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Medical billing and coding · Study tool

Medical billing basics: the terms, with the numbers

What coinsurance is, and 44 more billing and insurance terms with plain definitions and worked examples that share one made-up plan. Trace a claim from the front desk to the last dollar, then try 20 practice questions. Free, and for study only.

  • 44 terms explained
  • Worked examples
  • Trace a claim
  • No sign-up needed

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1 · The one everyone asks

What is coinsurance?

Coinsurance is the percentage of the allowed amount a patient pays for a covered service after the deductible is met. The plan pays the rest. A copay is different: a fixed dollar amount for a service, such as $30 for an office visit.

Copay

$30

A set amount per service. The same whether the visit was billed at $120 or $250. Plans set different copays for an office visit, a specialist, a lab test or a prescription.

Coinsurance

20%

A share of the allowed amount, so it rises with the cost of the service. It starts after the deductible and stops at the out-of-pocket maximum.

Worked example

Sample plan: $1500 deductible, 20% coinsurance, $5000 out-of-pocket maximum. The plan’s allowed amount for a service is $100. Pick where the patient is in the year.

Patient pays

$20

Plan pays

$80

Now coinsurance applies: the patient pays 20% of the allowed amount and the plan pays the other 80%.

For study only. Every number on this page is made up to show the arithmetic. The page explains the words; it does not look at any real plan or bill.

2 · The glossary

44 billing and insurance terms, with worked examples

Type a word, or pick a group. Every example uses the same made-up sample plan and the same made-up office visit, so the numbers line up from one term to the next.

All 44 terms

What the patient pays

Premium
The amount paid to the insurer every month to keep the plan. It is paid whether or not any care is used, and it never counts toward the deductible or the out-of-pocket maximum. Plans with a lower premium usually have higher copays, coinsurance or deductibles, and the other way round.
Example. The sample plan’s premium is $380 a month, so $4560 a year before a single visit. None of it reduces the $1500 deductible.
Deductible
The amount the patient pays for covered services each plan year before the plan starts paying its share. After it is met, the patient usually pays only a copay or coinsurance and the plan pays the rest. Many plans pay for certain preventive services (a yearly checkup, for example) before the deductible is met.
Example. The sample plan’s deductible is $1500. The first claim of the year has an allowed amount of $160, so the patient owes the whole $160 and $1340 of the deductible remains.
Copaymentalso: copay
A fixed dollar amount the patient pays for a covered service, such as $30 for an office visit. The same plan can set different copays for different services (an office visit, a specialist, a lab test, a prescription). Whether a copay applies before the deductible is met depends on how the plan is designed.
Example. The sample plan has a $30 primary-care copay. Three office visits in a year cost the patient 3 × $30 = $90 in copays, whatever the visits were billed at.
Coinsurance
The percentage of the allowed amount the patient pays for a covered service after the deductible has been met. The plan pays the remaining percentage. Before the deductible is met, the patient pays the full allowed amount instead.
Example. Allowed amount $100, coinsurance 20%. Deductible already met: the patient pays $20 and the plan pays $80. Deductible not met: the patient pays the whole $100, which also counts toward the deductible.
Out-of-pocket maximumalso: out-of-pocket limit
The most the patient pays for covered, in-network care in a plan year. Deductible, copays and coinsurance all count toward it; once it is reached, the plan pays 100% of covered benefits for the rest of the year. Premiums, services the plan does not cover, out-of-network care and balance-billed amounts above the allowed amount do not count.
Example. A hospital stay has an allowed amount of $40,000. On the sample plan the arithmetic says $1500 deductible + 20% of the remaining $38,500 ($7,700) = $9,200, but the out-of-pocket maximum caps the patient at $5000. The plan pays $35,000.
Allowed amountalso: eligible expense, payment allowance, negotiated rate
The most a plan will pay for a covered service. Everything on the claim is worked out from this figure, not from the provider’s charge. If the provider charges more than the allowed amount, an in-network provider writes the difference off; an out-of-network provider may bill the patient for it.
Example. The office charges $250 for a visit. The plan’s allowed amount for that code is $160. The plan’s share and the patient’s share are both calculated from $160.
Contractual adjustmentalso: write-off
The difference between the provider’s charge and the allowed amount, which an in-network provider agreed in its contract not to collect from anyone. It is written off the patient’s account when the payment is posted.
Example. Charge $250, allowed $160: the $90 difference is a contractual adjustment. Nobody pays it.
Balance billing
When a provider bills the patient for the difference between its charge and the plan’s allowed amount. A preferred (in-network) provider may not balance bill for covered services; an out-of-network provider may.
Example. An out-of-network charge is $100 and the plan’s allowed amount is $70. The provider may bill the patient for the remaining $30, on top of any coinsurance.
Patient responsibility
The part of a claim the patient owes after the plan has paid its share: deductible, copay and coinsurance amounts, plus anything the plan does not cover. On a remittance it appears with group code PR.
Example. On the sample claim the patient responsibility is $70: a $30 copay on the visit plus $40 applied to the deductible for the EKG and the lab panel.

