How To Calculate Your Costs for Out-Of-Network Care—Doing the Math

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How To Calculate Your Costs for Out-Of-Network Care—Doing the Math

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Image © Michaela Begsteiger/Image Bank/Getty Images

When you get out-of-network health care, you pay a lot more for it than if you use your health plan’s in-network health care providers. Understanding what you’ll owe for care you get out-of-network is essential to avoid nasty financial surprises.

However, calculating what you’ll owe for out-of-network care is more complicated than for in-network care. In fact, 84% of Americans couldn’t calculate what they’d owe for a simple blood test from an out-of-network lab in this 2014 survey by the Kaiser Family Foundation.

The math itself isn’t that difficult. Instead, it’s correctly applying things like the allowed amount and balance-billing that can get confusing. These “gotcha” charges can be higher than the out-of-network coinsurance or deductible and result in you having to pay a lot more than you were expecting.

This step-by-step tutorial shows you how to calculate your costs for out-of-network care and gives practice examples to make sure you understand the math.

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The Out-Of-Network Gotchas: Allowed Amount & Balance Billing

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Image by Elizabeth Davis

Since your health plan doesn’t have a contract with your out-of-network provider, the provider can charge whatever he or she wants for the services provided. This leaves you and your health insurer at considerable financial risk when you get out-of-network care.

To limit this financial risk, your health insurer assigns an allowed amount to the charges. The allowed amount is what your health plan thinks is a reasonable amount to pay for the service rendered. Your health plan will essentially disregard the part of the bill that’s more than the allowed amount, leaving you to pay that part of the bill without help.

The difference between what the provider billed and your health plan’s allowed amount is known as the balance-billed amount because it’s the unpaid balance remaining after the allowed amount has been paid. In most cases, you’re responsible for paying the balance-billed portion of the bill.

Allowed amount + balance-billed amount = total bill.

You and your health plan share responsibility for paying the allowed amount based on cost-sharing rules for deductibles and coinsurance outlined in your health insurance policy. Your health plan credits payments toward your deductible and calculates your coinsurance based on the allowed amount, not based on what the provider actually billed.

How to Find the Allowed Amount

If you’ve already gotten out-of-network care, you’ll find the allowed amount listed in the explanation of benefits you get from your health insurance.

If you haven’t gotten out-of-network care yet and are trying to predict your costs, ask your provider for the CPT billing code or codes that describe the service you’ll be getting. Then, call your health plan and ask what the allowed amount is for out-of-network services described by those codes.

In step two, we’ll look at how the allowed amount affects your out-of-network deductible.

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Step 2: How To Calculate Your Out-Of-Network Deductible

Chalkboard with equation: Total Bill = Allowed Amount + Balance Billed Amount
Image by Elizabeth Davis

Your health insurance may have one deductible for out-of-network care and another deductible for in-network care. Frequently, these deductibles are separate; out-of-pocket costs credited to one deductible don’t count toward the other.

Also discouraging, many insurers don’t credit toward your deductible the balance-billed part of the charges you pay for out-of-network care. Instead, only what you pay up to the allowed amount is credited toward your out-of-network deductible. This makes it take longer to meet your out-of-network deductible than if everything you paid toward your out-of-network bill was credited. 

To calculate your costs for out-of-network deductible, you first need to find out what the out-of-network deductible is and how much of it you’ve already paid. Find this information

  • In your health plan literature, Summary of Benefits and Coverage, or Summary Plan Description.
  • Online at your health plan’s website.
  • By calling your health insurance company.

An Example

Let’s look at the following scenario for working with an out-of-network deductible:

  • Your out-of-network deductible is $3,000. (You’ve paid none of it yet.)
  • The bill from your out-of-network provider is $5,000.
  • Your health plan’s allowed amount for this service is $2,000.

In this case, you pay the entire $5,000; your health plan pays nothing. Why? Your health plan doesn’t begin to pay for your care until you’ve paid your out-of-network deductible. So, the first $2,000 you pay counts toward your deductible. Since your health plan doesn’t participate in paying for any costs beyond the $2,000 allowed amount, you’re stuck paying the $3,000 remaining balance on the bill, also.

