Haris Ashley
The contracted amount on an insurance bill refers to the maximum amount that an insurance company will pay for a given procedure or service, also known as the allowed amount. This amount is determined by pre-negotiated contracts or regulations between the insurance company and the healthcare provider. If a provider is part of the insurance company's network, or in-network, they have agreed to a specific allowed amount and will not charge more than this for a given procedure. The allowed amount can vary depending on the insurance company, as each company negotiates its own rates. This means that the same service performed by the same provider could have different costs for patients with different insurance companies.
| Characteristics | Values |
|---|---|
| Definition | The maximum amount a plan will pay for a covered health care service. May also be called “eligible expense,” “payment allowance,” or “negotiated rate.” |
| In-network provider | The allowed amount is the discounted price your managed care health plan negotiated in advance for that service. |
| 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. |
| In-network provider billing | Usually, an in-network provider will bill more than the allowed amount, but they will only get paid the allowed amount. |
| Out-of-network provider billing | An out-of-network provider can bill any amount they choose and they do not have to write off any portion of it. |
| In-network provider payment | 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. |
| Out-of-network provider payment | Your health plan doesn’t have a contract with an out-of-network provider, so there’s no negotiated discount. But the amount your health plan pays—if any—will be based on the allowed amount, not on the billed amount. |
In-network providers
The allowed amount is the total amount your health insurance company thinks your healthcare provider should be paid for the care they provided. 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 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. Instead, your provider must write off the portion of their billed amount that's above the allowed amount, as per their contract with your health plan.
However, this doesn't mean you won't pay anything. You will pay a portion of the total allowed amount in the form of a copayment, coinsurance, or deductible. Your health insurer will pay the rest of the allowed amount, if applicable.
For example, if your healthcare provider's standard charge for an office visit is $150, but they have agreed to a negotiated rate of $110 with your insurance company, the allowed amount will be $110. If you have a $30 copay for office visits, you'll pay $30 and your insurance plan will pay $80. But if you have a high-deductible health plan that counts everything towards the deductible and you haven't met your deductible for the year, you'll pay the full $110.
Each insurance company negotiates its own allowed amounts, meaning that the same exact service performed by the same exact provider could have completely different costs for patients with different insurance companies.
It's important to know who is in your network when choosing a health insurance plan. You can usually find this information on your insurance company's website or by directly contacting your provider.
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Out-of-network providers
If you choose to use an out-of-network provider, you may have to pay the full cost of the treatment yourself. Even if your insurance plan covers some of the costs, you will likely have to pay a higher percentage of the charges than you would with an in-network provider. This is because your insurance company doesn't have a negotiated rate with out-of-network providers and can't control what they charge for their services.
The amount you pay out of pocket will depend on the specifics of your health plan and your circumstances. In some cases, your insurance plan may list the maximum amount they will pay for a certain service received out-of-network. If the provider charges more than this amount, you will be responsible for paying the difference, in addition to your deductible, copay, and/or coinsurance.
It's important to note that some health plans, such as HMOs and EPOs, generally do not reimburse out-of-network providers at all, except in emergency situations. This means that you would be responsible for the full amount charged by the out-of-network provider.
To avoid unexpected medical bills, it's essential to understand the differences between in-network and out-of-network providers and how your insurance plan works. Familiarize yourself with your plan's benefits, limitations, and additional payment options. If you have questions, don't hesitate to contact your insurance provider or refer to your plan documents for more information.
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Deductibles
A deductible is the amount of money that the insured person must pay before their insurance policy starts paying for covered expenses. For example, if you have a health insurance policy with a deductible of $1,000 and you receive a medical bill for $2,000, you would be responsible for paying the first $1,000 and your insurance would cover the remaining $1,000.
The deductible is an annual amount that must be paid before the insurance company begins to pay for services. Deductibles can vary depending on the type of insurance policy, the level of coverage, and other factors. Some policies may not have a deductible at all, while others may have a higher deductible in exchange for lower premiums. It's important to note that deductibles only apply to covered expenses, and they typically reset at the start of each policy period.
There are two main types of deductibles: individual and family. An individual deductible applies to individual health insurance plans and represents the amount that a person must pay out-of-pocket before their insurance coverage begins. A family deductible applies to family health insurance plans and represents the total amount that family members must collectively pay out-of-pocket before the insurance coverage begins to share the costs of medical expenses.
When choosing an insurance policy, it's important to consider your financial situation and individual circumstances. If you have a chronic medical condition that requires frequent visits to the doctor, you may want to choose a policy with a lower deductible to help manage your out-of-pocket expenses. On the other hand, if you have a healthy lifestyle and rarely need medical care, you may opt for a policy with a higher deductible to save money on premiums.
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Co-insurance
For example, if you have an 80/20 co-insurance plan, your insurance company will pay 80% of the total bill, and you'll pay the remaining 20%. Deductibles are the initial amount you're required to pay before co-insurance kicks in. For instance, if you have a $2,000 deductible, you're responsible for paying the full $2,000 for the year before your insurance will help cover a portion of the costs. After meeting your deductible, you may be liable for co-insurance payments.
When it comes to out-of-network care, the co-insurance rate may be higher than what you'd pay for in-network care. In some cases, your insurance provider won't cover any of the costs for out-of-network providers, meaning you'll be responsible for the entire bill.
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Co-payments
A co-payment, or co-pay, is a fixed, out-of-pocket fee that you pay for covered healthcare services. It is a standard feature of many health insurance plans and is usually paid at the time of service. The amount of the co-payment varies depending on the type of service, with standard doctor visits typically costing less than visits to specialists. Co-payments for emergency room visits tend to be the highest.
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Frequently asked questions
The contracted amount, also known as the allowed amount, is the maximum amount that your insurance company has agreed to pay for a given procedure or service.
The contracted amount is determined through negotiations between the insurance company and the healthcare provider. The insurance company sets the allowed amount for each service or procedure, and the provider agrees to write off any charges above this amount.
Yes, each insurance company negotiates its own allowed amounts. This means that the same service performed by the same provider could have different costs for patients with different insurance plans.
If your provider is in-network, they are required to write off the difference and can only collect the allowed amount from you. However, if your provider is out-of-network, they can bill you for the difference, which is known as balance billing.
