Allowed Amount
The maximum amount a health insurer will pay for a covered healthcare service.
What is Allowed Amount?
The allowed amount (also called the 'maximum allowable,' 'eligible expense,' or 'negotiated rate') is the maximum dollar amount a health insurance plan will pay for a specific covered medical service or procedure. For in-network providers, this is the rate negotiated between the insurer and the provider — the provider agrees to accept this amount as full payment, protecting enrollees from charges above it. For out-of-network providers, the allowed amount may be based on a reasonable and customary rate standard, and providers may bill patients for the difference between their charge and the allowed amount — a practice known as balance billing. Understanding the allowed amount is essential for estimating cost-sharing responsibilities, because deductibles, coinsurance, and copayments are calculated as a percentage or fixed amount of the allowed amount, not the provider's original charge.
Example
A surgeon charges $5,000 for an in-network procedure. The insurer's allowed amount for that procedure is $3,500. The surgeon accepts $3,500 as full payment. If the patient has met their deductible and has 20% coinsurance, they owe $700 (20% × $3,500) and the insurer pays $2,800. The $1,500 difference between the charge and allowed amount is written off.