All About Allowed Amounts
Have you ever looked at your reimbursement, only to find that your insurance payer did not pay you back as much as you’d hoped? It might be because the allowed amount, or insurance amount allowed, was lower than what you paid out of pocket.
We’ll explain terms like “out of pocket” and “health insurance allowed amount” soon. For now, know that although allowed amounts don’t cause issues with in-network care, they can add up to some pretty big insurance expenses out-of-network. This is because allowed amounts fix your insurance reimbursement at a rate that may be lower than your out-of-network provider’s rate. Insurance companies rarely explain this difference in rates, so we want to help. Read up on allowed amounts to better understand this insurance secret!
What is Allowed Amount in medical billing?
An allowed amount is the maximum amount your health insurance plan will pay for a covered service. It is also sometimes called an “eligible expense,” “negotiated rate,” or “payment allowance.” The purpose of an allowed amount is to standardize the costs of medical services so you don’t get price-gouged.
If you use an in-network provider, your insurer has already negotiated the allowed amount in advance. In-network providers are contracted with insurance payers, and part of that contract dictates that they must accept insurance payments as payments in full. That means that if the provider bills more than the allowed amount they will still only get paid that amount. Even if they bill more than the allowed amount, because they are an in-network provider, this doesn’t impact you at all! You won’t have to make up any cost differences.
However, things may be different when you see an out-of-network (OON) provider. OON providers don’t have a contract with your insurer, so they can charge whatever amount they want. If they bill more than your plan’s allowed amount for a service, you still have to pay the provider’s full rate out of pocket. When you file a claim for your reimbursement though, your insurance payer will only reimburse you based on the allowed amount, meaning the difference between your provider’s rate and the allowed amount will not be factored into your reimbursement.
To sum things up, when you file a claim for the full total you paid, your out-of-network benefits only cover the allowed amount. And your insurer will only reimburse you based on those benefits. That’s why your reimbursement looks smaller than you expected!
Coinsurance, odd reimbursements, and allowed amounts in health insurance
Let’s look at a real world application of allowed amounts in insurance. It involves coinsurance, the percentage of the cost you pay for covered OON services. If your coinsurance is 30%, you pay 30% of the cost of covered services after meeting your deductible, while your insurer pays 70%. (For more on copays, coinsurance, and the like, read The Complete Guide to OON Reimbursement.)
Let’s suppose your coinsurance is, in fact, 30%, and you see the therapist from the previous example. Your therapist charges you $200, and this time, you pay all $200 out of pocket. Your therapist hands you a superbill, you send it to your insurer, and you expect to be reimbursed for 70% of that $200. Which would come out to $140.
Not so fast, says your insurer. Your plan’s allowed amount is $150, so that’s all that is eligible for reimbursement. Your insurer reimburses you 70% of $150, which is $105, instead of $140. That’s a $35 difference that a lot of people miss. And if you’re seeing this therapist every week or two, well, we’d rather not tell you how much it amounts to over the course of a year…
What is balance billing?
When an OON provider bills you after-the-fact for the difference between their rate and your insurer’s allowed amount, this is called balance billing. In-network providers are not allowed to balance bill you for covered services, but it happens relatively often out-of-network. And it leads to some confusing billing scenarios.
For example, say you see your out-of-network therapist for a routine session. The therapist’s rate is $200, but your insurance plan’s allowed amount for a therapy session is $150. (Note: insurers determine allowed amounts based on what they deem the going rate for the service to be. They call these “usual, customary, and reasonable fees.”)
First, we want to make it clear that balance billing only happens after you have met your OON deductible. So for the sake of the example, we will assume that your OON deductible has been met and your OON benefits cover the therapy session. Second, balance billing only happens in cases where your insurer pays your OON provider directly. In cases where you pay the provider’s full rate out of pocket, balance billing does not apply.
Now that we’ve cleared that up, suppose your insurer pays their coinsurance percentage of the $150 allowed amount. If your coinsurance is 30%, then your insurer pays 70%, i.e. $105. You pay your $45 remainder, but the billing is not necessarily over and done. Your therapist has the right to bill you for the unpaid balance of $50, the difference between their rate and the allowed amount. That’s a balance bill, and you will owe 100% of it.
In some cases, like when you and your therapist have agreed on a price beforehand, the provider will waive the $50 difference. But your OON provider does have the right to bill you that extra $50 at any point. Often, people go see an OON specialist for the first time, expecting it to cost what their allowed amount states, only to receive a higher bill after-the-fact that they must pay.
Note: Balance billing is illegal in certain circumstances, mainly emergencies, where the patient cannot anticipate their care to be out-of-network. Read more about the types of balance billing banned under the No Surprises Act.
How to avoid balance billing and bad reimbursements
The best way to steer clear of these incremental charges is to negotiate the price of your out-of-network care ahead of time. Many specialists, and especially therapists, are willing to work with their patients to find a payment structure that works for them. Don’t avoid the issue because you’re afraid of imposing. Remember that knowledge gives you power. If you address the problem of allowed amounts in a calm, knowledgeable way with your provider, you can probably find a solution.
If you are unable to negotiate a price with your provider, you might still have options on the insurance side. Consider filing for a network exception or appealing the claim. If none of those options work, you might be able to find a new provider who will accept a lower rate.
About the Author
Harry is passionate about the power of language to make complex systems like health insurance simpler and fairer. He received his BA in English from Williams College and his MFA in Creative Writing from The University of Alabama. In his spare time, he is writing a book of short stories called You Must Relax.