EOB (Explanation of Benefits) and ERA (Electronic Remittance Advice) is the document which explains the breakdown of the services, is accompanied by the final decision made by insurance, and contains information around how payments are made against the services rendered and patient responsibility. When claim is processed by payer, first they apply an allowable amount to the claim/line as per there fee schedule agreed between provider and payer and the patient responsibility is determined such as deductibles, Co pay and Co insurance.

Contractual Obligation (CO)

Contractual obligation (CO) is the amount which is allowed by the payer upon billing them. For example, a patient goes to the provider because of fever and we billed the claim of 100 USD to the insurance company. As per that CPT code, the insurance company will determine that this much amount is payable as per the CPT code diagnosis. Although we billed 100 USD, but insurance may say that we are allowing 70 USD as per their evaluation of diagnosis. 30 USD, which is not allowed, we adjust it as “contractual” and is called contractual obligations and applied towards adjustment (CO45) and doctor/provider will get the 70 USD.

Service Not Covered By Payer

It is important to note here, once provider bills the insurance, and it is decided that even if the service is not covered by the payer, but they will still give you the allowable amount figure on the claim made.

For example, if you billed 500 USD for certain procedure. Although the service was not covered by the insurance, the insurance will tell you, as per the fee schedule, that this service should be 250 USD, and if there are deductibles left for that year, then patient will pay that from his side and there will be no payment from the insurance side. Which means when we get the EOB (Explanation of benefits) from insurance company, it’s going to reflect zero dollars having been paid to the provider for that particular service.

Patient Responsibility

Patient responsibility is assigned as per their plan (deductible – PR1) Coinsurance ( PR2) Copay (PR3)

If we take above example, once that 70 USD is allowed, then the insurance will see if there is any deductibles, Co pay or Co insurance which needs to be applied. And if there is any amount, they will ask you to collect it form the patient and they can make it as PR1, PR2 or PR3. With CO45 (contractual obligations), whenever you will be issued a remittance the insurance company will give details as per the code PR1, PR2 and PR3 to try to make you understand that how they are applying the balance amount payment. Ans if there is not any amount to be taken out from the allowable amount as per PR1, PR2 and PR3 then they will not deduct any amount and then rest of the amounts are paid via various modes.

If for example, they say 20 USD is co insurance , then insurance will pay 50 USD and 20 USD will have to be paid by the Patient and if there is no patient responsibility then complete 70- USD will be issued by the insurance to the doctor.

EOB, ERA And RA (Remittance Advice)

EOB is basically a breakdown of the patient’s benefits as it applies to the particular service that has been rendered. The EOB is the term that we on business side of the internal provider side of healthcare have adopted. It actually refers to that of the document that goes to the patient, so the patient receives a breakdown of their benefits that’s way that it has been applied to a particular service after those services have been rendered by the provider.

Also, the EOB document patient receives that breaks down the payments also goes to all different providers that they see. We have adopted this term EOB, the proper term though is Remittance advise (RA) which has the details about a payment that has been received. RA or ERA (Electronic remittance advise) version of that is really the proper term for a provider or an organization. However, the most commonly used term is EOB.

Paper EOB unfortunately does not have standard format and varies from insurance to insurance.


If you would like us to help you clarify your EOB/ERAs, Patient Responsibility. Please contact us at info@mtservices.pro