Explained – Terms ‘Preferred Providers’ & ‘Preferred Allowance’ in US health insurance

When you buy health insurance in the US, you usually come across the terms like ‘Preferred Provider’ or ‘Preferred Allowance’. Those who understand the literal meaning of the word ‘preferred’ are able to guess what the health insurance policy wants to convey to him or her through those words.

The word ‘preferred’ generally means wishing, liking, desiring or choosing something over the other. But what is that something and who decides which one to choose is the question. In this blog, Student Cover tries to explain the terms to help insurance buyers, especially students, make right choices in order to get maximum benefit from their health insurance policies. Mind you that ignorance of the term could get an insurance buyer in trouble at the time of settlement of a medical bill.

Preferred Provider & Preferred Allowance

Almost all health insurance companies in the US follow what is referred to as ‘cost-sharing’ model. In this, an insurance buyer has to bear a portion of the treatment cost with the health insurance company whenever he or she undergoes treatment. The cost sharing is done in the form of “deductibles, co-pays and co-insurance”. Those who wish to know more about cost sharing may click here.

Health insurance companies usually enter into an agreement with hospitals or medical providers, wherein they fix the cost of a particular treatment (check-up, surgery, diagnostic tests etc.) or other health services (in-patient accommodation, emergency room service etc.) whenever their client undergoes treatment in those hospitals. Such hospitals are called ‘Preferred Providers’. Some health insurance companies also refer to them as ‘In-Network Providers’.

Therefore, the word ‘Preferred Allowance’ means that sum of money that a preferred medical provider will accept as payment for the covered medical expenses of the insured patient whenever he or she undergoes treatment.

These costs are pre-decided and hence the hospitals charge only that much amount in the medical bill. The underlying economic logic behind such agreements between health insurance companies and medical providers is that it saves insurance companies money by fixing treatment cost at rates which are comparatively less than the usual rate.

Hospitals on the other hand benefit through high footfall of those insured patients.
Therefore, it is the hospitals which decide which of the medical providers are considered to be ‘Preferred Provider’ and who is ‘out-of-network’ hospital.

Why choose preferred providers over others?

Now, after having understood what preferred provider and preferred allowance is, one must also understand its applicability.

Health insurance companies, because they already have an arrangement with preferred providers, offer higher co-insurance and charge lower co-pays and deductibles whenever their clients get treated in a preferred provider hospitals or medical institutions.

For example, international students who have enrolled themselves Student Cover Elite plan during their studies in US Universities get a co-insurance coverage of 90% when the get treated in Preferred Provider hospitals. The applicable out-of-Pocket Maximum is also $3,000 which is way lower when compared with ‘out of network’ provider.
In contrast, insurance companies offer less co-insurance (50-70 percent) and charge higher co-pays and deductibles in case of a client getting treatment from ‘Out-of-Network’ hospitals.

Almost all health insurance companies have a list of preferred providers in their website. One can get the list of their nearest preferred provider hospital or clinic etc. by entering his or her current location.

Does my insurance plan cover ‘out-of-network’ providers?

Kindly note that health insurance companies provide cover to their clients, irrespective of whether it is a preferred provider or Out-of-Network hospital. The only difference between the two is that the insured has to bear a lower proportion of the medical treatment cost (i.e. lower co-insurance, higher co-pay, and higher deductible) for the former as compared to the latter.

For example, Student Cover Elite offers 70% co-insurance coverage with ‘non-preferred providers’ as compared to 90% co-insurance in preferred providers. The out-of-pocket maximum at $ 7,000 is also higher at non-preferred providers as compared to just $ 3,000 in case of preferred providers.

However, in the absence of any preferred provider in the 50-mile* area of the insured’s location, or in case of emergency treatment, health insurance companies treat non-preferred providers as preferred providers and offer 90% co-insurance.

What services are included in preferred allowance?

All Health insurance companies have a list of services that qualify for preferred allowance. And although the exact amount is never mentioned as they vary from one hospital to another, plans such as Student Cover Plans (SC Essential, SC Basic, SC Plus, SC Elite) have detailed information on the services where insurance company pays preferred allowance. The list includes everything from standard check-up to surgery and recuperation.

For example, for in-patient treatment of students covered used Student Cover Plan, preferred providers accept preferred allowance for semi-private room when confined as In-patient and general nursing care by the hospital.
Readers can download the treatment and services that invite preferred allowance from the websites of their respective health insurance companies.

Student Cover offers health insurance for international students going to the US for higher studies through its Student Cover plans. These plans are accepted in 90% of the universities and colleges in the US and are comparable with Affordable Care Act Plans. If you wish to know more about Student Cover plans, kindly contact us at info@studentcover.in

Disclaimer: The information given in the blog above is based on the personal research and understanding of the writer. Readers are advised to go through the terms and conditions of individual plans and exercise discretion while purchasing any student health insurance plan.