When managing medical billing, handling Explanation of Benefits (EOBs) can become a hassle, especially when determining how long to keep them. EOBs are crucial as they break down the charges, payments, and any amount you owe after treatment. However, mismanagement or incorrect filing can lead to confusion during audits or claims disputes. Studies show that up to 15% of billing errors occur due to discrepancies in documentation, which highlights the importance of knowing when to keep or discard EOBs to avoid complications later.
What Is EOB In Medical Billing?
An Explanation of Benefits (EOB) in medical billing is a statement sent by an insurer to a patient. It outlines the treatment or service provided, the amount billed, the insurer’s payment, and what the patient owes. EOBs serve as a detailed breakdown, ensuring transparency in medical expenses. Providers and patients alike must review these documents carefully for accuracy to avoid billing errors and ensure fair charges.
The Critical Role of EOBs in Medical Billing
Medical billing can often feel overwhelming, especially when payments don’t match expectations or claims get denied. That’s why Explanation of Benefits (EOBs) are essential. These documents, issued by insurance companies after a service is provided, break down what was covered, what was paid, and what the patient may still owe. While not actual bills, EOBs are vital for both providers and patients in ensuring transparency, correcting errors, and improving financial outcomes.
Why EOBs Are Important for Providers
There are several reasons why EOBs are essential for providers:
Accurate Billing and Claim Reconciliation
EOBs allow providers to match billed services with insurer payments. They help identify underpayments, denials, or coding issues, which can be resolved quickly to avoid revenue loss.
Supporting Financial Performance and KPIs
For healthcare administrators, EOBs play a key role in tracking claim statuses and maintaining healthy revenue cycle metrics such as denial rates and average days in accounts receivable.
Reliable Documentation for Appeals
When claims are denied or delayed, EOBs provide the necessary documentation to file appeals effectively, helping to resolve payment issues with supporting evidence.
Patient Financial Guidance
By reviewing EOBs, providers can have more informed conversations with patients about out-of-pocket costs, set up payment plans, or guide them toward available financial assistance options.
Key Components of an Explanation of Benefits (EOB)
An Explanation of Benefits (EOB) isn’t just paperwork. It’s a breakdown of how a medical claim was processed. Understanding each part can help both patients and providers spot billing errors, ensure transparency, and manage healthcare expenses better. According to the Medical Billing Advocates of America, over 80% of medical bills contain errors, which highlights just how important it is to review EOBs carefully.
Here’s what you’ll typically find on an EOB:
- Patient Information
Includes the name of the insured, policy number, and sometimes the patient’s relationship to the policyholder.
- Provider Details
Lists the name and contact info of the doctor or facility that provided care.
- Claim Information
Outlines the date(s) of service, procedure descriptions, billing codes (like CPT or HCPCS), and a claim number for reference.
- Billed Charges
The full amount the provider billed for the services before insurance adjustments.
- Allowed Amount
The maximum the insurance company considers payable for the service. This is often based on in-network agreements and can be significantly less than the billed charge.
- Insurance Payment/Coverage
Shows how much the insurer paid. It may break this down by deductible, coinsurance, or copay amounts already applied.
- Patient Responsibility
Indicates what the patient owes, such as deductibles, copayments, coinsurance, or any service not covered. According to a KFF report, average annual deductibles exceed $1,700 for employer-based insurance, so this part is critical to review.
- Payment Summary
Provides the date and amount the insurance company paid to the provider, including any write-offs or adjustments.
- Remaining Balance
If anything is still due, this section outlines the outstanding amount, helping the patient know what to expect in their medical bill.
When to Keep EOBs and Medical Records
Properly storing EOBs and medical records ensures you’re prepared for any discrepancies or health-related needs. Here’s a simple guide on how long to keep them:
- No Issues: If there are no discrepancies, keep EOBs for one year after issuance.
- No Bill Yet: Hold onto your EOB until it matches the corresponding bill, then file both together for a year.
- Assisting with Care: For those helping with long-term or serious care, retain EOBs for health tracking and reference.
- Serious Illness: Keep EOBs for five years after the illness is resolved. If claiming a medical deduction, store them for seven years.