Plans and networks

Network
The facilities, providers and suppliers a plan has contracted with to provide care to its members. A provider in the network is called in-network, participating or preferred; one without a contract is out-of-network.
In-network provideralso: preferred provider, participating provider
A provider with a contract to treat the plan’s members at a discount. The contract sets the allowed amounts and stops the provider from balance billing for covered services. Some plans have tiers of preferred providers with different cost sharing.
Example. An in-network visit: charge $250, allowed $160, plan pays $130, patient pays a $30 copay, and the $90 difference is written off.
Out-of-network provider
A provider with no contract with the plan. Out-of-network coinsurance is a (usually higher) percentage of the allowed amount, some plans pay nothing out of network, and the provider may balance bill. Out-of-network spending usually does not count toward the in-network out-of-pocket maximum.
Example. Out-of-network coinsurance 40%, allowed amount $100, charge $150: the patient pays $40 coinsurance and may be billed the $50 balance as well, so $90 in all.
Prior authorizationalso: preauthorization, precertification, prior approval
A decision by the plan, made before a service is given, that the service, treatment plan, drug or equipment is medically necessary. Plans require it for certain services (except in an emergency), and a claim for a service that needed it and did not get it is usually denied. An authorization is not a promise that the plan will pay the claim.
Example. An imaging study is scheduled for March 20. The office sends the plan the diagnosis code and the procedure code on March 5; the plan returns an authorization number good for a window of dates. The number goes on the claim.
Referral
A written order from the patient’s primary care provider to see a specialist or get certain services. Many HMO plans require one before they will pay for care from anyone but the primary care provider.
Medically necessary
Services or supplies needed to diagnose or treat an illness, injury, condition, disease or its symptoms, and that meet accepted standards of medicine. Payers check the diagnosis code on the claim against the procedure code to decide this, which is why the right diagnosis has to be linked to each service.
Coordination of benefitsalso: COB, primary and secondary payer
When a patient is covered by more than one plan, coordination-of-benefits rules decide which plan pays first (the primary payer) and which pays next (the secondary payer). The claim goes to the primary payer first; the secondary payer looks at what is left.
Example. A patient has two plans. The primary plan allows $200 and pays $160, leaving $40. The claim then goes to the secondary plan with the primary remittance attached, and the secondary plan decides how much of the $40 it covers.
Subscriber and dependentalso: policyholder, member
The subscriber is the person who holds the insurance policy (through an employer or bought directly). A dependent, such as a spouse or child, is covered under the subscriber’s policy. The insurance card shows the member ID and, for employer plans, a group number; the claim names both the patient and the subscriber.
Guarantor
The person legally responsible for paying the patient’s bill. For an adult patient it is usually the patient; for a child it is a parent or guardian. The guarantor is not always the subscriber, though the two are often the same person. Statements are addressed to the guarantor.
Example. A 9-year-old is the patient, the mother holds the policy (subscriber) and the father is listed as the guarantor. The statement for the child’s $40 balance goes to the father.

