What is an Allowable Charge?
The allowable charge is the maximum amount that a health insurance payer agrees to reimburse for a specific medical service or procedure. The insurance company predetermines this amount and limits what it will pay to the healthcare provider. Depending on the insurance plan's terms and conditions, any costs exceeding the allowable charge may be the patient's responsibility.
How do you calculate the allowed amount?
To calculate the allowed amount for a healthcare service, identify the specific procedure using the appropriate code, consult the insurance contract and fee schedule for the rate, apply any adjustments or modifiers, and consider the patient's insurance plan details. For example, if an MRI has a Medicare rate of $500 and the provider's contract states reimbursement at 80% of this rate, the allowed amount would be $400.
Examples of Allowable Charges
1) Blood Test:
The insurance payer determines an allowable charge of $50. If the lab bills $60 for the test, the insurance will reimburse up to $50. Depending on their insurance policy, the patient might have to pay the $10 difference.
2) MRI Scan:
The insurance payer allows $400 for this MRI. If the hospital charges $500, the insurance will pay $400. The patient may be responsible for the remaining $100, subject to their insurance coverage terms.
3) Physical Therapy Session:
The insurance payer sets the allowable charge at $75. If the physical therapy clinic charges $90, the insurance will reimburse $75. Depending on their insurance plan, the patient may need to pay the remaining $15.