Advanced vs. Arrears Billing: What is the Difference?

When it comes to insurance companies billing small business for employee benefits plans there are typically two ways you might be billed – in advance or in arrears. Both types are used and can affect cash flow, coverage timing, and employee deductions. While both group and individual plans can be billed in advance or in arrears, this article focuses on these billing types as they pertain to group insurance, specifically employee benefits plans like health, dental, vision, disability, life, and supplemental insurance plans.

Advanced billing means you are billed by the insurance company before the coverage period starts. Think of this type of billing like rent, you pay January’s rent by January 1 to ensure you have secured your place to live for that month. Carriers use this method because it protects them from covering claims without funding.

Advanced billing methods are common in medical, dental, vision, group life, and sometimes disability plans.

Arrears billing is the opposite of advanced billing; you are billed for and pay for coverage after the coverage period. Think of this type of billing more like your electric bill, the electric company bills you at the end of the period and charges you for the electricity you have used during that period. Plans that have more flexible enrollment or coverage that may frequently change often utilize this type of billing.

Arrears billing methods are common with supplemental benefits like accident, cancer, critical illness, and sometimes disability plans.

Knowing your insurance carrier method matters because it can assist in avoiding cash flow issues as well as if deductions may need to be held in advance or during the coverage period.