International students while buying health insurance often get confused with terms like ‘usual and customary charges’ and how they differ from ‘preferred allowance’.
In this blog, Student Cover tries to explain what is meant by usual and customary charges and how they differ from ‘preferred allowance.
What are ‘Usual and Customary’ charges?
Whenever one gets treated in a hospital or a medical provider, he or she is expected to pay an amount fixed by that hospital for a particular service, treatment or medical procedure. However, these amounts vary from one medical institution to another which creates a problem for health insurance providers to determine the amount that they should reimburse the patient for such treatment.
Therefore, in order to address this issue, health insurance companies promise to reimburse the patients the amount that they have determined as the ‘usual’ and ‘customary’ charge after thoroughly analyzing the fee charged by other similar medical providers (like hospitals) for similar service, treatment or medical procedure in that geographical area or region.
Illustration: If the surgeon’s fees for surgery to remove kidney stone in a hospital located in D.C area happens to be $5,000 (assumptive figure), then Health Insurance company would analyze the fee charged by other surgeons in that area or region. If on analysis, it is found that a large section of the surgeons (over 80 percent) charge $4,000 or less, the usual and customary charge would be $ 4,000. The patient would be reimbursed a percentage of $4,000 as per insurance terms and conditions. The remaining $1,000 would have to be borne by the patient.
Difference between ‘Usual and Customary’ charges and ‘Preferred Allowance’.
While both usual and customary charges and preferred allowance rates are already fixed by the health insurance companies, there is a difference between the two.
- • The preferred allowance is the amount that a medical provider, which has entered into an agreement with the health insurance company, will accept as payment for covered medical expenses.
- • Health insurance companies offer lower deductibles, lower co-pays and higher co-insurance for patients who have undergone treatment in preferred providers (in-network hospitals), than those who have undergone treatment in out-of-network providers (hospitals).
Student Cover plans such as SC Plus and SC Elite pay 80% and 90% of the preferred allowance when the treatment undertaken in preferred provider as compared to 70% of usual & customary charges when the treatment is undertaken in out-of-network providers.
- • Usual and Customary Charges on the other hand is the amount, a percentage of which a health insurance company would reimburse its client as per the terms and conditions of the plan.
- • Preferred allowance is charged by Preferred providers (in-network hospitals) while usual and customary charges are charged by out-of-network providers (hospitals).
Lets Wrap Up!
To conclude, it is more cost effective for an insured person to get treated in a medical provider which falls under the category of preferred provider (In-network provider) as against out-of-network provider.
Disclaimer: The content of the following article is based on the personal research of the writer. Readers are advised to go through the policy documents of health insurance plans and exercise discretion while purchasing them. Student Cover will not be held liable for any wrongful interpretation of the content of this article.