The claim, start to finish

Claim
A request for payment that a provider (or the patient) sends to the insurer for services the plan is believed to cover. It carries who was treated, who treated them, where, when, the diagnosis codes, the procedure codes and the charges.
CMS-1500 and UB-04also: 837P and 837I
The two standard claim formats. Professional claims (physicians, therapists, labs and other non-institutional providers) use the CMS-1500 paper form or its electronic version, the 837P. Institutional claims (hospitals, skilled nursing facilities, home health, hospice) use the UB-04 (also called the CMS-1450) or the electronic 837I. Nearly all claims are sent electronically.
Superbillalso: encounter form, charge ticket
The form, on paper or in the practice software, on which the provider marks the diagnosis and the services for a visit. Charge entry starts from it: each service becomes a claim line with its code, its charge from the fee schedule and a pointer to the diagnosis that justifies it.
Fee schedule
A list of amounts by procedure code. A practice has a charge fee schedule (what it bills); each payer has its own allowed-amount fee schedule (what it pays). The gap between the two is the contractual adjustment.
Clearinghouse
A service between the provider and the payers. It checks (“scrubs”) each claim for missing or invalid data, converts it to the standard electronic format each payer needs, sends it, and returns acceptance or rejection reports. Under HIPAA a health care clearinghouse is itself a covered entity.
Clean claim
A claim that can be processed without the payer having to ask the provider or anyone else for more information: every required field present and valid. Payers set payment deadlines for clean claims; one rule for Medicaid (42 CFR 447.45) requires 90% of clean claims paid within 30 days and 99% within 90 days.
Adjudication
The payer’s processing of a claim: checking eligibility on the date of service, coverage, medical necessity, authorization, timely filing and coding edits, then deciding each line’s allowed amount, the plan’s payment and the patient’s share, or denying it. The result comes back on the remittance advice.
Rejection vs. denialalso: returned as unprocessable
A rejected claim never got into the payer’s processing: a required field was missing or invalid (a wrong member ID, a missing NPI, an invalid diagnosis code), so the clearinghouse or the payer’s front end returned it. There is nothing to appeal; fix it and resubmit. A denied claim was processed and judged not payable (not covered, no authorization, not medically necessary, filed late). A denial is a decision, so the answers are a corrected claim or an appeal within the payer’s deadline.
Example. The sample claim first goes out with a member ID that is one digit short and is rejected the same day. Resent with the right ID, it is accepted and processed. If it had gone out without a required authorization, it would have been processed and denied instead.
Remittance advicealso: RA, ERA, 835
The payer’s notice to the provider explaining the payment and every adjustment made during adjudication, claim by claim and line by line. The electronic version is the HIPAA 835 transaction (ERA). Each adjustment carries a group code (CO contractual obligation, PR patient responsibility, OA other) and a claim adjustment reason code (CARC), often with a remark code (RARC) that adds detail.
Example. Sample claim, line 99213: billed $180, allowed $110, paid $80, CO-45 $70 (charge exceeds the fee schedule), PR-3 $30 (copay). Lines 93000 and 80053: paid $0, PR-1 (deductible) $25 and $15.
Explanation of benefitsalso: EOB
The statement the plan sends the patient after it processes a claim. It is not a bill. It shows the provider’s charges, the allowed charges, what the plan paid and what the patient may owe, with remark codes explaining the differences. The bill itself comes from the provider.
Example. The patient’s EOB for the sample claim reads: provider charges $300, allowed $150, paid by insurer $80, what you owe $70. The $30 copay was already paid at check-in, so the provider’s statement asks for $40.
Payment posting
Recording the payer’s payment and adjustments from the remittance on the patient’s account, line by line, then moving what is left to the patient (or to a secondary payer). Posting is where a remittance’s reason codes turn into work: a denial becomes a follow-up task, a contractual adjustment is written off.
Timely filing
The payer’s deadline for receiving a claim, counted from the date of service. Each payer sets its own; Medicare’s, for example, is one calendar year after the date of service. A claim received after the deadline is denied, and the exceptions to the deadline are narrow and set by the payer. A claim returned as unprocessable (rejected) is generally not treated as received, so the clock keeps running.
Example. Date of service March 3. A payer with a one-year limit must receive the claim by March 3 of the next year; a payer with a 90-day limit by June 1.
Appeal
A request that the plan review a decision that denies a benefit or a payment. It goes in writing, within the payer’s window, with the records that support the claim. Appeals are for denials; a rejection is simply corrected and resent.
Date of servicealso: DOS
The day the service was given. It decides which plan year, which deductible and which fee schedule apply, and it starts the timely filing clock. Eligibility is checked for that date, not for the day the claim is sent.

