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newSchoolWorks.com › VoTechWorks › Health & Personal Services › Medical Billing & Coding › Insurance & Claims in Medical Billing › Lesson 8
HLT-MEDI67-05 · Lesson 8 · 12 clock hours · lab

Explanation of Benefits, Remittance Advice, and Payment Posting

Objective. Students will interpret EOB and ERA documents to post payments, adjustments, and patient balances accurately for a set of ten transactions with no mathematical errors.

⚠ Pending professional review

This lesson, its worked examples and its practice questions has not yet been verified by a licensed clinician in the field or by a certification or approval body. It is a study draft and may contain errors. Do not use it to make decisions about any patient or medication. Always follow your instructor, your supervising professional, and current official references and regulations.

VoTechWorks program approval and accreditation are still in progress. Credentials are issued only by the certifying bodies named in each program, after their own exams.

What Is an Explanation of Benefits?

An Explanation of Benefits (EOB) is a document sent by a payer—an insurance company or government program—to a provider and sometimes to the patient after a claim is processed. The EOB is not a bill. It explains what the payer paid, what was adjusted off, and what portion (if any) remains the patient's responsibility. Understanding every field on an EOB is one of the most important skills in medical billing, because errors in reading it flow directly into errors in the patient account.

Key fields on a standard EOB include:

What Is an Electronic Remittance Advice (ERA)?

An Electronic Remittance Advice (ERA) is the electronic version of the EOB. It is transmitted as an ANSI X12 835 transaction set—often called simply an 835—directly into practice management software. The 835 carries the same financial information as a paper EOB but in a structured data format that allows automated posting. Even when software posts payments automatically, a coder or biller must understand the 835 to catch errors and correct denials.

Within an 835, Claim Adjustment Reason Codes (CARCs) explain why a payment was reduced or denied. Remittance Advice Remark Codes (RARCs) provide additional detail. For example, a CARC indicating a contractual obligation means the provider agreed to accept a lower rate; that difference is a write-off, not a billable amount. Your denial reason code reference list is an essential tool at all times—never guess at a code's meaning.

Payment Posting: The Core Process

Payment posting is the act of recording what a payer paid on a claim into the patient's account ledger. Accurate posting keeps accounts receivable (A/R) correct and ensures patients are billed only what they legitimately owe.

Step-by-step payment posting process:

1. Match the remittance to the claim. Verify the patient name, date of service, and claim number on the EOB or ERA match the open claim in the ledger.

2. Record the payer payment. Enter the exact dollar amount the payer sent.

3. Apply the contractual adjustment. Calculate billed amount minus allowed amount and write off that difference. This brings the account balance to the allowed amount.

4. Apply secondary adjustments if applicable. If a secondary payer is involved, post that payment before calculating final patient balance.

5. Calculate patient responsibility. Allowed amount minus payer payment equals the patient's balance (copay + coinsurance + deductible as shown on the EOB).

6. Review denial codes. If a line item was denied, note the CARC, determine whether the claim can be corrected and resubmitted, and flag it for the billing team rather than closing the account.

7. Balance the batch. The sum of all payments posted must equal the total check or EFT deposit amount. This is called balancing the day's posting.

Contractual Adjustments and Patient Balance: The Critical Math

For in-network providers, the contractual adjustment is the amount the provider has agreed to write off. It must never be billed to the patient. Billing a patient for a contractual adjustment is a compliance violation and may constitute fraud, waste, or abuse under payer contracts and federal regulations.

The fundamental payment-posting equation is:

> Billed Amount − Contractual Adjustment = Allowed Amount

> Allowed Amount − Payer Payment = Patient Responsibility

Always verify your math using a calculator. A single arithmetic error can cause the patient to be over- or under-billed, which creates both a financial and a patient safety concern—patients who receive inflated bills may delay care, and patients under-billed may create audit exposure for the practice.

Denials and Next Steps

Not every claim results in payment. A denial means the payer will not pay, at least not without additional action. Common denial reasons include:

When you encounter a denial during posting, do not simply write off the balance. Document the CARC, check whether the denial is correctable, and route the account for appeal or resubmission within the payer's timely filing limit. Missing that deadline may mean the practice loses the payment permanently.

