Ask an Expert Part 2: Billed Amounts versus Allowed Amounts

Welcome to Part 2 of our 3 part series on Health Insurance. You may have asked yourself before, "Why am I getting a huge bill for a simple service?" While it is not necessarily the most "exciting" topic, understanding the differences between billed amounts and allowed amounts are important to know what you are paying and why!

Why did my doctor bill my insurance $500 for a simple service?!

This can be explained by differentiating between the “Billed Amount” vs the “Allowed Amount.” The “Allowed Amount” applies if you are going to a physician that is IN-NETWORK with your insurance company. An in-network provider has a signed a contract with your insurance company agreeing to your insurance company’s fees instead of the provider’s set fees.

EACH insurance company negotiates their own “Allowed Amounts,” meaning the same exact service performed by the same exact provider could have completely different costs for patients with different insurance companies (BCBS vs Humana vs United Healthcare vs Medicare).

Providers are REQUIRED to set only ONE billed fee schedule which means that they have to set their “Billed Amount” to the amount the highest payer will pay for the service.

Example: A provider’s office is in-network with both BCBS and United Healthcare. In their contract with BCBS, BCBS has set an “Allowed Amount” for an x-ray at $40. In their contract with United Healthcare, United Healthcare has set an “Allowed Amount” for the same x-ray at $80. This difference in “Allowed Amounts” means a few things:

1. A patient with BCBS will pay $40 while a patient with United Healthcare pays $80 for the same exact service. This difference has nothing to do with what the provider bills. It is entirely due to the rates negotiated and contracted by your specific insurance company.
2. The provider MUST bill for the highest contracted dollar ($) amount to receive full reimbursement. In this example, the provider would have to set their “Billed Amount” to more than $80 because that is what United Healthcare will pay for the service, but they have to bill BCBS $80 as well since they can only have ONE billed fee schedule.
3. The difference between the “Billed Amount” and the “Allowed Amount” is the “Contractual Write-Off.”
4. If the provider bills less than the highest payer, the provider can only collect the billed amount, so if the provider billed $40 to both BCBS and United Healthcare, both companies would only pay $40 even if United Healthcare’s “Allowed Amount” is $80. An insurance company is not going to pay a provider their full “Allowed Amount” if the provider bills less than that amount.

This is why “Billed Amounts” can seem excessive to patients, because different patients are paying different fees for services based on their insurance companies negotiated contract. Check out some scenarios below of how to break these payments down to see what you are paying! 

Typical IN-Network Billing Scenario

Billing Scenario if Billed Amount is Less Than Allowed Amount

In sum, INSURANCE IS CONFUSING!!! But that’s okay because the experts at Signe Spine & Rehab are here to help you understand. We will continue providing empowering posts about how to understand your health insurance coverage and benefits! We want you to know what you’re paying for and why. 

Stay small, ask questions, and use the resources available to you, and you should start to feel more and more comfortable when talking to medical office and facilities about your bills. See you next week for Part 3 of Ask an Expert! 

Author

Nicohl Cave, CPC Insurance Coordinator and Certified Professional Coder. Nicohl has worked with the Signe Spine & Rehab for 3 years and is the expert about all things insurance, billing, and coding. She has 6 years experience working with health insurance and coding in various healthcare settings.