Codes and modifiers

ICD-10-CMalso: diagnosis codes
The code set for diagnoses: the reason for the visit, the “why”. Each code is 3 to 7 characters and starts with a letter. It is the US clinical modification of the WHO’s ICD-10, maintained by the national health statistics center, and a new edition takes effect every October 1. Every claim line points to at least one diagnosis code.
Example. I10 is essential (primary) hypertension. E11.9 is type 2 diabetes without complications. The sample claim carries I10.
ICD-10-PCS
The 7-character procedure code set used only for hospital inpatient claims, built from body system, root operation, body part, approach and device. It is updated October 1 each year, with a smaller April release. Outpatient and physician services use CPT and HCPCS instead.
CPTalso: HCPCS Level I
The 5-digit numeric codes for services and procedures: the “what was done”. Maintained by a physicians’ association and updated every January. Office and other outpatient visits use the evaluation-and-management (E/M) codes 99202–99205 for new patients and 99211–99215 for established patients, chosen by medical decision making or time.
Example. 99213 is an established-patient office visit with low-complexity decision making. 93000 is a 12-lead EKG with interpretation and report. 80053 is a comprehensive metabolic panel.
HCPCS Level II
Alphanumeric codes, one letter followed by four digits, for products, supplies and services that CPT does not cover: ambulance transport, durable medical equipment, drugs given in the office, and certain screening services billed to public programs. Maintained by CMS and updated quarterly.
Example. G0121 is a screening colonoscopy for a person not at high risk. J codes are injectable drugs, E codes are durable medical equipment, A codes are supplies and ambulance services.
Modifiers
Two characters added to a CPT or HCPCS code to say that the service was changed in some way without changing its definition: a separate E/M visit on the day of a procedure (25), a distinct procedure not normally reported with another (59, or the more specific XE separate encounter, XS separate structure, XP separate practitioner, XU unusual non-overlapping service), the professional (26) or technical (TC) part of a test, a bilateral procedure (50), the side (LT, RT), a discontinued procedure (53), or a screening colonoscopy that became diagnostic (PT). Modifier 59 is never put on an E/M code, and no modifier may be used just to get around a coding edit.
Example. A patient comes for a scheduled minor skin procedure and is also seen for a new, unrelated problem. The procedure code is reported alone; the office visit code carries modifier 25.
Bundling and coding editsalso: NCCI edits, unbundling, upcoding
Many code pairs are not paid together on the same day because one is part of the other (bundled). A procedure-to-procedure edit with indicator 0 means the pair is never paid together; indicator 1 means it can be, with a modifier, when the documentation supports a distinct service. Billing the parts of a bundled service separately is unbundling; billing a higher level of service than the record supports is upcoding. Both are compliance problems, not billing strategies.
Place of service codesalso: POS
Two-digit codes on professional claims that say where the service happened. Payers use them to apply the right rules and rates. Common ones: 11 office, 21 inpatient hospital, 22 on-campus outpatient hospital, 23 hospital emergency room, 24 ambulatory surgical center, 10 telehealth in the patient’s home.

