The Basics of Medical Billing

Medical billers are responsible for the timely submission of technical or professional medical claims to insurance companies including physician offices, hospitals, nursing homes, or other healthcare facilities. In a hospital setting, medical billers perform different functions than medical billers who work in other settings.

If you are interested in becoming a medical biller, here are the basics about the process of medical billing, the major payers, and how it is done.


The Basics of Health Insurance Plans

Health insurance helps patients get the medical care they require

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Understanding the basics of health insurance plans enable the medical office staff to effectively communicate with patients regarding their health insurance benefits and discuss patient account details with insurance company representatives.

Having a basic understanding of each type of insurance will minimize complications for filing claims and collecting payments. 

There are two major types of health insurance plans:

  1. Indemnity Insurance: fee-for-service plans
  2. Managed Care Plans
    1. Health Maintenance Organizations (HMOs)
    2. Preferred Provider Organizations (PPOs)
    3. Exclusive Provider Organizations (EPOs)
    4. Point-of-Service (POS) Plans

Government Health Care Programs

Medicare Application
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Medicare: Medicare is the federal program that provides health care coverage for over 40 million Americans which includes:

  • the elderly over 65 years of age
  • permanently disabled adults under 65 years of age
  • individuals that suffer from End-Stage Renal Disease (ESRD) which is permanent kidney failure requiring dialysis or a kidney transplant

Medicaid: It is important to keep in mind that Medicaid is not an insurer. Medicaid is a program that makes medical payments on behalf of the recipient.

If third party liability exists, then Medicaid is always the payor of last resort. This simply means that Medicaid always pays last where other insurance is present.

TRICARE: TRICARE, a part of the Military Health System operated by the Department of Defense (DoD), is a health care program for active, retired and Guard/Reserve service members and their families.

CHAMPVA: Although similar to TRICARE, CHAMPVA is handled by the Department of Veterans Affairs, and if a member is eligible for TRICARE they cannot be eligible by CHAMPVA. Both TRICARE and CHAMPVA are always secondary to other Health Insurance Plans excluding supplemental plans and Medicaid.


The Medical Billing Process

medical office manager

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Patient check-in: During patient check-in, patient demographic information is entered including insurance payer, policy number, and other information necessary to process a clean claim.

Insurance eligibility and verification: Because insurance information can change at any time, even for regular patients, it is important that the provider verify the member’s eligibility each and every time services are provided. This step of the process also is necessary to obtain benefit and authorization information.

Charge Entry: Charge entry is the entering of charges for services received by the patient and includes the appropriate linking of medical codes to services and procedures rendered during the patient visit.

Coding of diagnosis, procedures, ​and modifiers: Coding claims accurately lets the insurance payer know the illness or injury of the patient and the method of treatment.

Claims submission: After the claim is complete, the third-party is submitted for payment to the insurance payer. In order to submit medical claims efficiently, medical billers need to know or have access to lots of information for each insurance company.

Payment posting: Payment posting involves posting and deposit functions and the reconciliation of posting activities with deposits.


Professional Billing and Institutional Billing

health insurance

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In medical billing, there are two different types of billing—professional billing and institutional billing.

Professional Billing: Professional billing is responsible for the billing of claims generated for work performed by physicians, suppliers and other non-institutional providers for both outpatient and inpatient services. Professional charges are billed on a CMS-1500 form. The CMS-1500 is the red ink on white paper standard claim form used by physicians and suppliers for claim billing.

Institutional Billing: Institutional billing is responsible for the billing of claims generated for work performed by hospitals, skilled nursing facilities, and other institutions for outpatient and inpatient services including the use of equipment and supplies, laboratory services, radiology services, and other charges. Institutional charges are billed on a UB-04. The UB-04 is the red ink on white paper standard claim form used by institutional providers for claim billing.


Electronic Billing and Paper Claims Billing

Health Insurance Claim Form

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Paper billing is not the first choice for billing medical claims but is sometimes a necessary chore. Of course, the electronic claims process is much simpler and faster compared to the manual process of paper billing.

Most of the larger insurance payers offer electronic claim submission. You have the choice of direct billing or setting up an account with a clearinghouse.

A clearinghouse is a company that will accept all of your claims and electronically forwards them to the insurance payers for processing. They also have edits in place to check for errors in your claim to help avoid delays in billing.

The major benefit of electronic billing whether you use of clearinghouse or you direct bill is that you will speed up your claims processing. Paper billing can take up to 45 days for processing.


Medical Office Terminology

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You will want to become familiar with these terms related to health insurance, medical billing, medical coding, payment technology, and health information technology.


Medical Claims Processing

Health Insurance forms
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You will need to understand billing electronic claims with electronic versions of forms, which are accepted by Medicare, Medicaid, and most insurance companies. However, paper billing claims still exist and you will need to be familiar in processing them.​​


Medical Billing to Medicare, Medicaid, and Tricare

A health insurance form.

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These governmental payers are an important part of medical billing. You will need to become thoroughly familiar with their processes. Explore each one in-depth, as well as some of the major private insurance companies.

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Article Sources

Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial policy to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. National Conference of State Legislatures. Health insurance plan types and definitions. May 2011.

  2. US Department of Health and Human Services. What is the difference between medicare and medicaid.