February 22, 2025

Insurance Adjustments

John Dang M.D.

What are insurance adjustments? You commonly see these on your medical bill statements.

Healthcare organizations (hospitals, clinics) sign contracts with insurance companies and agree to a pre specified payment amount for each type of service rendered. These organizations are then considered “In Network” for patients of these insurance companies. Typically rates are adjusted and updated on a yearly basis.

When patients go to in network healthcare organizations for service, these healthcare organizations are free to bill whatever amount they like; however, because of contractual obligations, they are paid the contractual rate. Note, this only applies if the healthcare organization bills at or above contractual rates; if the healthcare organization bills below the contractual rate, the health insurance company will not pay above billed rate. As such, healthcare organizations are incentivized to bill as high for services as possible, knowing that these bills will be adjusted down to contractual rates anyways.

Of note, insurance adjustments only apply to In Network healthcare organizations. Patients and their insurance companies are responsible for 100% of billed amounts for Out of Network healthcare organizations. 

Becky goes to an in network urgent care for a cough. Her health insurance plan is such that she has 10% co-insurance.

The urgent care bills her insurance for $500. The contractual rate for such a visit is actually $300. Therefore the insurance adjustment is $200 (meaning no one pays for this).

Therefore, the total amount due is $300, of which the insurance pays $270. Becky gets a bill with some large and scary numbers, but she only owes $30.

Becky doesn’t have insurance, and goes to urgent care for a cough. She gets charged $500. She is now responsible for the entirety of the $500.
‍
In the context of healthcare insurance, healthcare insurances (Medicare included) will only pay for tests and procedures only if the right ICD 10 codes are applied. This applies to the smallest lab tests and up to the largest surgical procedures and hospital stays.

For example, for patients with commercial insurance, routine lab tests ordered for Preventive Healthcare (Z00.00) typically would be covered by insurance.