottom line. Meanwhile, individual patients can get stuck with exorbitant medical bills, making it difficult to carry on with normal life.

The purpose of this guide is to change that reality. To our knowledge, this is the most comprehensive single source available for understanding and negotiating your medical bill. We hope this information can help level the playing field and ensure that patients can adjust their medical bills to pay fair prices.

This guide has 3 parts:

Part 1: Understanding Your Medical Bills

We’ll provide background on how dangerously out of control medical costs have become, and we’ll walk through typical medical documents from hospitals and insurance providers to help you understand exactly what you’re being charged for—and why.

Part 2: Negotiating Your Medical Bills

We’ll discuss the process of negotiating your medical bills. That process starts with gathering ALL of the right information, then recognizing problems that might be relevant to your specific case. Finally, we’ll guide you through what you can do to help reduce those bills.

Part 3: Getting Help with your Medical Bills

While we hope to arm everyone with enough information to negotiate their medical bills, the truth is no guide can be 100% comprehensive. The medical billing system is incredibly nuanced and Byzantine, sometimes people run into a brick wall, and some still need help financing their medical bills. Here we share ways you can get help, from hiring a professional negotiator to seeking out medical charities and personal loan companies to help you pay your bills.

Please read this guide free of charge. Then tell us about your experience. If the guide helped you to reduce your bills, email us at [email protected] and let us know.

Part 1: Understanding Your Medical Bills

First we’ll provide a background on how dangerously out-of-control medical costs have become, we’ll then walk through typical medical documents from hospitals and insurance providers to help you understand exactly what you’re being charged for — and why.

Part 1 is divided into 3 sections. Click in the list below to jump directly to that section:

  1. Spiraling Healthcare Costs An overview of the troubling upward trend in U.S. health expenditures
  2. How Patients Are Getting Squeezed Identifying the 3 main contributors to high out-of-pocket medical costs
  3. Understand Your Medical Bill A deep dive into medical-related documents and how to read them

Spiraling Healthcare Costs

Annual U.S. health expenditures average about $10,000 per person, more than twice the rate of other industrialized nations. Put into jaw-dropping perspective, healthcare costs in America have ballooned to more than $3.3 trillion each year.

$3.3

Trillion
Total annual healthcare expenses in the U.S.

18

Million
Americans forced into extreme financial hardship by medical bills

$350

Billion
Total out-of-pocket costs in the U.S. each year

3.2

Million
people spend over $20k out-of-pocket per year

A lot of this bill is paid for by insurance companies (though your insurance premiums cover that part indirectly). However, over $350 billion dollars are spent directly by everyday Americans on out of pocket for medical costs.

Worse, about 1% of the U.S. population (3.2 million people) are hit hardest, spending over $20,000 out-of-pocket each year on healthcare. And annually, 18 million Americans are forced into bankruptcy or outright poverty as a result of medical expenses.

So if you have a medical bill that you’re struggling to pay (or one that simply seems excessive), please know that you’re not alone.

Unfortunately, these troubling trends are expected to continue, with healthcare expenditures projected to grow, on average, 5.5% per year over the next decade. By 2029, total healthcare costs will exceed $5.6 trillion.

For a wealth of information around healthcare spending, check out Peter Kaison’s Health Systems Tracker. (Warning: it’s a true data rabbit hole that could consume you for hours!)

 

How Patients Are Getting Squeezed

These are the 3 main contributors to high out-of-pocket costs:

$149 billion Hospital Price Gouging
$63 billion Incorrectly Denied Insurance Claims
$46 billion Hospital Billing “Errors”

 

Hospital Price Gouging ($149 billion):

Using data provided by the Center for Medicare and Medicaid Services (CMS), we performed a study comparing hospital costs and the amount that they charge consumers, and we found that, on average, hospitals charge more than four times (4x) their own costs for care services. Think of it like being sold a brand-new, base model Honda Civic for over $70,000.

Meanwhile, behind closed doors, insurance companies and hospitals are busy negotiating discounts off those set prices. On average, consumers are charged 3.5 times more than what an insurance company pays. So, that Honda Civic you bought for $70,000, the insurance is getting for around $20,000.

