Allowed Amounts

All throughout this guide, you have seen the term “allowed amount” mentioned over and over again. Allowed amount is that totally misunderstood, totally hard to predict, totally critical piece of the pie that brings everything into focus.

So what does allowed amount really mean?

If you have ever filed an insurance claim, be it homeowners, auto or health, you know that the amount you think should be paid and the amount the insurance carrier thinks the claim is valued at are usually two totally different amounts.

Medical providers spend a lot of time setting the rates and fees for each of the services that they perform and the CMS 1500 claim is billed to the carrier with these carefully selected billed amounts.

Once the health carrier receives that claim, that billed amount is “re-priced” to an amount that the carrier deems payable for that claim.

That amount is deemed to be the allowed amount. 

Every health carrier has a different methodology for determining which portion of that billed amount is considered eligible for coverage. The steps to determining allowed amounts could be tough to figure out. Any of the numerous methods could apply as determined by the health carrier and, in the case of managed care plans, as agreed to by the provider. Each method could differ by carrier and even by plan type.

The bottom line is that you should always have some idea how the claim will be processed by the health plan. Allowed amount is critical to revenue management as it helps you to understand what portion of the billed amount will be paid.

Knowing how much of the billed claim you expect to be considered for reimbursement will allow you to:

  • Determine what to collect upfront.
  • Determine if the claim was paid correctly.
  • Determine if you need to dispute or appeal the payment.
  • Determine if you need to balance bill the patient.
  • Determine the amount to adjust off.
  • Determine if you need to bill a secondary carrier.

And on a higher level, it helps the provider of service to understand if the decision to participate with a particular network is yielding the results needed to maintain that relationship or, at the very least, try to renegotiate the contract for better reimbursement.

The allowed amount is usually less than what the provider bills for that same service. So it is important to keep an eye on payments so you can anticipate and keep track of reimbursement. 

For Example

A doctor bills $100.00 for an exam and $25.00 for a blood test. The health carrier reduces the billed amount to $50 for the exam and $10.00 for the blood test.

The allowed amount is $50.00 for the exam and $10.00 for the blood test.

The claim is now processed as if the claim was billed for $60.00 instead of the $125.00 that was actually billed. This means that the amount applied to the plan deductible will be $60.00. The amount paid at the plan percentage is based on the lower amount of $60.00.  

Whether the provider is in network or out of network will determine what impact this lower-than-billed reimbursement will have on the patient’s wallet and the provider’s revenue.


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