What does the term allowable charge refer to?

The term "allowable charge" refers to the amount that an insurer has agreed to consider as the maximum reimbursement for a specific service or procedure, which will be accepted as full payment. This figure is determined by the insurance company based on various factors including the typical cost of services in the geographic area, negotiated rates with providers, and the specific terms of the insurance policy. When a provider bills for a service, the insurer will assess the claim and pay the allowable charge, which may be less than what the provider initially billed. Consequently, it is common for healthcare providers to end up writing off the difference between their billed amount and the allowable charge, as they cannot collect these excess charges from the patient under many insurance agreements.

In contrast, while the total cost of medical procedures and the maximum fee providers can charge are relevant concepts, they do not specifically capture the insurer's role in determining allowable charges. The cost to patients after insurance pays refers to what the patient may still owe (such as copayments or coinsurance) but does not define the allowable charge itself. Therefore, defining the allowable charge as the amount an insurer will accept as full payment provides the clearest understanding of this term within the context of medical billing and coding.