How to Understand Medical and Billing Codes img

How to Understand Medical and Billing Codes

One of the great mysteries in the medical world is medical and billing codes. Most patients (and some professionals) have no idea what the codes mean. As a result, numerous billing errors occur, costing individuals and companies thousands of dollars in medical expenses. 

The best way to avoid billing errors is to consult a health insurance broker. An independent agent can go over your medical bill or health coverage report and help you understand what the codes mean and what the provider has charged you for, as well as what the insurance company covered. Until then, read below to learn more about medical and billing codes.

Why Do Medical and Insurance Providers Use Billing Codes?

While billing codes can be confusing, they are also quite valuable. There are several reasons why medical professionals use billing codes:

  • Codes create consistency and accuracy in medical billing.
  • Codes are a more efficient method of billing.
  • Codes are a ‘universal language’ in the medical world.
  • Codes are easier to understand than medical jargon.

EOBs, insurance claim forms, and medical bills from your healthcare provider or hospital can be difficult to understand because of the use of codes to describe the services performed and your diagnosis. These codes are sometimes used instead of plain English, although most health plans use both codes and written descriptions of the services included on EOBs, so you’ll likely see both. Either way, it’s useful for you to learn about these codes, especially if you have one or more chronic health problems.

Three Types of Medical Coding Systems

Health plans, medical billing companies, and healthcare providers use three different coding systems. These codes were developed to make sure that there is a consistent and reliable way for health insurance companies to process claims from healthcare providers and pay for health services.

1. Current Procedural Terminology

Current Procedural Terminology (CPT) codes are used by healthcare providers to describe the services they provide. CPT codes are developed and updated by the American Medical Association (AMA). The AMA site allows you to search for a code or the name of a procedure.

2. Healthcare Common Procedure Coding System

The Healthcare Common Procedure Coding System (HCPCS) is the coding system used by Medicare. These codes are used to identify products, supplies, and services that aren’t covered under CPT codes, including ambulance services and durable medical equipment (wheelchairs, crutches, hospital beds, etc.), prosthetics, orthotics, and supplies that are used outside your healthcare provider’s office.

3. International Classification of Diseases

The third system of coding is the International Classification of Diseases or ICD codes. These codes identify your health condition or diagnosis. ICD codes are often used in combination with the CPT codes to make sure that your health condition and the services you received match. 

How Medical Codes Are Used

Medical codes affect how much you will pay for medical care. For that reason, offices, hospitals, and other medical facilities are strict about how coding is done. They usually hire professional medical coders or coding services to make sure services are coded correctly. There are several ways that professionals use coding.

Initial Coding

Your healthcare provider or their office staff will usually start the coding process. If they use paper forms, they will list which CPT codes apply to your visit. If they use an electronic health record (EHR) during your visit, it will be noted in that system. Systems usually allow staff to call up codes based on the service name.

Verification and Submission

After you leave the office, medical coders and billers examine your records. They make sure the correct codes are assigned. The billing department then submits a list of your services to your insurer or payer. Most healthcare providers store and transfer this information digitally. Some may still be done by mail or fax.

Claim Processing

Your health plan or payer then uses the codes to process the claim. They decide how much to pay your healthcare provider and how much you may owe.


Health insurance companies and government officials use coding data to predict future health care costs for the patients in their systems. State and federal government analysts use coding data to track trends in medical care. This information helps to plan and budget for Medicare and Medicaid.

Contact Insurance Enterprise for Premier Health Insurance

If you have questions about group or individual health insurance and need health insurance quotes, contact Insurance Enterprise at 888-350-6605. Speak to a licensed agent and find out more about how you can get an affordable health insurance plan.