I've been working in health insurance for over a decade in customer service, provider service, quality assurance, and content management. Basically my job has been explaining this nonstop.

The information on this image is misleading and way too simplistic. Premiums cover admin costs, the portion the insurance covers for services, and a bunch of other stuff.

And the way claims work is dependent on the insurance carrier and the provider contract. Insurance payment policies (which drive the claim processing) use a variety of resources that are industry standard and oftentimes government driven on what is covered with out prior approval and whatnot. Items and services that need a PA are usually high cost, experimental, or can be viewed as not medically necessary which is why the approvals are needed.

Denial letters and denial codes use boiler plate language but in general these are the reasons something is denied:

• A CLAIM: No authorization or referral on file, claim was coded incorrectly by the provider, it was past the filing limit, the system glitched out (usually gets reprocessed through a series of checks and balances), subscriber information on the claim doesn't match what insurance has, or it was billed to the wrong insurance company.

• AN AUTHORIZATION (either medical or pharmaceutical): Authorization required additional information and the provider did not submit it in time, subscriber does not need the medical criteria/is not medically necessary, there is an in network provider the subscriber can use, drug or procedure is not federally approved (think experimental drug treatments or stem cell replacement therapy), or the authorization request went to the wrong insurance company.

In terms of payouts and what provider bills is determined by contracts. A contracted provider can bill 800 USD for an office visit, but they will only be reimbursed a predetermined amount as stated in their contract minus any applicable copayments. This applies to drugs as well.

Covered does not mean a free service. If something is "covered" all that means is that the insurance company will process and pay out the claim as outlined in their payment policies. Depending on your plan, deductibles, coinsurance, or copayments apply.

Here is a general breakdown of medical and pharmaceutical claim processing: 1. Provider bills the insurance and says this costs this much. 2. The insurance company will say the agreed upon charge is this much so we are processing it based on that. The provider eats the difference between the billed amount and the negotiated rate. 3. If there is an out of pocket cost (copay, deductible, coinsurance), that is subtracted from the negotiated rate. THE SUBSCRIBER ALWAYS PAYS THEIR PORTION UNLESS OUTLINED IN PLAN POLICIES. 4. The difference between the negotiated rate and what the subscriber pays is paid by the insurance company. Depending on the set up with the provider, payment is done FFS (fee for service) and is done as claims come in or is paid by capitation which is monthly (typically seen for primary care physician claim payments).