Understanding Insurance Carrier Allowed Amounts

The allowed amount is the maximum sum that insurance companies are willing to pay for a specific medical service. It is based on a negotiated agreement between the insurance company and healthcare providers. This amount serves as a benchmark, and any charges exceeding the allowed amount are usually the responsibility of the insured.

The allowed amount is handled differently depending on whether you use an in-network or out-of-network provider. If you use an in-network provider, the allowed amount is the discounted price your managed care health plan has negotiated in advance for that service. Usually, an in-network provider will bill more than the allowed amount, but they will only get paid the allowed amount. You don’t have to make up the difference between the allowed amount and the actual amount billed when you use an in-network provider.

If you use an out-of-network provider, the allowed amount is the price your health insurance company has decided is the usual, customary, and reasonable fee for that service. An out-of-network provider can bill any amount they choose and does not have to write off any portion of it. Your health plan doesn’t have a contract with an out-of-network provider, so there’s no negotiated discount.

In-network care

The allowed amount is the total sum your health insurance company decides your healthcare provider should be paid for the care they provided. This amount varies depending on whether you use an in-network or out-of-network provider.

If you use a provider that is in-network with your health plan, the allowed amount is the discounted price your managed care health plan negotiated in advance for that service. In-network providers are those doctors and facilities that have met certain credentialing requirements and agreed to accept a discounted rate for covered services under the health plan.

In-network providers will usually bill more than the allowed amount, but they will only get paid the allowed amount. This is because they have a contract with your health plan, and you do not have to make up the difference between the allowed amount and the actual amount billed. Instead, your provider must write off the portion of their billed amount that is above the allowed amount. This is a consumer protection that comes with using an in-network provider.

However, you will still pay a portion of the total allowed amount in the form of a copayment, coinsurance, or deductible. Your health insurer pays the rest of the allowed amount, if applicable. For example, if you have a $30 copay for office visits, and your healthcare provider's standard charge for an office visit is $150, but the negotiated rate with your insurance carrier is $110, you will pay $30 and your insurance plan will pay $80.

It is important to understand the difference between in-network and out-of-network care to help save on healthcare expenses.

Out-of-network care

When you use an out-of-network provider, the allowed amount is the price your health insurance company has decided is the usual, customary, and reasonable fee for that service.

Out-of-network providers can bill any amount they choose and do not have to write off any portion of it. Your health plan doesn't have a contract with an out-of-network provider, so there's no negotiated discount. However, the amount your health plan pays—if any—will be based on the allowed amount, not the billed amount.

Whether your health plan covers out-of-network care or not, your share of costs will be higher than with in-network providers. Some plans may have higher cost-sharing provisions (deductibles, copays, and coinsurance) that apply to out-of-network care.

If your health plan covers out-of-network care and you owe coinsurance (i.e., you've already met the out-of-network deductible, or it's a service that's covered with coinsurance pre-deductible), the health plan will calculate your coinsurance amount based on the plan's allowed "reasonable and customary" amount, not the amount that the medical provider bills.

The same is true for copays and deductibles when you choose to use an out-of-network provider. Assuming your health plan has out-of-network coverage, you'll pay whatever copay or deductible the plan sets, the plan will pay the portion it considers reasonable and customary, and then you'll be responsible for paying the rest of the medical provider's bill.

And that's assuming your health plan includes out-of-network coverage; most HMO and EPO plans do not, meaning that you'd have to pay the entire bill yourself if you choose to see an out-of-network provider in a non-emergency situation.

How an out-of-network provider handles the portion of the bill that's above and beyond the allowed amount can vary. In some cases, especially if you negotiated it in advance, the provider will waive this excess balance. In other cases, the provider will bill you for the difference between the allowed amount and the original charges. This is called balance billing and can cost you a lot.

The No Surprises Act, a federal law that took effect in 2022, protects consumers from these types of surprise balance billing in most situations. Ground ambulance charges are an exception, as they can still result in a surprise balance bill.

If you choose to see an out-of-network provider, you're likely aware that your costs will be higher than they'd be with an in-network provider. But for many years, patients were stuck dealing with "surprise" balance bills for situations when they had no choice but to use an out-of-network provider. Specifically, emergencies, as well as scenarios in which an out-of-network provider works at an in-network facility, with the patient unaware that not everyone at the facility is in-network with their health plan.