- General Tip: Always safely store documents that detail diagnoses, medications, surgeries, and treatments for ongoing health tracking. Shred them after one year unless needed for future reference.
How long should you keep an EOB
Generally, you can keep Explanation Of Benefits (EOBs) for at least one year, but it is recommended to hold them for up to seven years in case of audits, disputes, or tax-related issues. If the EOB relates to a medical service tied to a Health Savings Account (HSA) or tax deduction, longer retention is advised. Always double-check with your provider or accountant to be safe. You can find more details and best practices here:
The workflow of EOB
Here’s a detailed breakdown of how the EOB workflow typically unfolds:
Patient Receives Medical Services
It all starts when a patient visits a healthcare provider, such as a physician, specialist, or facility for a medical service, whether it’s a routine checkup, lab test, or treatment.
Provider Submits the Insurance Claim
After the visit, the provider compiles all necessary details about the services rendered, including CPT codes, diagnosis codes (ICD-10), and charges, and submits a claim electronically to the patient’s insurance company.
Insurance Company Reviews the Claim
The insurer reviews the claim to determine whether the services are covered under the patient’s plan. They also verify medical necessity, eligibility, provider network status, and coding accuracy. This process is often automated through claim adjudication systems.
Claim Adjudication and Decision
Based on their policy rules, the insurer calculates how much to pay the provider. They determine what part of the charge is covered, how much goes toward the patient’s deductible or coinsurance, and whether any part is denied.
EOB Is Generated
Once the claim is processed, the insurer generates an Explanation of Benefits (EOB) document. This includes:
- The total billed amount
- What was covered
- Insurance payment
- Adjustments or disallowed charges
- Patient’s remaining responsibility
- Explanation codes or notes (for denials or reductions)
EOB Sent to Provider and Patient
The EOB is sent to both the provider and the patient either by mail or electronically. This ensures that both parties are informed of what was paid and why.
Patient Receives Medical Bill (if applicable)
If the patient still owes any amount (copay, coinsurance, or uncovered services), the provider issues a bill separately. The EOB helps the patient understand how this amount was calculated.
Patient Reviews and Settles Balance
The patient reviews the EOB and the provider’s bill to ensure they match. If everything is accurate, the patient pays the balance. If there’s a discrepancy or denial, the EOB helps in initiating an appeal or dispute process.
Recordkeeping and Follow-Up
Providers may use the EOB to update patient records, post payments, and monitor claim performance. Patients are encouraged to retain their EOBs for at least 3 to 7 years in case of audits, tax deductions, or future disputes.
What to Do When You Receive an EOB as a Provider
When providers receive an Explanation of Benefits (EOB), they should follow these steps:
- Verify Payment and Coverage: Ensure the amounts covered by the insurance match what was agreed upon.
- Check for Errors: Look for discrepancies, such as coding mistakes or denied claims, and correct them if necessary.
- Review Patient Responsibility: Confirm the patient’s share (deductibles, coinsurance) and ensure the correct balance is billed.
- Document EOB Details: Retain EOBs for future reference, audits, or disputes
Final Thoughts
Managing Explanation of Benefits (EOBs) efficiently is not just a best practice; it’s essential for smooth revenue cycle management. By understanding how EOBs work, what they contain, and how long to retain them, healthcare providers can reduce billing errors, ensure timely payments, and protect themselves during audits or disputes. Staying organized with EOBs is a small effort that pays off in financial clarity and compliance.
Need Help with EOB Management or Medical Billing?
At CloudRCM, we simplify the complex. Our expert team ensures accurate claim submissions, proper EOB handling, and faster reimbursements so your focus stays on patient care, not paperwork. Whether you’re a clinic, private practice, or specialty provider, we offer tailored medical billing and RCM solutions to keep your revenue flowing smoothly.
Let CloudRCM improve your billing process. Call us today at 22(4) 231-6880 for a free consultation!
FAQs
What is the use of an EOB?
It shows what the insurance paid, what was denied, and what the patient owes—helping with transparency, billing accuracy, and recordkeeping.
Other names for EOB:
Benefits Statement Claims Summary Insurance Payment Notice
What does ERA stand for?
ERA = Electronic Remittance Advice. It’s a digital version of an EOB used for faster claim processing and payment posting