Patient Privacy and Safety Reminders

All EOB and ERA documents contain Protected Health Information (PHI) under HIPAA. Handle all lab materials as you would real patient records: do not photograph, share, or leave them unattended. De-identified sample documents used in this lab are for training only and must be returned or shredded per your program's policy. Accurate billing also protects patients—incorrect balances can harm patients financially and erode trust in the healthcare system.

Key terms10

Explanation of Benefits (EOB)A document from a payer to a provider and/or patient explaining how a claim was processed, including amounts billed, allowed, paid, adjusted, and the patient's remaining responsibility.
Electronic Remittance Advice (ERA) / 835The electronic version of the EOB, transmitted as an ANSI X12 835 transaction set, used to post payments automatically into practice management systems.
Contractual AdjustmentThe difference between the billed amount and the payer's allowed amount that an in-network provider agrees to write off; it may not be billed to the patient.
Allowed AmountThe maximum dollar amount a payer will recognize for a covered service under the provider's contract; equal to billed amount minus the contractual adjustment.
Claim Adjustment Reason Code (CARC)A standardized numeric code included on an EOB or ERA that explains why a payer reduced or denied payment on a claim or line item.
Remittance Advice Remark Code (RARC)A supplemental code used alongside a CARC to provide additional explanation for a payment reduction, denial, or other adjustment on a remittance.
Payment PostingThe process of recording payer payments, contractual adjustments, and patient balances into the patient account ledger so that accounts receivable reflect accurate, current balances.
Patient ResponsibilityThe portion of a claim the patient owes after the payer has paid its share; may include a copay, deductible, and/or coinsurance as defined by the patient's insurance plan.
Accounts Receivable (A/R)Money owed to the provider for services rendered; accurate payment posting keeps A/R current and supports timely collection.
Timely Filing LimitThe deadline set by a payer within which a corrected or resubmitted claim must be received; missing this deadline typically results in a permanent denial.

