How to Read a Remittance Advice: A Therapist’s Guide to EOBs and Insurance Terms
Short answer: When you bill insurance, the payer sends you a remittance advice (RA), or its electronic version, the ERA, explaining exactly how your claim was processed and what you will be paid. Your client gets a parallel document called an explanation of benefits (EOB), stamped “this is not a bill.” The two overlap so much that people use the terms interchangeably, but the RA is yours and the EOB is theirs. Once you can read the RA, the money side of a private practice stops being a mystery.
A quick note on names before we start. Providers receive a remittance advice; patients receive an explanation of benefits. Electronically, the RA is the ANSI 835 file your billing system ingests, often just called the ERA. You will hear all of these used loosely for “the thing the insurer sends back after a claim.” This guide says RA when it means your copy and EOB when it means the client’s, and flags where it matters.
Basic insurance terms you need to know
A handful of terms carry most of the meaning on any RA or EOB. Get these and the rest falls into place.
The premium is what the client pays monthly to have coverage, and it never appears on an RA. The deductible is what the client must pay out of pocket before the plan starts paying, and it resets, usually every January. A copay is a flat per-visit amount. Coinsurance is a percentage of the cost the client owes after the deductible is met, often something like 20 percent. The out-of-pocket maximum is the ceiling on what the client pays in a year, after which the plan covers 100 percent.
Two terms do the heavy lifting on the RA itself. The allowed amount is the maximum the plan recognizes for a service, which for an in-network provider is your contracted rate. The contractual adjustment, or write-off, is the difference between what you billed and that allowed amount. If you are in network, you agreed to eat that difference and you cannot bill the client for it. That single rule prevents most billing mistakes therapists make.
Terms at a glance
| Term | What it means |
|---|---|
| Remittance advice (RA) | The document the payer sends you, the provider, showing how a claim was processed and what you will be paid. |
| ERA (835) | The electronic version of the RA that your billing system reads. |
| Explanation of benefits (EOB) | The client’s copy of the same information, marked “this is not a bill.” |
| Billed amount | What you charged for the service. |
| Allowed amount | The most the plan recognizes for a service. In network, this is your contracted rate. |
| Contractual adjustment (write-off) | Billed minus allowed. In network, you absorb it and cannot bill the client. |
| Deductible | What the client pays out of pocket before the plan starts paying. Usually resets in January. |
| Copay | A flat per-visit amount the client owes. |
| Coinsurance | A percentage of the allowed amount the client owes after the deductible is met. |
| Out-of-pocket maximum | The yearly ceiling on the client’s cost sharing. After it, the plan pays 100 percent. |
| Paid amount | What the plan actually paid you. |
| Patient responsibility | The share the client owes: deductible, copay, coinsurance, and anything not covered. |
| CO (contractual obligation) | A group code meaning you write it off. Do not bill the client. |
| PR (patient responsibility) | A group code meaning you can bill the client. |
| CARC | Claim adjustment reason code, the reason for an adjustment. Common ones: PR-1 deductible, PR-2 coinsurance, PR-3 copay, CO-45 exceeds the allowed amount. |
| RARC | Remittance advice remark code, extra detail that usually explains a denial. |
| CPT code | The procedure code for the service, such as 90837 or 90834. |
| Superbill | An itemized receipt you give out-of-network clients to submit to their plan for reimbursement. |
| In-network / out-of-network | Whether you hold a contract with the plan. It sets the allowed amount and the write-off rules. |
| EFT | Electronic funds transfer, how payers deposit your payment. The RA lists the EFT or check number. |
The mental model for reading an RA
Every RA tells one small story per claim line, and it always runs in the same order. You billed a charge. The plan reduced it to the allowed amount. It applied part of the allowed amount to the client’s cost share, the deductible, copay, or coinsurance. It paid you the rest. Read every line as: billed, then allowed, then who owes what.
Concretely, the fields you are looking for on each line are the date of service, the CPT code (90837, 90834, and so on), the billed amount, the allowed amount, the adjustments, the amount applied to patient responsibility, and the amount paid to you. Down at the bottom you will find the check or EFT number and the payment date, which is what you reconcile against your deposits.
Example RA
Say you billed 90837 at 200 dollars. The RA shows an allowed amount of 120 dollars. That means an 80 dollar contractual adjustment, which you write off and cannot bill the client. The client is still early in the year and has not met their deductible, so the full 120 dollars is applied to the deductible and marked as patient responsibility. The plan pays you 0 dollars this time. Your action: collect 120 dollars from the client, write off the 80, and move on. If instead the deductible were already met and the client had 20 percent coinsurance, the plan would pay you 96 dollars, and you would collect 24 dollars from the client.
The codes to watch for
RAs are covered in codes, but two families tell you almost everything.
Group codes answer the only question that changes your behavior: do you bill the client, or do you write it off? CO means Contractual Obligation. That amount is your write-off and you may not bill the client. PR means Patient Responsibility. That amount you can and should collect from the client. If you learn nothing else, learn CO versus PR.
Claim Adjustment Reason Codes, or CARCs, give the specific reason. A few show up constantly in a therapy practice: PR-1 is the deductible, PR-2 is coinsurance, PR-3 is a copay, and CO-45 means the charge exceeded the allowed amount, which is your ordinary write-off. Longer alphanumeric RARC remark codes add detail, usually on denials, and are worth reading when a line pays zero for a reason you did not expect.
Out-of-network and superbills
If you are out of network, the flow is different and you may never see an RA at all. You collect your full fee from the client, then give them a superbill, an itemized receipt with the diagnosis and CPT codes. The client submits it to their plan, and the plan sends the client an EOB and reimburses them directly at their out-of-network benefit level. In that model, reading the EOB is something you help your client do, not something you process. If a cash-pay or out-of-network practice is your world, the mechanics of superbills and compliance live in our guide to compliance for cash-pay therapists.
Mistakes to avoid
Three errors account for most of the trouble. The first is billing a client for a CO amount, which is a contract violation for in-network providers. The second is not reconciling: the RA tells you what was paid, and if you never compare it against what you expected, underpayments and lost claims slip by. The third is treating a denial as final. Denials are more common than most clinicians assume. A KFF analysis found that marketplace insurers denied nearly one in five in-network claims in 2023, and a first denial is often just the start of the process, not the end of it. Many denials, especially those with a remark code about missing information or authorization, are appealable, and the RA is where you catch them early enough to act.
Reading a remittance advice is a small skill with an outsized payoff. It is the difference between running your practice and hoping the numbers work out. Keep the CO-versus-PR rule at the front of your mind, read every line as billed then allowed then who owes what, and the rest is just practice.