Insurance agencies and brokers

Insurance brokers, on the other hand, are third parties that help facilitate insurance policy sales. They collaborate with insurance carriers but don't work for them. For example, an employer would hire a broker to help them purchase insurance for their employees from a carrier. Like agents, brokers are often experts in risk management and work on commission.

When it comes to filing a claim, you can usually file it with your agent or directly with your carrier. Your agent will submit your claim to the carrier if you don't do so directly. The carrier will then coordinate any follow-up that you need to make with claims adjusters, who work for the carrier. When you receive a payout for your loss, it will come from your insurance carrier.

It's important to know who your insurance carrier is and how to file a claim. But it's also crucial to know who you're talking to and their role in the process. If you're enrolling in benefits through your workplace, you'll communicate directly with your employer and manage your claims with your carrier. Knowing the difference between these roles can help you navigate the complex world of insurance and make informed decisions about your coverage.

Insurance agents

Understanding the "Allowed Amount" in Health Insurance

The "allowed amount" is a crucial term in health insurance that significantly impacts your finances. It refers to the maximum amount an insurance company is willing to pay for a specific medical service. This amount is determined through negotiations between the insurance company and healthcare providers, taking into account factors like geographical location, provider charges, and plan-specific details.

In-Network Care

When you use an in-network provider, the allowed amount is the discounted price your insurance company has negotiated in advance for that service. Usually, an in-network provider will bill more than the allowed amount, but they will only receive the allowed amount as full payment. You are responsible for paying a portion of the allowed amount in the form of a copayment, coinsurance, or deductible.

Out-of-Network Care

If you choose an out-of-network provider, the allowed amount is the price the insurance company decides is the usual, customary, and reasonable fee for that service. In this case, the provider can bill any amount they choose, and there is no negotiated discount. The insurance company will base its payment on the allowed amount, and you will be responsible for any remaining costs.

Understanding Insurance Carriers

An insurance carrier, also known as an insurance company or provider, is the entity that creates and manages insurance policies. They are typically the financial resource behind the policies and are responsible for underwriting and issuing payments for claims. Insurance carriers employ insurance agents, who handle claims and may assist with setting up payments.

It is important to research a carrier's reputation and financial health before choosing a policy. You can find information about your insurance carrier on your declarations page, insurance cards, or by contacting your agent.

Understanding concepts like the "allowed amount" and the role of insurance carriers is essential for making informed decisions about your healthcare and managing your expenses effectively. It empowers you to select the right providers, anticipate costs, and maximize your insurance benefits.

Insurance brokers

Brokers are often experts in risk management and can help clients explore coverage options. They work on commission, like insurance agents, and are paid a cut of whatever they sell.

• Selecting the right insurance carrier and policy for your needs
• Understanding the allowed amount and how it impacts your finances
• Negotiating with insurance carriers on your behalf
• Providing independent advice, free of any financial conflict of interest

It is important to note that insurance brokers are different from insurance agents. Agents are employed by insurance carriers and help sell their policies. They work on commission and have a deep understanding of the insurance coverage provided by the carriers they represent.

When choosing an insurance broker, it is essential to consider their reputation, expertise, and independence. It is also crucial to understand the fees involved and any potential conflicts of interest.

Allowed Amount

The allowed amount is the maximum amount an insurance company will pay for a specific medical service. It is based on a negotiated agreement between the insurance company and healthcare providers and serves as a benchmark for reimbursement.

The allowed amount varies depending on whether you use an in-network or out-of-network provider.

• In-network provider: The allowed amount is the discounted price negotiated in advance by the insurance company and the provider. You will be responsible for paying a portion of the allowed amount in the form of a copayment, coinsurance, or deductible.
• Out-of-network provider: The allowed amount is determined by the insurance company as the usual, customary, and reasonable fee for the service. You may have to pay a larger share of the cost and may be responsible for the difference between the provider's charges and the allowed amount.

Understanding the allowed amount is crucial for managing your healthcare costs and making informed decisions about your healthcare providers. It helps you anticipate out-of-pocket expenses and avoid surprise bills.

Frequently asked questions