If Everything Had the Same markup as Hospitals


Starbucks
coffee
(grande)

Nike
running
shoes

iPhone X

Honda
Civic
Insurance pays:$3.00$75$750$20K
But you pay:$10.50$262$2,625$70K
 Insurance pays:But you pay:

Starbucks
coffee
(grande)
$3.00$10.50

Nike
running
shoes
$75$262

iPhone X
$750$2,625

Honda
Civic
$20K$70K

Incorrectly Denied Insurance Claims ($63 billion):

Say you have great health insurance and go to the hospital expecting your treatment to be covered by your plan. But six months later, you receive an enormous medical bill from the hospital, claiming that your insurance company denied coverage.

If this sounds familiar, it’s because it happens all too often in America — nearly 20% of in-network insurance claims end up being denied, and almost none of them are appealed.

Even worse, while hospitals tend to be good about appealing insurance denied claims (with a 63% success rate), insurance companies are far more likely to say no to consumers (only a 14% success rate).

How to explain the huge discrepancy? Insurance companies are experts at using confusing jargon and setting up just enough roadblocks (i.e. forms and other paperwork) to make you want to throw your hands in the air and give up. Unfortunately, the average consumer does just give up.

Hospital “Overbilling” and Balance Billing ($46 billion)

A NerdWallet study on the medical debt crisis suggests that nearly 13% of all billed medical costs are erroneous. Even more alarming, some estimates claim that 70% of all hospital bills contain errors. Oddly enough, these errors are almost always in favor of the hospital rather than the patient.

These errors can come from tricks that hospitals use to charge for the same thing multiple times, such as “mistakenly” charging for a service not provided, or the hospital trying to collect once from your insurance company and again from you (a practice known as balance billing).

Although at least 25 states have passed laws protecting consumers from balance billing and there are bipartisan efforts in Congress to curb this practice, we still see it happening frequently. (We’ll discuss balance billing in more detail later in this guide.)

Understand YOUR Medical Bill

Medical bills, Explanation of Benefits, and other medical-related documents are confusing — so much so that it seems as if hospitals and insurance companies are intentionally making things as difficult to decipher as possible.

Nor is it uncommon, after a trip to the hospital, to receive multiple bills — from your doctor, the ER, the lab that ran blood tests, and the ambulance, all of which may technically be separate companies billing you a separate amount for their services.

The important thing is not to be overwhelmed by all of this. Take each bill, one at a time, and break it down to understand each part. Keep reading for our tips on understanding a hospital bill.

Hospital Bill Anatomy

Hospital Bill Anatomy Example

  1. Billed Charges

    (a.k.a. ‘Gross Charges” or “Chargemaster Rate”)
    These are the “full-rack” rates that the hospital charges only to uninsured patients. The prices listed often have little bearing on reality (averaging around 4.5 times the hospital’s costs) and are never the prices that insurance companies end up paying — or prices that you should ever pay.
    We call this the “sucker” price. Hospitals charge this amount just to see if they can get away with it. But you should never pay it.

  2. Insurance Adjustments

    (a.k.a. “Contractual Amount” or “Contractual Discount”)
    This is the discount that the insurance company has pre-negotiated with the hospital. Insurance companies are wise to the hospital’s pricing schemes, so they make sure never to pay the full amount. You’ll only receive an insurance adjustment if you have insurance.

  3. Insurance Payment

    (a.k.a. “Allowed Amount”)
    The amount that the insurance company actually pays the hospital (per their pre-negotiated rate).
    Note – sometimes the Insurance Payment (allowed amount) and Insurance adjustment (Contractual Discount) will be wrapped into one number on a hospital bill. This can make things extremely confusing – which is why recommend comparing the hospital bill to your insurance companies “Explanation of Benefits” (see below).

  4. Balance

    (a.k.a. “Patient Portion”)
    This is everything that’s left over after the Insurance Adjustments and Insurance Payments have been taken out of the Billed Charges. It is the bottom-line amount that the hospital is saying you owe. If you have insurance, this can be a copay or deductible amount.
    This formula to arrive at this amount is Balance = Billed Charges – Insurance Adjustments – Insurance Payment. If the above equation doesn’t work with the numbers that the hospital presented on your bill, something may be off.

Here’s the formula that your hospital bill should follow:

balance-equation

If the above equation doesn’t work with the numbers that the hospital presented on your bill, something may be off.

