Explanation of Benefits (EOB): Meaning, How it Works and How to Read an EOB?

Explanation of Benefits (EOB) is a statement that insurance companies issue after processing a medical claim. EOB details how a claim was processed including the total amount, amount paid, copays, deductibles, and the patient’s responsibility. EOB serves as the transparent summary to ensure accuracy in medical billing and to help the healthcare providers and patients understand the financial aspects of a medical claim.

 

When a patient receives medical care, the healthcare provider submits a claim to the insurance companies as a request for payment of those services. The insurer reviews the claim based on coverage and eligibility and then determines the allowed amount for the medical service. Once completed, the insurance companies generate an EOB to explain the financial aspects of a processed claim.

 

Reading an EOB involves understanding the key aspects of the document. The explanation of benefits document typically starts with the patient and provider details, date of the services provided and procedure codes. EOBs also provide denial or reason codes to identify errors and submit appeals if necessary.

What is an EOB?

An Explanation of Benefits is a detailed statement issued by the insurance companies showing how a claim was processed. EOB in an informational document that breaks down the charges and payments made by the insurance companies and the ones that are due on patients. 

An EOB typically includes covered amount, copays, deductibles, and patient’s responsibility. EOBs sometimes include reason codes that explain the reason behind certain services being reduced or denied.

An EOB is a summary of healthcare charges that the insurance agencies send you after you receive medical care, according to Healthcare.gov.

How is EOB delivered to the patients?

The Explanation of Benefits (EOB) is delivered to the patients by insurance companies through either mail, online portal or physical mail. The healthcare providers and patients typically receive the EOB within 1-7 business days.

Who sends the EOB to the patients?

The insurance payers send EOB to the patients to explain what services were billed, how much the insurance paid, how much was denied, and the patient’s responsibility.

How do patients receive the EOB?

The patients receive Explanation of Benefits (EOB) via following methods:

1. Email

Patients receive an email with a copy of their EOB, including an attachment that allows them to access:

• Billed services
• Insurance payments 
• Patient responsibility

2. Online Patient Portal

Most healthcare organizations and insurance companies provide the patients with a secure patient portal where they can:

• View and download EOBs
• Get access to the payment history
• Track claim status
• Get transparent billing breakdowns

3. Physical Mail

Some insurance companies still use the physical mail method to send printed EOBs to the patient’s given address. The EOBs mailed physically takes longer time compared to the digital methods.

How long does it take to receive an EOB?

Explanation of Benefits (EOBs) are typically received within 1-7 business days after a claim is processed. However some insurers who have faster systems issue the EOB within 24-72 hours of claim processing.

What Key Components and Information does an EOB contain?

Explanation of Benefits (EOB) contains the following key components:

1. Patient Details

EOB contains the patients’ basic insurance information which includes name, address, member ID, group number, and date of service. The patient demographics ensure that the medical claim matched the correct insured individual.

2. Provider Information

The healthcare provider information or details are important to identify the provider or facility where the patients rendered the services. The provider credentials include doctor’s name, clinic, and their identification numbers.

3. Summary of Services Rendered

EOBs include an entire breakdown of services and treatments provided to the patients and billed to the insurance companies. The summary of services mostly includes service dates and procedure codes.

4. Total Charges for Services

EOB shows the original and exact amount that the providers bill for the services provided to the patients before any application of insurance adjustments and discounts.

5. Insurance Covered Amount

Insurance covered amount indicates the portion of the claims that insurance companies pay based on the patient’s eligibility and coverage policy.

6. Deductible Applied

Deductibles represent the amount that the patient has to pay out of their pocket before the insurance company starts to pay for the cost of their medical treatments.

7. Copayment Amount

Copayment is the fixed amount that the patient has to pay for specific services every time they visit the doctor. Copayments are set by the insurance companies at the time of service.

8. Patient Financial Responsibility

EOBs show patient financial responsibility which is the last final amount that the patients have to pay after insurance coverage, deductibles and copayments are applied.

How does EOB work?

