An allowed amount is the maximum amount of money that a health insurance company, or a payor, will pay a healthcare provider for a specific health care service. It may also be referred to as a negotiated rate, eligible expense, or payment allowance.
The allowed amount of a health plan can vary between in-network and out-of-network providers.
Patients are generally not responsible for paying any difference between the amount billed and the allowed amount when they use an in-network provider. However, they are still responsible for paying any co-pays, co-insurances, or deductibles. The payor then pays the remaining allowed amount to the healthcare provider. Balance billing occurs if a healthcare provider charges more than the allowed amount, leading the patient to be responsible for paying the difference.
For out-of-network providers, the allowed amount is what the insurance company has decided is the usual, customary, and reasonable fee for that service. However, not all insurance plans, like most HMO and EPO plans, cover out-of-network providers. In these cases, the patient may have to pay the entire bill out-of-pocket.