when you come across terms allowable amount There can be some confusion about your statement of health insurance benefits (EOB). This article will explain what the allowable amount is and why it matters to how much you will ultimately pay for your care.
The allowable amount is the total amount your health insurance company believes your healthcare provider should pay for the care they provide. If you use an in-network provider, the allowable amount is treated differently than if you use an out-of-network provider.
Allowable Amount for In-Network Care
If you use a provider in your health plan’s network, the allowable amount is the discounted price your managed care health plan negotiated in advance for the service.
Often, an in-network provider will be billed more than the allowed amount, but he or she will only get the allowed amount. When you use an in-network provider, you don’t have to make up the difference between the allowed amount and the actual billed amount; your provider simply writes off any portion of its bill that exceeds the allowed amount. This is one of the consumer protections that come with using an in-network provider.
However, that’s not to say you don’t have to pay anything. You pay a portion of the total allowable amount in the form of a copayment, coinsurance, or deductible.If applicable, your health insurance company will pay the remaining allowable amount (If you haven’t met your deductible, your insurance company will pay nothing and the service you receive counts toward your deductible. But if there is a copay for the service, the insurance company will pay you after you pay Paying their share pays your copay. If it’s a service that applies to the deductible and you’ve hit the deductible, your insurance company will pay some or all of the bill.)
Any charges in excess of the allowable amount are not allowable charges. As long as healthcare providers are in your health plan’s network, they won’t get paid for it.If your EOB has a column Amount not allowedwhich represents the discount the health insurance company negotiated with your provider.
For example, maybe the standard cost of your healthcare provider visit is $150. But she and your insurance company have agreed to a negotiated rate of $110. When you see her go to the office, her bill says $150, but the allowed amount is only $110. She won’t get paid another $40 because it’s more than the allowed amount.
The portion of the $110 allowable amount you must pay will depend on the terms of your health plan. For example, if you had a $30 copay for a doctor visit, you would pay $30 and your insurance plan would pay $80. However, if you have a high-deductible health plan that counts all costs into the deductible, and you haven’t met your deductible for the year, you’ll pay the full $110.
Allowable Amount for Out-of-Network Care
If you use an out-of-network provider, the allowable amount is the price determined by your health insurance company, which is the usual, customary, and reasonable fee for that service. An out-of-network provider can bill any amount he or she chooses without having to write off any part of it. Your health plan does not have a contract with an out-of-network provider, so there are no negotiated discounts. But the amount your health plan pays, if any, will be based on the allowed amount, not the billed amount.
This is assuming your health plan fully covers out-of-network care. Some won’t, unless it’s an emergency.
For out-of-network providers, your insurance company will calculate your coinsurance based on the allowed amount, not the billed amount. You will pay any co-payments, coinsurance, or out-of-network deductibles due; your health insurance company will pay the remaining allowable amount. Again, this assumes your plan includes out-of-network coverage; most HMO and EPO plans don’t, which means you’ll have to pay the full cost yourself if you choose to see an out-of-network provider.
How out-of-network providers handle portions of the bill that exceed the allowed amount may vary. In some cases, especially if you negotiate in advance, the supplier will waive this excess balance. In other cases, the provider will charge you the difference between the allowable amount and the original fee. This is called balance billing, and it can cost you a lot of money.
In some cases, balance bills have taken patients by surprise. This can happen in an emergency, or when a person uses an in-network hospital and doesn’t realize that one or more healthcare providers in the facility are actually out-of-network. But the No Surprise Act, a federal law that goes into effect in 2022, protects consumers from such unexpected balance billing in most cases.
Why do health insurance companies allocate an allowable amount for out-of-network care? This is a mechanism to limit their financial risk. Because health plans that offer out-of-network coverage can’t control these costs through pre-negotiated discounts, they must control them by assigning caps to bills.
Suppose your health plan requires you to pay 50% coinsurance for out-of-network care. Without a pre-negotiated contract, out-of-network providers may charge $100,000 for a simple office visit. If your health plan does not specify an allowable amount, you are obligated to pay $50,000 for an office visit that typically costs $250. Your health plan protects itself from this by allocating an allowable amount for out-of-network services.
Unfortunately, in order to protect yourself from unreasonable accusations, it shifts the burden of dealing with them to you. This is a clear disadvantage of getting out-of-network care and why you should always negotiate the cost of out-of-network care in advance.
The allowable amount is the amount that the health plan determines to be the fair price for a given medical treatment. If the medical provider is part of a health plan network, the provider and the health plan have agreed on a specific allowable amount, and the provider has agreed to write off any charges in excess of that amount. Health plans may have different allowable amounts for the same service because their contracts vary by medical provider.
Some health plans cover out-of-network care, while others don’t (unless it’s an emergency). If health plans do cover out-of-network care, they will provide the allowable or “reasonable and customary” amount for each medical service. If a plan member receives covered out-of-network care, the health plan will pay that amount, minus any cost-sharing the patient will have to pay. But in most cases, medical providers can bill patients for the remainder beyond the allowable amount because they don’t have a contract with the patient’s health plan.
The allowed amount is an important reason to use a medical provider in your health plan’s network. As long as you stay in the network, the medical provider must write off any amount above the allowable amount. This is especially important if the cost is charged to your deductible and you must pay the full amount. You don’t have to pay the full amount of your provider’s bill, just the allowed amount, which will be a smaller fee.