Explanation of Benefits work in a series of steps which are:

1. Patient Receives Healthcare Services

The process begins when a patient receives healthcare services from the provider. The medical services include consultation, tests or treatment.

2. Provider Submits Claim to Insurance Payer

The healthcare provider sends a claim to the insurance payer, attaching required details like services, diagnoses, and procedure codes.

3. Insurance Reviews and Processes the Claim

The insurance company reviews the claim for coverage, eligibility, and medical necessity and compliance with the policy rules. Once verified, the insurance company processes and determines the payment.

4. Payment Determination and Adjustments are Applied

The insurance payers calculate the covered amount, apply deductibles and copayments, and make contractual adjustments (if applicable). In case of any discrepancies, the insurers deny the claim.

5. Explanation of Benefits (EOB) is Generated

The insurance companies generate an Explanation of Benefits (EOB) to summarize how the claim was processed and how the payment was calculated, paid or divided.

6. EOB is Issued to the Patient

The EOB is issued to the patients and providers either via email, online portal, or mail, explaining the amount insurance has paid and the amount that the patient owes.

7. Provider Utilizes EOB for Payment Posting 

The healthcare providers utilize the EOB to post payments, and manage denials, helping the practices maintain transparent financial records.

Why do providers use EOB in Medical Billing?

Healthcare providers use EOB in medical billing for the following reasons:

1. Determine patient financial responsibility

The providers use EOB in medical billing to determine a patient’s financial responsibility which is the final out-of-pocket cost that the patients have to pay after deductibles and copays.

1. Verify claim accuracy and completeness

EOBs help the medical billers confirm that the insurance companies have accurately processed a claim. EOB ensures that the billed services accurately match the approved payments.

1. Manage claim denials and rejections

EOB helps identify the errors in case of claim denials. EOB provides the reason codes, allowing healthcare providers to correct errors and submit appeals for maximum reimbursement.

1. Monitor claim status and progress

Explanation of Benefits in medical billing helps track the claim status, identifies whether the claim is already paid, pending, denied, or being adjusted. Proactive monitoring ensures timely resolution of the claim discrepancies. 

1. Identify and resolve underpayments

EOB helps detect discrepancies between the expected and actual payments received from insurance companies and the patients. The detected discrepancies enable the medical billing specialists to make necessary corrections or opt for the appeals to get full reimbursements.

1. Perform financial reconciliation and reporting

Medical billing experts use EOB data to perform financial reconciliation against the billed charges. Financial reporting of the records helps maintain a stable revenue cycle of the healthcare practices.

How to Read an EOB?

The best way to read an EOB step-by-step is to first review the patient and provider information to check accuracy. The services provided section ensures that the claim reflects the correct rendered medical services. 

The payment information includes total amount, paid amount and the patient’s responsibility to ensure transparency and identify any possible discrepancies. Matching the allowed amount with the billed amount helps ensure correct reimbursement. The concluding section of reason codes and adjustments helps understand the reason for denials and outstanding balances to ensure maximum reimbursement.

Beyond understanding an EOB, it is essential to understand the benefits offered by different insurance companies.

How to Look Up Cigna Benefits 

You can look up your CIgna benefits by logging into your account on Cigna website or mobile app. Navigate to the coverage section to get access to your deductibles, copayments, coinsurances, and outstanding balances. Cigna also gives you the option to download the Summary of Benefits and Coverage for a complete payment breakdown, helping you better understand the EOB.

How to read an EOB from Blue Cross Blue Shield

The subscribers of the Blue Cross Blue Shield read their EOB by finding the explanation of benefits link in the menu under the claims section.

To read an EOB from Blue Cross Blue Shield, verify the member and provider details and review the services listed to confirm that the same medical treatment was given to the patients. Understand what BCBS paid so you can identify the remaining balance (if any).

What is the Role of EOB in RCM?

Explanation of Benefits (EOB) plays a critical role in the RCM, defined by the following points:

1. Outlines Patient Responsibility

EOB clearly outlines the patient responsibility after insurance payments and deductibles to ensure timely reimbursements and stable revenue of the practice.

