A provider sends a health plan a bill for $1,500. Most people assume the plan pays it, minus a small copay. In reality the member pays $600, the plan pays $400, and $500 is never paid by anyone. The process that works this out is called claim adjudication, and it's where a payer earns or loses its margin.
The worked example
The member has $500 of their deductible still to meet and 20% coinsurance. The provider is in network.
- Billed: $1,500. The provider's own price for the service.
- Allowed: $1,000. The price agreed in the network contract. The $500 difference is a contract discount; neither the plan nor the member pays it.
- Deductible: $500 to the member. Until the deductible is met, the plan pays nothing.
- Coinsurance: 20% of the remaining $500. The member pays $100, the plan pays $400.
Result: member $600, plan $400, discount $500. Change any one rule — an out-of-network provider, a deductible already met, a copay instead of coinsurance — and the split changes completely. That is why benefit configuration is one of the highest-risk areas on any payer project.
What happens before the money is worked out
The claim arrives as an X12 837, usually through a clearinghouse. Before any pricing, the payer runs a series of checks:
- File and claim acceptance. A 999 confirms the file is well formed; a 277CA says whether each claim was accepted.
- Member eligibility. Was this person covered on the date of service, on this plan?
- Provider and network. Is the provider known, credentialed and in network for this plan?
- Benefits. Is the service covered under this member's plan at all?
- Authorisation. If the service needed prior approval, does the claim carry a matching authorisation — same dates, units, codes and provider?
- Coding and clinical edits. Do the diagnosis and procedure codes make sense together, and within limits?
- Coordination of benefits. If the member has other insurance, which plan pays first?
Only then does the claim get priced and the member's share applied. Authorisation matching, coding edits and coordination of benefits are where most payment disputes start.
How the answer goes back out
The provider gets paid by EFT and receives an 835 remittance explaining exactly what was paid on each claim line and why anything was not, using standard adjustment codes (CARC and RARC). The member gets an explanation of benefits (EOB). Finance, the EOB and the 835 all come from the same adjudication result — so if the result is wrong, all three are wrong together.
What QA should check
- Boundary cases on the deductible — not met, partly met, met exactly, and met in the middle of this claim.
- Accumulators — after each claim, the deductible and out-of-pocket totals must move by exactly the member's share. Test two claims processed on the same day.
- In-network versus out-of-network pricing for the same service.
- Every expected adjustment code on the 835, not just the paid amount.
- Reversals and adjustments — when a claim is reprocessed, the original payment and the accumulators must be backed out correctly.
Work through one example by hand before you test the system. If you can't predict the split yourself, you can't tell whether the system got it right.