Allowable Amount
The allowable amount is the maximum amount a plan will pay for a covered healthcare service.
What is an Allowable Amount?
An allowable amount is the maximum amount a health plan will pay for a covered health care service. It may also be called an “eligible expense,” “payment allowance,” or “negotiated rate.” This amount is crucial in medical billing as it sets the ceiling for reimbursements and directly impacts patient costs.
Patient cost-sharing, such as copays, coinsurance, and deductibles, are calculated based on the allowable amount, not the provider's billed charge. If a provider charges more than the allowed amount, the patient may be responsible for paying the difference, unless they are a preferred provider who cannot balance bill for covered services.
What is the difference between an Allowable Amount and Billed charge?
An allowable amount is the maximum a health plan pays for a service, also called an eligible expense, payment allowance, or negotiated rate. It's crucial for reimbursements and patient costs, with patient cost-sharing based on this amount. A billed charge is the amount a provider charges, which may be more than the allowable amount, potentially leaving the patient responsible for the difference unless they are a preferred provider who cannot balance bill for covered services.
Allowable amount: The maximum amount a health plan will pay for a covered health care service.
Billed charge: The amount a provider charges for a health care service.
Impact on patient: Patient cost-sharing (copays, coinsurance, deductibles) are calculated based on the allowable amount. If a provider charges more than the allowable amount, the patient may be responsible for the difference (unless balance billing is prohibited).
What are examples of an Allowable Amount?
A patient visits a doctor who charges $150 for an office visit. The patient's health plan has an allowable amount of $100 for that service. The patient's 20% coinsurance would be calculated on the $100 allowable amount, meaning they pay $20, and the health plan pays the remaining $80. The patient is not responsible for the $50 difference because the doctor is a preferred provider.
A hospital charges $5,000 for a specific surgical procedure. The patient's insurance plan has negotiated an allowable amount of $3,500 for that procedure. If the patient has met their deductible, their 10% coinsurance will be based on the $3,500 allowable amount, making their out-of-pocket cost $350.
A medication has a retail price of $200. The patient's prescription drug plan has an allowable amount of $120 for that medication. The patient's copay of $30 is applied to the allowable amount, and the plan covers the remaining $90.
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