What Is an Allowed Amount in Health Insurance?
Understand the "allowed amount" in health insurance. Learn how this critical figure directly impacts your healthcare costs.
The allowed amount in health insurance represents the maximum sum a health plan will pay for a covered healthcare service. It plays a fundamental role in determining the actual cost consumers pay for medical care. Understanding this amount is important for managing healthcare expenses and comprehending health insurance benefits. Without knowledge of the allowed amount, individuals might face unexpected charges, making it difficult to budget for medical services.
How the Allowed Amount is Established
The allowed amount is the highest figure a health insurance company will reimburse a healthcare provider for a specific service. This amount results from negotiations between the health insurance company and healthcare providers, leading to contracted rates.
Several factors influence these negotiated rates, including the type of medical service, the healthcare professional’s credentials, and the geographic location. For instance, services in urban areas may have higher allowed amounts than rural regions. Providers who agree to these rates become part of the insurer’s “in-network” group.
How the Allowed Amount Affects Your Costs
The allowed amount directly influences a patient’s out-of-pocket expenses for covered services. Cost-sharing components like deductibles, copayments, and coinsurance are calculated based on this allowed amount, not the provider’s initial billed charge. For example, if a provider bills $200 for a service but the allowed amount is $150, your cost-sharing is based on $150.
If a health plan has an allowed amount of $100 for an office visit and your deductible has not been met, you pay the full $100. Once your deductible is satisfied, your responsibility might shift to a copayment or coinsurance. For instance, if your coinsurance is 20% for a service with a $100 allowed amount, you pay $20, and your insurer covers the remaining $80. This ties patients’ financial responsibility for in-network care to a pre-negotiated rate.
Network Status and Allowed Amounts
The application of allowed amounts differs depending on whether a healthcare provider is in-network or out-of-network. In-network providers contract with the insurance company to accept the allowed amount as full payment, minus patient cost-sharing. If an in-network provider bills more than the allowed amount, they must write off the difference; the patient is not responsible for it. This protection is a key benefit of using in-network providers.
Out-of-network providers do not have a contract with your health insurance plan and are not obligated to accept the allowed amount. While your insurance may still pay a portion for out-of-network care, the provider can bill you for the difference between their total charge and what your insurance pays, known as “balance billing”. For example, if an out-of-network provider charges $200 for a service but your plan’s allowed amount is $110, you could be billed for the remaining $90. Verifying a provider’s network status before receiving care is important to avoid unexpected and substantial costs.
Locating the Allowed Amount on Your Explanation of Benefits
After receiving healthcare services, your health insurance company sends an Explanation of Benefits (EOB) document. This is not a bill but a statement detailing how your claim was processed. The EOB provides information including the provider’s billed charges, the amount your health plan allowed, and your patient responsibility.
On an EOB, the allowed amount might be labeled as “allowed charges,” “negotiated rate,” “recognized amount,” or “eligible expense”. It shows the amount the provider initially charged, followed by the allowed amount. The EOB then breaks down how your deductible, copayment, or coinsurance were applied, indicating what the plan paid and what you owe. Reviewing these figures on your EOB helps reconcile the medical bill with your insurance benefits.