What Is an Assignment of Benefits and How Does It Work?
Learn about Assignment of Benefits: how this mechanism allows direct payments from insurers to service providers, simplifying your claims.
An Assignment of Benefits (AOB) is a contractual agreement that transfers the rights of an insurance claim or policy benefits from a policyholder to a third party. This mechanism allows a service provider to directly bill and receive payment from an insurance company on behalf of the policyholder. It streamlines the payment process, aiming to simplify how certain services are paid for by insurance. This agreement effectively bypasses the policyholder as an intermediary for the direct transfer of funds.
Understanding the Core Concept
An Assignment of Benefits (AOB) is a legal document that enables a third party, typically a service provider, to receive payment directly from an insurance company. The main purpose of an AOB is to allow the service provider to handle the billing and collection process directly with the insurance company.
Within this arrangement, the policyholder or patient is known as the “assignor” because they are assigning their right to receive payment. The service provider or other entity receiving the payment is termed the “assignee.” The insurance company or the entity responsible for issuing the benefit payment is referred to as the “payer.”
This eliminates the need for the policyholder to pay for services upfront and then seek reimbursement from their insurer. An AOB agreement typically includes identifying information for the policyholder and the service provider, details of the specific services provided, and the relevant insurance policy information. It also contains a clear statement indicating the transfer of the right to payment from the policyholder to the service provider.
The Process of Assignment
Once an Assignment of Benefits agreement is signed, the service provider assumes responsibility for submitting the claim directly to the insurance company. The provider compiles all necessary documentation, such as service records and billing codes, and sends them to the insurer for processing.
Upon review and approval of the claim, the insurance company then issues payment directly to the service provider. If there are any remaining costs, such as deductibles, co-payments, or charges for non-covered services, the policyholder always remains responsible for these amounts. The AOB specifically streamlines the primary payment from the insurer to the provider, but it does not absolve the policyholder of their share of the financial responsibility.
Where Assignment of Benefits is Used
Assignment of Benefits agreements are commonly utilized across several industries to facilitate direct payments for services. In healthcare, AOBs are widely employed by medical providers such as doctors’ offices, hospitals, and specialized clinics. This allows them to bill health insurance companies directly for patient care, ensuring providers receive timely compensation without patients needing to pay large sums upfront.
Similarly, in the property insurance sector, AOBs are frequently used by contractors involved in repairs, such as roofing companies or water remediation services. These contractors can then directly bill homeowners’ insurance for the cost of repairs following damage. Auto insurance claims also sometimes involve AOBs, enabling auto repair shops to receive payment directly from the insurer for vehicle repairs.