What Is a Disallowed Amount in Health Insurance?

Navigating health insurance can be challenging. After healthcare services are rendered, your health insurance company typically sends an Explanation of Benefits (EOB) form. This document details the services provided, the amount billed, what the insurer paid, and what you owe. A common term on an EOB is a “disallowed amount,” which indicates a portion of the provider’s original charge was not covered by your insurer.

Understanding Disallowed Amounts

A disallowed amount is the portion of a healthcare provider’s bill that an insurance company will not pay. This amount is the difference between what the provider charged and what the insurance plan paid or allowed for the service.

Several reasons can lead to a disallowed amount on your EOB. One frequent cause is when charges exceed what the insurer considers Usual, Customary, and Reasonable (UCR) rates. Insurers determine UCR rates based on the typical cost for a medical service in a specific geographic area, considering historical trends and what other providers charge. If a provider’s billed amount surpasses this benchmark, the excess may be disallowed.

Another reason for disallowance is when services are not covered by your policy. Health insurance plans have specific benefits and exclusions, meaning certain procedures or treatments, like cosmetic procedures or experimental therapies, might not be included. If you receive a service under these exclusions, the cost will likely be disallowed.

A lack of medical necessity can also result in a disallowed amount. Insurers define medical necessity as treatments or services appropriate and essential for diagnosing or treating a health condition, adhering to accepted medical standards. If the insurer determines a service was not medically necessary, they may refuse to pay.

Prior authorization issues also frequently lead to disallowed amounts. Many insurance plans require pre-approval for certain services, procedures, or medications. If a service requiring prior authorization is performed without approval, the insurer may disallow the charges. Administrative mistakes by the provider, such as coding errors, incorrect billing, or missing information, can also result in claims being denied or amounts being disallowed. Duplicate billing, where a service is inadvertently billed more than once, will cause the second claim to be disallowed.

Impact on Your Financial Responsibility

Disallowed amounts directly affect your financial responsibility, often becoming out-of-pocket costs. If a portion of a bill is disallowed, you may become responsible for paying that difference to the healthcare provider. This can significantly increase your expenses beyond expected deductibles, co-pays, and co-insurance.

Balance billing is a financial consequence related to disallowed amounts, especially with out-of-network providers. It occurs when an out-of-network provider charges you for the difference between their total charges and the amount your insurance company pays. Since out-of-network providers do not have a contract with your insurer, they are not bound by the insurer’s allowed amounts and can bill you for the remaining balance.

In-network providers generally cannot balance bill you for amounts disallowed due to UCR or similar reasons. Their contracts with insurance companies stipulate they accept the insurer’s allowed amount as payment in full, after accounting for your cost-sharing obligations. However, if a disallowed amount stems from a service not covered by your policy or a failure to obtain prior authorization, even an in-network provider might bill you for those costs.

Disallowed amounts do not count towards your deductible or out-of-pocket maximum. Your deductible is the amount you pay for covered services before insurance begins to pay, and the out-of-pocket maximum is the most you will pay for covered services in a plan year. Since disallowed amounts are not considered “covered” by the insurer, they do not contribute to these limits, meaning you might pay more overall.

Steps to Address a Disallowed Amount

When you encounter a disallowed amount on your Explanation of Benefits (EOB) or a medical bill, take immediate steps to address it. First, thoroughly review your EOB. This document provides specific details about the services, the billed amount, the payment made by the insurer, and a reason code explaining why an amount was disallowed. Understanding this reason code is foundational to any further action.

Next, contact the healthcare provider’s billing department. Discuss the disallowed amount to clarify charges and ensure no administrative errors, such as incorrect coding or missing information, occurred. The provider’s office may be able to correct and resubmit the claim, or provide additional documentation to support medical necessity.

If the issue persists, contact your health insurance company directly. Inquire about the specific reason for the disallowance and ask about their internal appeals process. They can guide you on the necessary forms and deadlines for submitting an appeal.

Understanding the appeals process is important. You have the right to file an internal appeal with your insurance company, asking them to reconsider their decision. Gather all relevant documentation, including your EOB, medical records, and any letters from your doctor supporting the medical necessity of the service. A formal appeal letter should clearly state why you believe the claim should be paid, referencing your policy language and medical evidence. The insurer typically has a set timeframe, such as 30 to 60 days, to respond to your internal appeal.

If your internal appeal is denied, you may have the right to an external review by an independent third party. This right, mandated by the Affordable Care Act for non-grandfathered health plans, allows an impartial organization to review your case. The external reviewer’s decision is binding on the insurance company. Throughout this process, meticulous documentation and record-keeping are important. Keep copies of all bills, EOBs, correspondence with both the provider and insurer, and detailed notes of all phone conversations, including dates, times, and names of individuals you spoke with. This record will support your case.