Allowable Charge
What is an Allowable Charge?
An allowable charge is an approved dollar amount that a health insurance company will reimburse a provider for a certain medical expense. It is often referred to as an approved charge or an allowed amount.
Actual charges are a bit different and refer to the amount billed by the provider for the specific service. The allowed amount is the amount your insurance carrier is willing to pay for the rendered service. The difference between these amounts is called a contractual write-off.
How Are the Charges Determined?
These charges are pre-determined between an insurance company and a health care provider, such as a hospital or a physician, for each specific service. The allowable amount can vary by the service type, insurance company, provider and geographic region where you live or where the service was provided.
Usual, Customary, and Reasonable (UCR)
The Usual, Customary, and Reasonable amount, or UCR, is what is paid by your health insurance company based on what other providers in the same area are charging for the same or similar medical service. The UCR is sometimes used to determine the allowable charges.
Out-of-Network vs. In-Network and Allowable Charges
If you choose to go to a provider that is within your network, your coinsurance will be based on the allowable charges, not the billed amount. However, if you go to an out-of-network provider, you will need to pay the amount that would have been the contractual write-off in addition to any copayments or coinsurance you may owe the provider. The extra expenses are why it is a good idea to stay in-network when you have the option.
Balance Billing
Balance billing is the term for the provider billing you for the difference of what would have been the contractual write-off if you were to have gone to an in-network provider instead. If you do select an out-of-network provider, be sure that your insurance plan allows this. If it does not, you could be stuck paying for the entire bill without any adjustments for UCR.
Billing Example
For example, if you have an appointment with your in-network doctor, your charges and explanation of benefits, or EOB, should look something like this:
In-Network
Actual Charge: $250.00
UCR Allowable Amount: $200.00
Contractual Write-Off: $50.00
80/20 Plan Insurance Paid: $160.00
Your 20% Co-Insurance: $40.00
Your Total Costs: $40.00
However, if you were to see an out-of-network health care provider, your charges and EOB would look more like this:
Out-of-Network
Actual Charge: $250.00
UCR Allowable Amount: $200.00
Out-of-Network Amount Not Covered: $50.00
80/20 Plan Insurance Paid: $160.00
Your 20% Co-Insurance: $40.00
Your Total Costs (Co-insurance plus amount not covered): $90.00