When you run across the term allowed amount on your health insurance explanation of benefits (EOB), it can cause some confusion.This article will explain what an allowed amount is, and why it matters in terms of how much you'll end up paying for your care.
The allowed amount is the total amount your health insurance company thinks your healthcare provider should be paid for the care he or she provided.The allowed amount is handled differently if you use an in-network provider than if you use an out-of-network provider.
And the amount you actually have to pay for the service will depend on the specifics of your health plan and possibly also on how much you've already spent in out-of-pocket costs so far this year.
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Allowed Amount With In-Network Care
If you used a provider that’s in-network with your health plan, the allowed amount is the discounted price your managed care health plan negotiated in advance for that service.
Usually, an in-network provider will bill more than the allowed amount, but they will only get paid the allowed amount. You don’t have to make up the difference between the allowed amount and the actual amount billed when you use an in-network provider.
Instead, your provider is required to write off whatever portion of their billed amount that's above the allowed amount, because that's part of their contract with your health plan. That’s one of the consumer protections of using an in-network provider.
However, this isn’t to say you’ll pay nothing. You pay a portion of the total allowed amount in the form of a copayment, coinsurance, or deductible. Your health insurer pays the rest of the allowed amount, if applicable.
(Your insurer won't pay anything if you haven't yet met your deductible and the service you've received is being credited towards your deductible. But if the service has a copay instead, the insurer will pay their share after you've paid your copay. And if it's a service for which the deductible is applicable and you've already met your deductible, your insurer will pay some or all of the bill.)
Anything billed above and beyond the allowed amount is not an allowed charge. The healthcare provider won’t get paid for it, as long as they're in your health plan's network. If your EOB has a column for the amount not allowed, this represents the discount the health insurance company negotiated with your provider.
To clarify with an example, maybe your healthcare provider's standard charge for an office visit is $150. But she and your insurance carrier have agreed to a negotiated rate of $110. When you see her for an office visit, her bill will show $150, but the allowed amount will only be $110. She won't get paid the other $40, because it's above the allowed amount.
The portion of the $110 allowed amount that you have to pay will depend on the terms of your health plan. If you have a $30 copay for office visits, for example, you'll pay $30 and your insurance plan will pay $80. But if you have a high-deductible health plan that counts everything towards the deductible and you haven't yet met the deductible for the year, you'll pay the full $110.
As long as you stay in-network, you won't pay more than the allowed amount. This amount will vary depending on the service, the provider, and the health plan. A health plan will have different allowed amounts (for the same service) with different providers. So the details are all plan specific.
Allowed Amount With Out-Of-Network Care
If you used an out-of-network provider, the allowed amount is the price your health insurance company has decided is the usual, customary, and reasonable fee for that service.
An out-of-network provider can bill any amount they choose and they do not have to write off any portion of it. Your health plan doesn’t have a contract with an out-of-network provider, so there’s no negotiated discount. But the amount your health plan pays—if any—will be based on the allowed amount, not on the billed amount.
And that's assuming your health plan covers out-of-network care at all. Some do not, unless it's an emergency situation.
If your health plan covers out-of-network care and you owe coinsurance (i.e. you've already met the out-of-network deductible, or it's a service that's covered with coinsurance pre-deductible), the health plan will calculate your coinsurance amount based on the plan's allowed "reasonable and customary" amount, not the amount that the medical provider bills.
The same is true for copays and deductibles when you choose to use an out-of-network provider. Assuming your health plan has out-of-network coverage, you'll pay whatever copay or deductible the plan sets, the plan will pay the portion it considers reasonable and customary, and then you'll be responsible for paying the rest of the medical provider's bill.
And again, that's assuming your plan includes out-of-network coverage; most HMO and EPO plans do not, meaning that you'd have to pay the entire bill yourself if you choose to see an out-of-network provider in a non-emergency situation.
How an out-of-network provider handles the portion of the bill that’s above and beyond the allowed amount can vary. In some cases, especially if you negotiated it in advance, the provider will waive this excess balance. In other cases, the provider will bill you for the difference between the allowed amount and the original charges. This is called balance billing and it can cost you a lot.
If you choose to see an out-of-network provider, you're likely aware that your costs will be higher than they'd be with an in-network provider. But for many years, patients were stuck dealing with "surprise" balance bills for situations when they had no choice but to use an out-of-network provider. Specifically, emergencies as well as scenarios in which an out-of-network provider works at an in-network facility, with the patient unaware that not everyone at the facility is in-network with their health plan.
But the No Surprises Act, a federal law that took effect in 2022, protects consumers from these types of surprise balance billing in most situations. Ground ambulance charges are an exception, as they can still result in a surprise balance bill.
But for other emergency medical care, and for situations in which an out-of-network provider treats a patient at most types of in-network facilities, the patient can no longer be sent a balance bill (with limited exceptions in which the patient agrees in writing to receive out-of-network care).
Why do health insurers assign an allowed amount for out-of-network care? It’s a mechanism to limit their financial risk. Since health plans that provide out-of-network coverage can’t control those costs with pre-negotiated discounts, they have to control them by assigning an upper limit to the bill.
Let’s say your health plan requires that you pay 50% coinsurance for out-of-network care. Without a pre-negotiated contract, an out-of-network provider could charge $100,000 for a simple office visit. If your health plan didn’t assign an allowed amount, it would be obligated to pay $50,000 for an office visit that might normally cost $250. Your health plan protects itself from this scenario by assigning a "reasonable and customary" allowed amount to out-of-network services.
Unfortunately, in protecting itself from unreasonable charges, it shifts the burden of dealing with those unreasonable charges to you. This is a distinct disadvantage of getting out-of-network care and is the reason you should always negotiate the charges for out-of-network care in advance, and try to receive care in-network as much as possible.
It's also important to note that health plans do not have to limit how high your out-of-pocket costs can be for out-of-network care. For in-network care, your out-of-pocket costs under most health plans can't be more than $9,450 for a single person in 2024 (dropping to $9,200 in 2025). But there are no limits on how high out-of-pocket costs can be for out-of-network care. So health plans can set those limits themselves, or even have no limit at all.
Summary
The allowed amount is the amount that a health plan has determined to be a fair price for a given medical treatment. If the medical provider is part of the health plan's network, the provider and the health plan have agreed on a specific allowed amount, and the provider agrees to write off any charges above that amount. The health plan may have different allowed amounts for the same service, since their contracts vary from one medical provider to another.
Some health plans cover out-of-network care, while others do not (unless it's an emergency). If a health plan does cover out-of-network care, they will have an allowed amount, or "reasonable and customary" amount, for each medical service. If the plan member receives covered out-of-network care, the health plan will pay that amount, minus any cost-sharing that the patient is required to pay. But in most circ*mstances, the medical provider can then bill the patient for the rest of their charges, above the allowed amount, since they do not have a contract with the patient's health plan.
The allowed amount is an important reason to use medical providers who are in your health plan's network. As long as you stay in-network, the medical provider has to write off any amount above the allowed amount. This is especially important if the charges are being counted toward your deductible and you have to pay the whole amount. Instead of paying the entire amount that the provider bills, you only have to pay the allowed amount, which will be a smaller charge.