Worked examples4

1. A provider billed $350.00 for an office visit. The payer's allowed amount is $210.00. The payer paid $168.00. The patient's coinsurance is 20% of the allowed amount. Calculate the contractual adjustment, the payer payment, and the patient balance.
  1. Step 1 – Contractual adjustment: Billed amount minus allowed amount = $350.00 − $210.00 = $140.00 write-off.
  2. Step 2 – Confirm payer payment: 80% of allowed amount = $210.00 × 0.80 = $168.00. This matches the EOB.
  3. Step 3 – Patient coinsurance: 20% of allowed amount = $210.00 × 0.20 = $42.00.
  4. Step 4 – Verify: Payer payment + patient responsibility = $168.00 + $42.00 = $210.00 = allowed amount. ✓
  5. Step 5 – Post to ledger: Billed $350.00 | Contractual adj −$140.00 | Insurance paid −$168.00 | Patient balance $42.00.
Answer: Contractual adjustment = $140.00; Payer payment = $168.00; Patient balance = $42.00.
2. A claim has two line items. Line 1: billed $120.00, allowed $90.00, payer paid $90.00, patient copay $0 (copay already collected at visit). Line 2: billed $200.00, allowed $150.00, payer paid $120.00, patient coinsurance 20% of allowed. Calculate total contractual adjustments and total patient balance for Line 2.
  1. Step 1 – Line 1 contractual adjustment: $120.00 − $90.00 = $30.00. Patient balance Line 1: $0 (copay collected).
  2. Step 2 – Line 2 contractual adjustment: $200.00 − $150.00 = $50.00.
  3. Step 3 – Line 2 patient coinsurance: $150.00 × 0.20 = $30.00.
  4. Step 4 – Line 2 verify: $120.00 (payer) + $30.00 (patient) = $150.00 = allowed amount. ✓
  5. Step 5 – Total contractual adjustments: $30.00 + $50.00 = $80.00. Total patient balance: $0 + $30.00 = $30.00.
  6. Step 6 – Post both lines to ledger separately, then sum for the claim totals.
Answer: Total contractual adjustments = $80.00; Total patient balance = $30.00.
3. An ERA shows a claim denied with a CARC indicating duplicate claim. The original claim paid $95.00. The biller posted the duplicate ERA payment of $95.00 before catching the denial code. What is the posting error, and how should it be corrected?
  1. Step 1 – Identify the error: The biller posted a $95.00 payment on a denied claim, overstating the payer payment by $95.00 and understating the balance owed.
  2. Step 2 – Do not close the account. Look up the CARC on the denial reason code reference list to confirm 'duplicate claim' meaning.
  3. Step 3 – Reverse the erroneous $95.00 posting in the ledger (enter a reversal or void transaction, per your practice management system's protocol).
  4. Step 4 – Restore the account balance to what it was before the incorrect posting.
  5. Step 5 – Route the denied claim for review: determine whether a duplicate was actually submitted in error or whether it is a payer processing error, then appeal or correct as appropriate within the timely filing limit.
  6. Step 6 – Document all actions taken in the account notes.
Answer: The error is posting a payment on a denied line item. Correct by reversing the $95.00 posting, restoring the open balance, and routing the claim for denial review/appeal.
4. At end of day, a biller posts payments from one ERA batch. The ERA lists total payments of $1,840.00. After posting all claims, the biller's ledger shows payments totaling $1,750.00. The EFT deposit to the practice bank account is $1,840.00. What is the discrepancy, and what must the biller do?
  1. Step 1 – Calculate the discrepancy: $1,840.00 (ERA total) − $1,750.00 (posted total) = $90.00 unaccounted.
  2. Step 2 – The batch does not balance. A balanced batch requires posted payments = ERA total = deposit amount.
  3. Step 3 – Review each posted line item against the ERA line by line to find the missing or incorrectly entered $90.00.
  4. Step 4 – Correct any entry errors found, re-total the posted column, and confirm it equals $1,840.00.
  5. Step 5 – Do not close the batch or move to the next day's work until the batch balances. Unbalanced batches cause A/R errors that are difficult to trace later.
Answer: Discrepancy = $90.00. The biller must locate the posting error line by line, correct it, and confirm posted total equals $1,840.00 before closing the batch.
In class: Lecture and guided example: instructor walks through a sample Explanation of Benefits and 835 Electronic Remittance Advice, identifying payment, contractual adjustment, denial reason codes, and patient responsibility fields · Payment posting lab: students receive a packet of ten EOB/ERA documents and post each transaction to a patient ledger spreadsheet, calculating contractual adjustments and remaining patient balances · Self-audit: students use an answer key to check their own ledger postings, calculate their accuracy rate, and flag any discrepancy for instructor review
Materials: Sample EOB documents (de-identified), sample 835 ERA transaction sets, patient ledger spreadsheet template, calculator, denial reason code reference list (CARC/RARC), answer key
Check: Completed patient ledger for all ten transactions; pass = 100% mathematical accuracy on payment and adjustment amounts and at least 90% accuracy on patient balance calculations

Practice check8

Answer each question, then check it. Nothing is recorded; this is your own practice.

Revenue Cycle Management / Payment Posting
1. On an EOB for an in-network provider, the billed amount is $400.00 and the allowed amount is $260.00. What is the contractual adjustment?
Revenue Cycle Management / Payment Posting
2. A patient has a 20% coinsurance on a claim with an allowed amount of $180.00. The payer paid its 80% share. What is the patient's coinsurance balance?
Compliance / Billing Ethics
3. An in-network provider bills $500.00 for a procedure. The payer's allowed amount is $300.00 and the payer pays $240.00. The patient's coinsurance is 20%. Which of the following correctly states what may be billed to the patient?
Denial Management / Claims Processing
4. A Claim Adjustment Reason Code (CARC) on an ERA indicates the service was not covered under the patient's plan. What is the appropriate next action?
Revenue Cycle Management / Payment Posting
5. What is the primary purpose of balancing a payment posting batch at the end of the day?
Health Information Technology / Electronic Transactions
6. Which document is transmitted in ANSI X12 835 format and enables automated payment posting in practice management software?
Revenue Cycle Management / Compliance
7. A biller posts a $95.00 payment on a claim that the ERA actually denied as a duplicate. What is the most serious consequence of leaving this posting error uncorrected?
Compliance / Billing Ethics
8. A provider participating in a managed care network bills $750.00. The allowed amount is $500.00. After the payer pays $400.00, the remaining $100.00 is the patient's deductible. A biller then attempts to collect the $250.00 contractual adjustment from the patient. Which of the following best describes this action?
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