This is general information, not insurance, medical, legal or financial advice. Methods and rules differ by plan, insurer, state and country, and all dollar figures below are hypothetical.
Two different prices for one service
A provider sets a price for a service, often called the billed charge or list price. Your health plan, however, usually has its own figure for what that same service is worth under your coverage. That figure is commonly called the allowed amount, though plans also use phrases such as eligible expense, recognized charge or negotiated rate.
The allowed amount matters because it is usually the number your cost-sharing is built on. Your deductible, coinsurance and the plan’s payment are generally calculated from the allowed amount, not from the provider’s original charge.
How the allowed amount is set for in-network care
When a provider joins a plan’s network, the two sides typically agree on contracted rates for services. For in-network care, the allowed amount is generally that contracted rate. The provider agrees to accept it as payment in full for covered services, plus whatever cost-sharing you owe.
Here is a hypothetical example. A provider bills $500 for a service. The contracted allowed amount is $300. Assume your deductible is already met and your coinsurance is 20 percent.
- You pay 20 percent of $300, which is $60.
- The plan pays the remaining $240.
- The $200 difference between $500 and $300 is generally written off by the provider and, for a covered in-network service, is not billed to you.
Your explanation of benefits usually shows these figures in separate columns, so you can compare the billed amount, the allowed amount and your share.
What “usual and customary” means
For out-of-network care, there is no contracted rate, so plans often need another way to decide what is reasonable. One long-used approach is a usual and customary charge, sometimes shortened to UCR, for “usual, customary and reasonable.” The idea is to compare a provider’s charge with what providers in the same area typically charge for the same service.
Plans may reach that number in different ways. Some use a percentage of a published fee schedule, some use databases of regional charges, and some use a percentage of what a government program pays. The method is set by the plan and is normally described in the policy documents. Because methods differ, the same bill can lead to different allowed amounts under different plans. If you want the exact approach, ask your plan how it calculates out-of-network allowed amounts.
Why this matters outside the network
When you see an out-of-network provider, the plan may base its payment on its own allowed amount, which can be lower than the provider’s charge. Depending on the plan type and local rules, the provider may then ask you to pay the difference. This practice is explained under balance billing, and rules about it vary widely, including special protections in some situations covered by surprise billing.
A second hypothetical example shows the effect. A provider outside the network charges $800. The plan’s out-of-network allowed amount is $400, and the plan pays 60 percent of the allowed amount after the deductible has been met.
- The plan pays 60 percent of $400, which is $240.
- You owe the remaining coinsurance of $160.
- If the provider can bill the difference, you may also owe $800 minus $400, which is $400.
- Your total could then be $160 plus $400, which is $560.
Many plans have no coverage at all for non-emergency out-of-network care, and some have separate out-of-network deductibles. Amounts you pay above the allowed amount often do not count toward your out-of-pocket maximum either, though plans differ on that.
Reading your own paperwork
The best way to understand the allowed amount on your own claim is to compare documents:
- The provider’s bill shows the billed charge.
- The explanation of benefits typically shows the billed charge, the allowed amount, what the plan paid and your responsibility.
- Your medical bill review can then confirm whether the amount requested from you matches the plan’s figure.
If the provider’s bill asks for more than the plan’s statement says you owe, it is reasonable to call both the provider’s billing office and the plan to ask why. Keeping notes of the date, the person you spoke to and what they said can help if the question continues.
Questions to ask before non-urgent care
If you are planning a service and are unsure whether the provider is in your network, you can ask the plan or provider:
- Is this provider in my plan’s network for this specific service?
- If not, how does the plan calculate its allowed amount?
- Will the provider accept the plan’s allowed amount, or may they bill me the difference?
- Is a written estimate available?
Answers given by phone are not always binding, so asking for them in writing is often wise. Emergency care and some other situations are handled differently from planned care, and the rules depend on where you live.