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Medicare 101

How Medicare Billing Works

Christian Worstell

by Christian Worstell | Published October 25, 2023 | Reviewed by John Krahnert

Health insurance costs can be confusing, and Medicare’s billing system is no exception. Below is a step-by-step guide that illustrates how Medicare billing works from before a patient gets sick or injured until the time they receive a bill in the mail.

Doctor with clipboard

1. Medicare sets a value for everything it covers.

Every product and service covered by Medicare is given a value based on what Medicare decides it’s worth. This standard is used across the board and is known as the “Medicare-approved amount.”

For example, if Medicare determines that a particular type of X-ray is worth $100, then Medicare will pay health care providers $100 for that service regardless of what the provider would normally charge a non-Medicare patient.

2. A health care provider must declare whether or not they accept Medicare assignment.

“Accepting assignment” means that a doctor or health care provider has agreed to accept the Medicare-approved amount as full payment for their services. The overwhelming majority of health care providers in the United States accept Medicare assignment.

If a provider chooses not to accept assignment, they may still treat Medicare patients but will be allowed to charge up to 15 percent more for their product or service. These are known as “excess charges.”

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3. The provider sends a bill to Medicare that identifies the services rendered to the patient.

After a health care provider treats a Medicare patient, the provider sends a bill to Medicare that itemizes the services received by the beneficiary. Medicare then sends payment to the provider equal to the Medicare-approved amount for each of those services.

4. The patient receives their share of the bill.

Some services are covered in full by Medicare and the patient is left with no financial responsibility. But most products and services require some cost sharing between patient and provider.This cost sharing can come in the form of either coinsurance or copayments.

  • Coinsurance is generally measured in a percentage. For example, the patient is responsible for 20 percent of the Medicare-approved amount while Medicare covers the remaining 80 percent of the cost.

  • A copayment is typically a flat-fee that is charged to the patient. For example, a patient may be required to make a $20 copayment to visit a doctor.

Some of Medicare’s out-of-pocket expenses are covered partially or in full by Medicare Supplement Insurance. These are optional plans that may be purchased from private insurance companies to help cover some copayments, deductibles, coinsurance and other Medicare out-of-pocket costs.

To learn more about Medicare and how it works, read through some of our guides below.


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