Explanation of Benefits: An Essential Part of Managing Healthcare Costs

Medical care doesn’t end when a patient walks out of the doctor’s office or hospital. The next step in the healthcare journey often arrives in the mail or on an online portal. 

An Explanation of Benefits (EOB) plays a crucial role in helping employees understand how their claim was processed. Issued by the insurance company, it provides details about the costs for medical services and explains what portion of those services will be paid by the insurance plan and what part the patient is responsible for paying.

The EOB reflects a series of complex decisions made behind the scenes, where coding, provider contracts, benefit structures, and eligibility all come together. As a result, an EOB often shows multiple costs and dollar amounts that can be confusing for some employees. Some may even mistake the EOB as a bill. This confusion can lead to unnecessary stress, billing errors, or even overpayment.

The claims process involves several key steps: once an employee receives care, their provider submits a claim to the insurance company using standardized medical codes that describe the diagnosis and the services provided. The insurer then reviews that claim based on the provider’s contract and the employee’s health plan. This process determines how much the plan and the employee will pay. It also accounts for plan details such as deductibles, copayments, coinsurance, and whether services are covered or excluded.

The result: an Explanation of Benefits

An EOB includes several key pieces of information, such as:

• The name of the person who holds the policy and, if applicable, the name of the dependent who received care.
• The name of the provider who administered the care. This could be a doctor, a specialist, a hospital or a clinic.
• The health insurance ID or policy number, the claim number, and the date of the service. If care lasted for more than one day, a range may be given.
• The type of service or medical equipment received or used. For example, office visits, laboratory testing, x-rays, etc.
• The amount billed. This is the cost that the provider billed before the insurance company made adjustments.
• The allowed amount. What the insurance company determined is the fair, contracted rate for that service.
• Plan discount or adjustment. The portion of the charge that the provider agrees to waive based on the contracted rate with the insurance plan.
• Amount paid by insurance. How much of the billed amount was paid directly to the provider.
• Employee responsibility. The remaining amount to be paid to the provider. This might include deductible, copay or coinsurance amounts.

The employee’s responsibility is an essential part of the EOB and should be carefully analyzed by the employee. When the provider’s bill arrives, the amounts should be matched to the amount shown in the EOB. If it doesn’t match, the EOB becomes a critical tool to dispute errors, clarify charges, or confirm whether a payment has already been made.

Sometimes, a provider may send a bill before the insurance company has fully processed the claim. In these cases, it’s important that the employee waits to receive their EOB before making any payments. Once both documents are available, they should be reviewed side by side to ensure consistency.

If there are discrepancies, such as duplicate charges, unexpected amounts, or services that haven’t been processed yet, the employee should contact the provider’s billing office or their insurance carrier for clarification. Taking this step helps prevent overpayment and prevents billing errors that can turn into collection notices.

Back to the basics.

Let’s say your employee undergoes an appendectomy — an urgent and fairly routine procedure that comes with a cascade of services: emergency room, surgery, anesthesia, imaging, lab work, and post-op care. Each of those services may be billed separately by different providers. That means multiple EOBs will follow.

For example, if the total billed charges from the ER, hospital, imaging, and surgery add up to $30,000 and their health plan includes a $1,500 deductible, 80/20 coinsurance, a $250 ER copay, and a $4,000 out-of-pocket maximum, here’s how the breakdown could appear on the EOB:

• Amount billed: $30,000
• Allowed amount: $26,000
• Plan discount or adjustment: -$4,000
• ER copay: $250
• Deductible applied: $1,500
• Coinsurance (20%): $2,250
• Amount paid by insurance: $22,000
• Employee responsibility: $4,000

If the provider later sends a bill for the full $30,000, or any amount above the $4,000 shown on the EOB, the employee should not pay. The EOB clearly outlines the allowed charges, what the plan paid, and the patient’s actual responsibility.

Ensuring accuracy in healthcare costs.

An Explanation of Benefits is an important document that helps confirm whether the provider billed accurately, the insurance plan paid according to the coverage terms, and if the remaining balance is correct. Especially in cases where claims involve multiple services or providers, the EOB offers transparency and helps prevent unnecessary or inaccurate payments.

If you — or your employees — have questions about their EOB or their benefits program, don’t hesitate to reach out. We’re here to listen.

Cost figures, coverage details, and plan design elements presented in this blog are for illustrative purposes only and do not reflect any specific insurance policy or provider. Actual costs will vary based on your organization’s health plan, the insurance carrier, provider contracts, and the specifics of each medical situation. Employers and employees should refer to their official plan documents or speak with their broker or benefits consultant for guidance if needed.