1. Supports Underpayment Appeals

The detailed payment breakdown in the EOBs help medical billing professionals to identify discrepancies and submit timely appeals for underpaid claims.

1. Improves Revenue Cycle Management

EOB enables the accurate tracking of claim payments and streamlining of billing processes to help improve overall revenue cycle efficiency of the healthcare practices.

1. Identifies Write-Offs

Explanation of Benefits in revenue cycle management highlights write-offs (non-recoverable amount) under contractual adjustments for transparent financial reporting.

What are EOB Codes in Medical Billing?

EOB codes in medical billing are the standardized codes used by insurance companies to explain the reason for a claim’s payment, adjustment, or denial. EOB codes help the providers understand payment decisions and take necessary actions if needed.

Following are some of the most common EOB codes in medical billing:

CARC (Claim Adjustment Reason Code)

Claim Adjustment Reason Code (CARC) explains why the amount of a particular claim was adjusted differently than it was originally billed. Some of the most common CARC codes are:

• CO-45 (Charge exceeds allowable amount)
• CO-50 (Not medically necessary)
• CO-29 (When the time limits for filing expires)
• PR-1 (Deductible amount)

RARC (Remittance Advice Remark Code)

Remittance Advice Remark Code (RARC) is used in addition to CARC code, giving supporting details and necessary instructions. RARC helps the billing team understand the corrections that need to be done or submit appeals if necessary.

Some common examples of RARC codes are:

• N130 (consultation of plan benefit documents) 
• N382 (Missing or invalid patient identifier)
• N115 (The decision was based on LCD- Local coverage determination)
• M51 (Missing or incomplete procedure codes)
• MA130 (Missing documentation)

Group Codes

Group codes identify the person responsible for the adjustment amount. Group codes classify whether the patient or provider are responsible for adjusted financials.

Following are the main group codes in medical billing:

• PR (Patient Responsibility)
• CO (Contractual Obligation)
• OA (Other Adjustment)

Denial Codes 

Denial codes indicate that the insurance company has rejected payment for a particular service or claim. Denial codes explain the reason for the claim being partially or fully denied. Medical billing experts identify with the help of denial codes, whether to correct and resubmit the claim or write-off the charge.  

Some common denial codes examples linked with CARCs and RARCs are:

• CO-16 (Claim lacking required information)
• CO-15 (Authorization required but not obtained)
• CO-197 (Precertification missing)
• CO-96 (Non-covered charges)

Frequently Asked Questions

What is the difference between EOB and COB?

 

	EOB (Explanation of Benefits)	COB (Coordination of Benefits)
Definition	Explanation of Benefits is a statement that shows how the claim was processed and the entire payment breakdown.	Coordination of Benefits is a process used to determine which insurance company pays first for a claim.
Purpose	EOB explains patient responsibility, payments, and the reasons for denial.	COB prevents duplicate payments when a patient has multiple insurances.
Sent by	Insurance companies send EOBs to the patients and healthcare providers.	Insurance companies send COB to each other for coordination and payment confirmation.

 

What is the difference between EOB and ERA?

Explanation of Benefits is an online or manual statement covering the entire claim and payment process for patients and healthcare providers.

Electronic Remittance Advice is an electronic version of a claim’s payment details posted on EHR systems and softwares.

What is the difference between EOB and EFT?

EOB is the explanation of claim and payment details in written form to promote transparency between patients and healthcare providers.

Electronic Funds Transfer (EFT) is the actual transfer of money via banks that the insurance companies send to the healthcare providers.

What is the difference between EOB and a Bill?

Explanation of Benefits shows an entire summary of the insurance processing, including the total amount, allowed amount, paid amount, deductibles, patient’s responsibility and copays.

A bill is the request for payment that is due on the patients after the insurance covers their part.

What is the difference between EOB and a Claim?

Explanation of Benefits is a document generated in result of the processed claim, explaining the payment decision to healthcare providers and the patients.

A claim is a document requesting the insurance companies for payment for the services rendered by the patients.

 

References 

 

HealthCare.gov. (n.d.). Explanation of benefits. https://www.healthcare.gov