In the end, you’ve paid $5,000 but only part of it was credited toward your deductible. You still have $1,000 to go before you’ve met your $3,000 out-of-network deductible for the year.

Next up, learn to calculate your out-of-network coinsurance charges.

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Step 3: How To Calculate Your Out-Of-Network Coinsurance Charges

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image © Talaj/E+/Getty Images

If you have a coinsurance rate of 40% for out-of-network care, don’t be lulled into assuming that means you’ll pay 40% of the cost of your care and your insurance company will pay the other 60%. As with the out-of-network deductible, your out-of-network coinsurance charges are calculated on the allowed amount, not on the billed amount. If the allowed amount is less than the amount your provider charged—and it usually is—it results in you paying a lot more than 40% of the bill.

An Example

The scenario:

  • Your out-of-network deductible has been paid.
  • You have 40% coinsurance for out-of-network care.
  • The bill is $5,000.
  • Your health plan’s allowed amount is $2,000.

You pay 40% of the allowed amount: $2,000 x 0.40 = $800. (If you can’t remember how to calculate a percentage, “How To Calculate Your Coinsurance Payment” will walk you through it.) Your health plan pays 60% of the allowed amount: $2,000 x 0.60 = $1,200.

You also pay the balance-billed portion: $5,000 - $2,000 = $3,000. In total, you pay $3,800; your health insurance pays $1,200.

In step four, we’ll pull it all together so you’ll know what you’ll owe when you get out-of-network care.

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Step 4: How To Calculate Your Total Cost for Out-Of-Network Care

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Image by Elizabeth Davis

To calculate your total costs for out-of-network care, add together your deductible costs, your coinsurance costs, and your balance-billed costs. Your health insurance will pay the portion of the allowed amount not covered by your deductible or coinsurance.

Example 1

  • $5,000 out-of-network deductible. You’ve paid nothing toward it yet.
  • 45% coinsurance for out-of-network care.
  • The bill is $8000.
  • Your insurer allows $4,000 for this service.

Before your insurer will start paying, you must pay your entire out-of-network deductible. Once you’ve paid $4000 toward the deductible, the allowed amount has been reached. Your insurer considers its responsibility for this bill to be fulfilled now; the amount paid has reached the allowed amount.

However, your provider still wants the rest of his or her money, so you also pay balance-billing charges:  $8,000 billed - $4,000 paid so far = $4,000 remaining. The $4,000 you pay in balance billing charges won’t get credited toward your deductible, so you still have $1,000 remaining before you meet your deductible for the year.

The score:
You paid $4,000 + $4,000 = $8,000.
Your Insurer paid nothing.

Example 2

Later that year, you get more out-of-network care. You still have the same health insurance.

  • You’ve paid $4,000 toward your out-of-network deductible. You have $1,000 to go before the deductible is satisfied.
  • 45% coinsurance for out-of-network care.
  • The bill from is $2,500.
  • The allowed amount is $2,000.

You pay the first $1,000 of the allowed amount which is credited toward your remaining out-of-network deductible for the year. Your deductible has now been satisfied.

You and your health insurer split the cost of the remaining $1,000 in allowed charges. You have a coinsurance of 45%, so you pay 45% of the remaining allowed amount and your insurer pays 55%. Your coinsurance charges are $1,000 x 0.45 = $450. Your health plan’s share is $1,000 x 0.55 = $550.

Now, the allowed amount of $2,000 has been paid so your health plan won’t pay anything else toward this bill. The provider balance-bills you for the $500 remaining on the bill.

The score:
You paid $1,000 + $450 + $500 = $1,950.
Your health insurance paid $550.

Example 3

Later that year, you get more out-of-network care.

  • Your out-of-network deductible has been paid.
  • 45% coinsurance for out-of-network care.
  • The bill is $2,000.
  • The allowed amount is $1,750.

You and your health plan split the cost of the allowed amount. Your coinsurance charges are $1,750 x 0.45 = $787.50. Your health plan’s share is $1,750 x 0.55 = $962.5.

You pay the balance billed amount. $2,000 - $1,750 = $250.

The score:
You paid $787.50 + $250 = $1,037.50.
Your health plan paid $962.50.

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