People, privacy and IDs

PHIalso: protected health information
Individually identifiable health information that a covered entity or its business associate holds or sends in any form: paper, electronic or spoken. It includes demographic details tied to a person’s health, their care or the payment for it, when they identify the person or could reasonably be used to. Name, address, birth date and Social Security number are the obvious identifiers; the HIPAA privacy rule lists 18 that must be removed for data to count as de-identified. Employment records an employer keeps and school records covered by FERPA are not PHI.
Example. A claim line with a name, a date of service and a diagnosis code is PHI, and so is a voicemail reading a balance to the wrong number. “42 patients had a flu shot in March” is not: nobody can be identified from it.
Covered entity and business associate
The organizations HIPAA applies to directly: health plans, health care clearinghouses, and providers who send any health information electronically in a standard transaction (which a claim is). A business associate is an outside person or company that handles PHI on a covered entity’s behalf, such as a billing service, and must sign an agreement promising to protect it.
NPIalso: National Provider Identifier
The 10-digit identifier every HIPAA-covered provider must have and use on claims. It carries no information about the provider (no location, no specialty), it never changes, and it is assigned free through NPPES. Type 1 is for an individual (one per person, for life); Type 2 is for an organization such as a group practice or hospital, which can hold more than one. Having an NPI does not by itself mean a provider is licensed, enrolled with a plan or going to be paid.
Example. A physician has a Type 1 NPI. The group she works for has a Type 2 NPI. On the sample claim her NPI is the rendering provider and the group’s NPI is the billing provider.
Taxonomy codealso: provider taxonomy, specialty code
A 10-character alphanumeric code that describes a provider’s type, classification and area of specialization. It is chosen when applying for an NPI and appears in the public NPI Registry. The code set is maintained by the National Uniform Claim Committee (NUCC) in three levels (provider grouping, classification, specialization) and is published twice a year, in January and July. Payers may compare it with the services billed.
Example. 207Q00000X is Family Medicine and 363L00000X is Nurse Practitioner. To look one up, search the NPI Registry by name or NPI number; the provider’s taxonomy is on the record. The full list is on the NUCC site.
Payeralso: third-party payer
Whoever pays the claim: a private health plan, a public program, or the patient when there is no coverage (self-pay). “Third-party payer” means the payer is neither the patient (first party) nor the provider (second party).

3 · Trace a claim

One office visit, from the front desk to the last dollar

A made-up patient on the sample plan ($1500 deductible, $30 copay, 20% coinsurance) comes in on March 3 for high blood pressure and gets an EKG and a lab panel. Follow the claim through all 10 steps and watch the numbers change.

Step 1 of 10

Front desk

Scheduling and registration

  • Collect the patient’s demographics, a copy of the insurance card (payer, member ID, group number, subscriber), and the guarantor.
  • Run an eligibility check for the date of service: is the plan active, what is the copay, how much of the deductible is left, is a referral or authorization needed?

The sample claim now

Eligibility response for March 3: coverage active, $30 primary-care copay, $1340 of the $1500 deductible remaining, no referral needed.

Watch for: A common cause of rejections starts here: a member ID copied wrong, a name that does not match the card, an old insurance on file.

The sample claim, line by line

Diagnosis I10, essential hypertension. Place of service 11 (Office). Charges and allowed amounts are invented.

CodeServiceBilledAllowedPlan paidPatient
99213Office visit, established patient, low-complexity decision making$180$110$80$30copay (PR-3)
93000EKG, at least 12 leads, with interpretation and report$75$25$0$25deductible (PR-1)
80053Comprehensive metabolic panel$45$15$0$15deductible (PR-1)
Totals$300$150$80$70

Contractual adjustment: $300 billed − $150 allowed = $150, written off (CO-45). Patient responsibility $70, of which the $30 copay was collected at check-in.

Codes students meet first

The handful of codes that come up in every first billing course, with what they mean. Descriptors are reworded; the fee schedule look-up in the sources has the exact text for any code.

