Health Insurance 101: What’s an Allowable Cost?

You may not love to hear it, but it’s how U.S. insurance companies aim to keep overall costs down.

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Whether your employer is providing an insurance plan, or you’re on a state-sponsored marketplace, you’d think that you’re buying into full coverage… right? Well, not exactly. Health insurance in the United States has a lot of nuances, and one thing you’ll need to be aware of is allowable cost.

Health Insurance 101: What’s an Allowable Cost?

Most insurance plans will set something called an allowable cost. That’s the amount that the insurance is willing to cover for a certain procedure, service, or test.

The allowable cost may not be the full amount that the doctor is billing for. This means you may need to pay the difference. For example, if a doctor bills $200 for an office visit, your insurance company may only reimburse $75. It is then up to your doctor whether the office will charge you for the difference.

This helps the insurance company keep costs down and allows as many people as possible to buy into the plan. It also helps lower your premiums (monthly fees). Some doctors may take on an insurance company’s allowable cost and may only charge you a copayment or coinsurance (and we love them for it).

Allowable cost may go by other names depending on your insurance plan, like:

  • Eligible expense
  • Payment allowance
  • Negotiated rate

OK—So What Is Something That’s Not… Allowed?

Insurance plans are more likely to set an allowable cost for certain things, including services that they deem cosmetic, complementary, or otherwise “inessential” (even if you disagree). On the other hand, preventative and necessary services are almost always fully covered.

Have questions about an allowable cost for a particular procedure? Check with your insurance before you schedule a service. That way, you can better understand how much of the cost you’ll be responsible for.

Ask your doctor for the service codes they’d submit to insurance (universal IDs), so you can call your insurance representative to investigate whether it’s fully covered. This way, you’ll at least know what you may need to budget for, or so you can set up a payment plan with your provider.