Health insurance 101 – How to read your Explanation of Benefits ( EOB)

Many people find their Explanation of Benefits statements difficult to understand or confuse them with a bill.
Different insurers use different terms and formats, so you should direct specific questions to your insurance company. But here’s a general guide for how to make sense of your EOB:

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Health insurance 101 – A glossary of common insurance terms

Sixth in a series of posts to help you better understand health insurance and how recent changes affect you.

Confused about health insurance? You’re not alone.

The health care industry is a highly regulated, complex delivery system with multiple stakeholders, including you as a consumer and the insurance plan that helps you pay for care. And in an era when costs are rising, insurance plan benefit designs are changing and health care reform heralds big changes, it’s not easy staying informed.

To help you make better sense of the intricacies of your insurance plan, we’ve put together a reference glossary and explanation of health insurance basics.

What is a health insurance premium?

A premium is the amount that an individual policy-holder or, if you have coverage through your job, your employer pays to a health plan each month to purchase health coverage.

What’s a deductible?

A deductible is a fixed amount that a subscriber (the person who is covered by the insurance plan) is required to pay each year toward his or her medical services before the insurance company will begin to pay for services.

For example, if the insurance company specifies a $250 annual deductible, the subscriber must pay for medical services until that amount reaches $250 for the year. Then, the insurance company will begin to pay a portion of the costs.

The use of deductibles reduces the cost of premiums by sharing some of the risk with subscribers. It also helps predict the overall expected costs for a group.

What is a copayment?

A copayment is either a fixed dollar amount or a percentage paid by the subscriber for medical services. Once a subscriber pays an agreed-upon copayment, the insurance carrier pays the balance. For example, the subscriber pays 25 percent of the total cost for services, and the insurance carrier pays the remaining 75 percent. The use of copayments reduces overall expenses for insured groups because the subscriber is sharing costs. It also gives the subscriber an incentive to use fewer services, one factor contributing to health care cost inflation.

What is coinsurance?

Coinsurance is a provision by which an insured individual shares in the cost of certain expenses; sometimes the term is used interchangeably with copayment. At Blue Cross Blue Shield of Michigan, we use the term copayment to designate flat dollar amounts, while coinsurance refers to percentage amounts. For example, if a person is responsible for a percentage of a particular charge, it is considered coinsurance.

What is an Explanation of Benefits, or EOB?

An EOB is a statement mailed to a subscriber or insured individual explaining how and why a health insurance claim was or was not paid. There are various types of EOBs, but all have the same general format and contain the same claim information. An EOB is not a bill. Your care provider (doctor, hospital, clinic, etc.) will send you a bill.

You can also find a comprehensive glossary of health care terms on our corporate website. Health insurance 101: Rising health care costs
Health insurance 101: Costs influence plan designs
Health insurance 101: Consumer-directed plans
Health insurance 101: Rewarding wellness
Health insurance 101: Health savings accounts