Lab panels

  • 80053 — Comprehensive metabolic panel (CMP)14 tests: albumin, alkaline phosphatase, ALT, AST, total bilirubin, calcium, carbon dioxide, chloride, creatinine, glucose, potassium, total protein, sodium, BUN.
  • 80048 — Basic metabolic panel (BMP)8 tests: calcium, carbon dioxide, chloride, creatinine, glucose, potassium, sodium, BUN. The CMP is the BMP plus six liver and protein tests.

EKG

  • 93000 — Routine EKG with at least 12 leads, tracing plus interpretation and reportThe complete service, billed when the office does both parts.
  • 93005 — Tracing only, without interpretation and report
  • 93010 — Interpretation and report only

Echocardiogram

  • 93306 — Complete transthoracic echocardiogram with spectral and color-flow DopplerThe usual full study of the heart’s chambers, valves and blood flow.
  • 93307 — Complete transthoracic echocardiogram without Doppler
  • 93308 — Limited or follow-up transthoracic echocardiogram

Colonoscopy

  • 45378 — Diagnostic colonoscopy, flexible, with or without specimen collection by brushing or washingThe base code when the reason is a symptom or a finding.
  • 45380 — Colonoscopy with biopsy
  • 45385 — Colonoscopy with removal of a polyp or lesion by snare
  • G0121 — Screening colonoscopy, person not at high risk (HCPCS)G0105 is the screening code for a person at high risk. When a screening turns into a diagnostic or therapeutic procedure, the CPT code is reported with modifier PT.

Office visits

  • 99202–99205 — New patient office or other outpatient visit, four levels
  • 99211–99215 — Established patient office or other outpatient visit, five levelsLevel chosen by medical decision making or total time on the date of the visit.

4 · Practice questions

20 practice questions

Cost sharing, networks, the claim's life, codes and modifiers, multiple choice, one at a time. Every answer is explained, and your score is free: no sign-up needed.

Question 1 of 20

Coinsurance is

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Sources

Where the facts come from

Every definition and code on this page is reworded from one of these public sources. The examples and their numbers are made up. Check anything important against your program’s materials and the payer’s own rules.

Questions

Common questions

The percentage of the allowed amount a patient pays for a covered service after the deductible has been met, 20% for example. The plan pays the rest. With a $100 allowed amount and 20% coinsurance, the patient pays $20 once the deductible is met, and the full $100 before it is.

A copay is a fixed dollar amount per service, such as $30 for an office visit, and it is the same whatever the visit was billed at. Coinsurance is a percentage of the allowed amount, so it rises with the cost of the service. Many plans use both: a copay for office visits and prescriptions, coinsurance for everything else after the deductible.

Protected health information: health information that identifies a person, or could, held or sent by a health plan, a clearinghouse, a provider or one of their business associates, in any form. A name with a diagnosis is PHI; a count of visits with no identifiers is not. The HIPAA privacy rule lists 18 identifiers that must be removed before data counts as de-identified.

The National Provider Identifier, a 10-digit number every HIPAA-covered provider must use on claims. It carries no information about the provider, never changes, and is assigned through NPPES. Type 1 is for an individual and Type 2 for an organization. The public NPI Registry shows any provider’s NPI and taxonomy code.

A 10-character code for a provider’s type, classification and specialization, chosen when applying for the NPI. The code set is maintained by the National Uniform Claim Committee in three levels and published twice a year, in January and July. To look one up, search the NPI Registry by name or NPI; the taxonomy is on the record.

The person legally responsible for paying the patient’s bill. For an adult patient it is usually the patient; for a child it is a parent or guardian. The guarantor is not always the subscriber who holds the insurance policy, though they are often the same person. Statements are addressed to the guarantor.

No. It is a study aid for billing and coding, medical office and health information students. Every number on it is made up to show the arithmetic, and it does not look at any real plan, claim or bill. Your plan documents and the provider’s billing office are the places that can answer about a real bill.

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