If you receive or issue a medical bill, there might be some unknown terminology, such as “CPT code” and “allowed amount.” However, understanding these kinds of terms can make or break proper medical billing.
In particular, this post explains the allowed amount in medical billing. However, if you’d like to learn more or explore concepts like HIPPA in medical billing, be sure to contact PracticeForces.
What Is an Allowed Amount?
An allowed amount when it comes to medical billing refers to the maximum amount your insurance company believes they should pay your service provider for your medical care.
Most insurance companies will calculate separate allowed amounts and patient responsibility amounts (the portion you pay), depending on your specific coverage. They also take into account the following:
- medical coding
- insurance usage history
- whether the provider is in-network or out-of-network
Learn How Allowed Amounts Work In Practice
An In-Network Provider
For an in-network provider, the allowed amount in medical billing is a contracted rate with the provider. However, if your healthcare provider charges more than this allowed amount, the insurance provider will usually make up the difference and not require you to pay out-of-pocket. This kind of protection is a huge benefit of choosing an in-network provider.
However, you’ll still have to pay something to an in-network provider, such as deductibles, copayments, or coinsurance fees. If you have met your deductible for the year, the insurance company should pay the remainder.
An Out-of-Network Provider
With an out-of-network provider, the allowed amount is how much the insurance company has decided is reasonable for the type of care you need. Does your plan have out-of-network coverage? Your insurance company will cover the allowed amount, and you will have to cover the difference.
It’s best for patients to check their explanation of benefits to see whether they will have out-of-network coverage. If not, they may have to pay the entire bill.
Essentially, a charge adjustment is a discounted amount, but it should be a transparent process. Being forced to pay the difference between the billed and allowed amount is called balance billing, and it can be complicated. That’s why Congress passed the No Surprises Act in 2022, which prohibits surprise balance billing and limits this practice.
The reason insurance companies have allowed amounts on out-of-network providers is to limit financial risk. Insurance companies don’t negotiate with out-of-network providers, so they need to cap how much they will pay by indicating an allowed amount.
Avoid Balance Billing
Even with legislation, balance billing and a lack of reimbursement can be frustrating. The simplest solution is an agreed-upon price with the provider. Out-of-network providers are often very willing to negotiate some kind of payment plan.
It’s simpler for patients to see an in-network provider. However, during an emergency, it might not be possible. In those cases, providers may allow a network exception or appeal.