Believe it or not, there’s some good news.
Some hospitals are beginning to realize that patients are more likely to pay their bills if they understand what they’re being charged for. And companies like Simplee are building software to help hospitals with this process. Making things as clear as possible is an important step to ensuring that patients stop getting ripped off.

Insurance explanation of benefits

The Explanation of Benefits (EOB) is a document from the insurance company that is supposed to make costs and coverage clear. However, like hospital bills, the EOB can initially seem designed more to confuse than to explain. But with a little work, it becomes easier to understand.

(Note that while the order of items in your EOB may be different, expect the same general information to be displayed.)

Explanation of Benefits Labeled

  1. Service/Product:

    This line item shows the type of medical service being considered in this instance. This can be a description and/or include a CPT or HCPCS code (essentially, sets of numbers that allow the insurance company to match a service provided with a set price).

  2. Your Responsibility:

    This area shows the charges that are your responsibility to pay. Compare this total responsibility to the balance (or patient portion) of your hospital bill — if they’re different, something isn’t right and you need to look into it.
    Note that your insurance company pushes costs over to the “Your Responsibility” line items in 3 ways. Your membership benefits package should detail how and if each of these applies:

    • Copay:
      Think of this like a “shared” payment for services provided. Low copays ($20-$50) are common for doctor’s visit checkups, though sometimes your copay will be a percent of your total bill (generally around 20%).
    • Deductible:
      Many insurance plans require you to cover a certain amount of expenses before their benefits kick in. This amount is the deductible. For instance, if you have a $5,000 deductible, you’ll need to pay the first $5,000 of medical bills before the insurance kicks in and pays. (However, the discount on services that the insurance company negotiated with the hospital should still apply).
    • Coinsurance:
      This is the percentage of your medical bill that you pay after you’ve met the deductible, with the rest being paid by your insurance company. If your plan has a 20% coinsurance, you pay that percentage of the bill, while your insurance covers 80%. This is a form of a copay but usually reserved for talking about paying a percent of the cost.
  3. Provider Charges:

    The provider is the healthcare provider (e.g. the hospital). The following section breaks down each part of the provider charged (a useful exercise is to match all of this information with the information on your hospital bill to make sure everything lines up properly):

    • Amount Billed:
      This is the initial amount the healthcare provider charged for your visit (a.k.a the Chargemaster Rate). It should correspond with the billed charges on your hospital bill, and will likely be significantly higher than the Allowed Amount (see below).
    • Plan Discounts:
      This is the discount off the Chargemaster Rate that your insurance company has negotiated with the hospital. This might be called the “insurance adjustment” or “contractual amount” in your hospital bill.
    • Allowed Amount / Allowed Charges:
      This is the amount that the healthcare provider is actually allowed to charge for their services (versus the Amount Billed), according to their contract with the insurance company.
  4. Insurance Coverage / Paid by Insurer:

    This is the amount of money that your insurance company paid the hospital, and should be the same amount as the “Insurance Payment” on your hospital bill. Adding this amount to Your Responsibility (how much you owe) should equal Allowed Charges.

Summary

  • Annual U.S health expenditures are spiraling out of control (over $3.3 Trillion), and millions of Americans are paying way more than they should in out-of-pocket medical bills.
  • The 3 main contributors to excessive out-of-pocket medical costs are 1) incorrectly denied insurance claims, 2) hospital price gouging, and 3) hospital billing “errors” (charging for the same service multiple times, or “mistakenly” charging for a service not provided).
  • Medical bills, Explanation of Benefits, and other medical-related documents are designed to be confusing — as if hospitals and insurance companies are intentionally making things as difficult to decipher as possible.
  • When you receive a hospital bill, you should never pay the full Billed Charges. We call this the “sucker” rate — that’s the amount the hospital charges just to see if they can get away with it.
  • Insurance companies all negotiate a discount (the contractual discount) with hospitals to come up with a new price (the allowed amount). If you have insurance, make sure you’re only paying the allowed amount. If you don’t have insurance, we’ll go over how to figure out a good price to pay in the next post.
  • Having a clear understanding of each item in your hospital bill and Explanation of Benefits is the first important step to ensuring you aren’t getting taken for a ride with erroneous charges and that you can adjust your bill to pay fair prices.