What is ERA in medical billing?

ERA stands for electronic remittance advice. It is the electronic version of a paper explanation of payment: for each claim you submit, it shows the amount billed, the amount the health plan paid, and the reasons for any difference (AMA, Getting started with electronic remittance advice). HIPAA made the ASC X12N 835 transaction the standard format for it, and a health plan must offer ERA in that format when you request it (AMA).

This guide is for you if you bill insurance yourself. It covers how an ERA differs from an EOB and an EFT, what the 835 contains, how to read the codes, and how to start receiving ERAs.

What is the difference between an ERA and an EOB?

An ERA is the electronic payment explanation a health plan sends your practice, built for computer-to-computer processing (AMA). An explanation of benefits (EOB) is the summary written for the patient. CMS describes an EOB as a summary that helps the patient understand how much the plan covers and what they will owe when you bill them (CMS, How to read an explanation of benefits). The AMA describes an ERA as the electronic version of a paper EOB (AMA).

Sources: AMA, CMS EOB guide, CMS, EFT and ERA basics.

What is the difference between ERA and EFT?

An EFT moves the money. An ERA explains it. The health plan sends the EFT over the Automated Clearing House (ACH) Network from its bank account to yours, and health plans can use your banking information only to deposit funds. The ERA supplies the details of the payment, including adjustments for contract agreements, secondary health plans, patient benefit coverage, copays and coinsurance, capitation payments, and IRS withholding (CMS, EFT and ERA basics).

A trace number links the two. Health plans must place the 835 TRN segment in Field 3 of the EFT addenda record, and it matches the TRN in the ERA that describes the payment. Matching them is called reassociation, and it lets you auto-post payments to accounts receivable (CMS, EFT and ERA basics). Operating rules for EFT and ERA became mandatory on January 1, 2014 (CMS, Operating Rules: EFT and Remittance Advice).

What is the 835 transaction?

The 835 is the ASC X12 Health Care Claim Payment/Advice transaction, the HIPAA standard for ERA. HHS adopted version 005010X221 as the standard, and it applies to all HIPAA-covered entities (CMS, EFT and ERA basics). An 835 file has three levels of data: a header, a detail section, and a trailer (AMA).

• Header: the trace number (the check or EFT number), total payment amount, payment method and date, and the payer and payee names and IDs.
• Detail: one entry per claim, with the claim status, submitted charge, claim payment, and the patient's responsibility, then service lines with the paid procedure codes and units, and the reduction and denial reasons.
• Trailer: provider-level adjustments such as IRS levies and overpayment recovery.

Your practice management software or clearinghouse reads this file. The AMA notes that each vendor displays an ERA differently and that the ERA is designed for computer-to-computer processing, with the software posting the information to your accounts automatically (AMA).

What do CARC and RARC codes mean on an ERA?

A claim adjustment reason code (CARC) states why a payment was reduced or increased from the amount you billed. A remittance advice remark code (RARC) adds detail to a CARC or shares information about the remittance. Health plans must use these standard codes, and only these, to communicate adjustment information in the ERA (CMS, EFT and ERA basics; AMA).

Each adjustment on an ERA carries three layers. A claim adjustment group code (CAGC) says who is responsible for the amount. The CARC says why. A RARC, when present, says more. The AMA gives an example: when a CARC denies a claim for needing additional information, a RARC identifies what information is needed (AMA).

Source: X12 claim adjustment group codes. The AMA notes that the group code identifies, for example, when an amount is the patient's responsibility or a contractual obligation you should write off (AMA).

Source: X12 claim adjustment reason codes. These are examples from a longer list. Look up the current wording for any code on your ERA there, since X12 maintains the lists and reviews requests three times a year (CMS, Operating Rules: EFT and Remittance Advice).

A RARC example is M51, "Missing/incomplete/invalid procedure code(s)" (X12 remittance advice remark codes). Some RARCs are alerts that are never tied to a specific adjustment (X12).

CAQH CORE operating rules limit which code combinations a payer can use. The Phase III CORE 360 rule defines four claim reduction or denial business scenarios: additional documentation required, missing or invalid data on the claim, billed service not covered, and benefit not separately payable (AMA). When a denial arrives, the reason code on the ERA is the starting point for the appeal described in the clinician's guide to insurance claim appeals.

How do you start receiving ERAs?

Enroll for ERA with each health plan you work with. CMS encourages enrolling for both EFT and ERA, and you need your practice's tax identification number (TIN) and your clinicians' National Provider Identifiers (NPIs) to begin (CMS, Operating Rules: EFT and Remittance Advice). For Medicare, every Medicare Administrative Contractor's website has enrollment directions (CMS, Remittance advice FAQ fact sheet).

Then confirm that the software you bill from can read an 835. If you submit through a clearinghouse, ask which ERAs it receives on your behalf. The benefits the AMA lists are automated payment posting, less paper handling, easier secondary claims, and staff time freed for denial management and appeals (AMA).

Can you receive ERAs in Practice Better?

Yes, through the Claim.MD integration. It covers running eligibility checks, submitting claims, tracking claim statuses, automatically receiving ERAs, and invoicing clients for unpaid portions (Claim.MD integration). Without a Claim.MD account, you can still set up an insurance billing profile, export claims as CMS-1500 forms, and send superbills, but claims are submitted outside Practice Better and you cannot track client ERAs in the platform (billing and insurance).

For the wider billing workflow, see the ultimate guide to billing insurance, and for the form that starts a claim, the CMS-1500 claim form guide.

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Key takeaways

• An ERA is the electronic explanation of a claim payment, sent to your practice in the HIPAA-standard 835 format, and a health plan must offer it on request.
• An EOB is the patient-facing summary of what the plan covers and what the patient will owe. An EFT is the payment itself, sent over the ACH Network.
• A matching trace number (the TRN segment) links each EFT deposit to its ERA, which is what lets software auto-post payments.
• Each adjustment on an ERA carries a group code (who owes it), a CARC (why), and sometimes a RARC (more detail). Plans must use these standard codes.
• Enroll for ERA and EFT with each health plan. In Practice Better, ERAs arrive automatically when Claim.MD is connected.

Receive ERAs where your claims already live

If you bill insurance through Claim.MD, you can receive ERAs in the same system that holds your clients and claims.

Start a free trial of Practice Better to manage claims, ERAs through Claim.MD, and client invoicing together.

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