Navigating Out-of-Network Medical Claims

January 8, 2018


While the vast majority of PPO medical plans provide a benefit for both in-network and out-of-network care, such freedom does come at a price. To limit your financial liability, you'll want to ensure that services are received within your medical insurance carrier’s network as much as possible.

If you have ever received care from a non-network provider and subsequently received an unexpected bill, you have first-hand experience why this message of “stay in-network” is so important. Quite often, consumers are blindsided by the unknown costs of seeking out-of-network care. It is not just that most consumers are simply unaware of this reality, insurers bear a good deal of responsibility, too, because their plan materials do not clearly describe their method of calculating a non-network reimbursement.

Unlike in-network claims, insurance carrier reimbursements for out-of-network claims are not based on a negotiated rate. For out-of-network care, reimbursements are based on the insurance carrier’s “allowed amount,” which often feels like an arbitrary number.

So, what is an allowed amount and how is it applied? An allowed amount is the maximum amount an insurance carrier will pay for a covered health care service. Since a non-network provider is not bound by a contractually negotiated rate, there is no ceiling for what the provider may charge. As such, insurance carriers establish a dollar amount that they deem to be reasonable (allowed amount) for any covered service in order to cap their financial liability. The carrier’s cost sharing responsibility (co-insurance) is then calculated based on this capped amount multiplied by the co-insurance percentage level. If the non-network provider charges more than the carrier’s allowed amount, the difference is called the “balance billed amount,” and is fully payable by the insured. These balance billing figures can be astronomical, as they are unlimited.

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How does the insurance carrier determine the underlying allowed amount? While carrier contracts differ, below are examples of the most common ways carriers determine allowed amounts for out-of-network services.

1. Fee schedule – Insurance carrier internal data.  This data is inaccessible to the consumer and is only seen  when a claim is incurred. It is typically a blend of the in-network contracted rate and billed charges, or just the application of the in-network negotiated rate. 

2. Medicare allowable charges – Based on a multiple of the Medicare fee schedule. For example, a carrier may reimburse at 110% or 150% of Medicare.  While multiples can be as high as 300%, 110% is the most common. 

3. Usual, Customary, and Reasonable (UCR) – Average of billed charges from other providers in the same zip code region, and then typically reimbursed at 75% to 80% of that amount (also known as 75th or 80th percentile reimbursement). This is the most generous formula for determining allowed amounts, as the underlying dollar amount is based on actual billed charges.

Below are some tips to help ensure you stay in-network when seeking care and avoid potential financial pitfalls when you are forced to utilize out-of-network care.

1. Use all available insurance carrier resources to find in-network providers. If you register online with your carrier, you'll be able to locate in-network providers via their website at the click of a button without otherwise having to toggle through the various search parameters.

2. Choose your words wisely. Quite often, people ask, “Do you accept my insurance?” Providers typically say “yes,” but what the provider really means is that they will see you as a patient and bill the insurance carrier, not that they are contracted with your carrier’s network. The better question to ask is, “Are you an in-network provider with my insurance carrier?”

3. Negotiate with your out-of-network doctor. If you end up having out-of-network care rendered and are shocked by the amount you owe, try reaching out to your provider’s billing department and ask if they will accept your insurance carrier’s reimbursement as payment in full. The provider may prefer to accept that reduced payment, as opposed to chasing down the balance owed from you. You may also be able to work out a payment plan if you are ultimately responsible for the unpaid balance. 


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