Usual, Customary and Reasonable (UCR) rates are used by insurance companies to determine what amount of a medical bill the insurance plan will cover. UCR rates are determined by geographic region and the specific service provided. They may be applied when a patient receives care from an out-of-network provider and are used in Medicare billing. Like all aspects of your health insurance policy, an understanding of UCR rates and how they impact your financial responsibility will help maximize your benefits while avoiding unexpected expenses.
What Are UCR Charges?
Many patients are surprised to find themselves facing large out-of-pocket expenses even though they are “fully insured.” Usual, Customary and Reasonable (UCR) charges are often one reason for this situation as they indicate the “allowable charge,” or amount your plan will cover for the service. The following example shows how UCR rates are applied to a medical bill:
MD Consult Actual Charges = $250.00UCR Allowable Charge = $200.0080/20 plan pays Insurance Paid = $160.00Your 20% Co-Insurance = $40.00Balance Bill Remainder of Actual = $50.00Your Total Costs = $90.00
As this example illustrates, the amount of patient financial responsibility can be much greater than you originally expect. The application of UCR rates and balance billing in this example more than double the patient’s financial responsibility.
UCR and Medicare
UCR charges are not regulated by state or federal agencies, but Medicare does publish their UCR fee schedule. This is commonly referred to as “Medicare Allowable” charges. Providers who participate with Medicare agree to accept the Medicare allowable charge as full payment. Bear in mind that because Medicare is an 80/20 plan, the patient is still responsible for the 20 percent of the allowable charges not paid by Medicare.
- For example: You have chemotherapy in your physician’s office and Medicare is billed $500.00 for the service. The Medicare allowable or assignment for your chemotherapy treatment is $300.00. Your physician is paid 80 percent of $300.00 or $240.00. You are responsible for only the $60.00 not paid by Medicare but considered allowable under Medicare UCR fee schedule. This is because participating Medicare providers may not bill the patient for the balance amounts above the Medicare allowable fee schedule (known as “balance billing”). It is important to verify that your provider “Accepts Medicare Assignment” or is a “Medicare Provider” to avoid unexpected and potentially large out-of-pocket expenses.
A provider will sometimes notify a patient—either verbally or by written notification—that they may be subjected to balance billing after the insurance carrier has paid the allowable charge or if the claim is denied completely for reimbursement. This communication constitutes a “waiver of financial responsibility.” This happens most commonly when a provider anticipates that the insurance carrier may deny a claim and the physician and patient want to proceed with the therapy regardless of the insurance coverage.
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Network Providers and UCRs
Most health insurance policies covering Americans today use a specified “Network” of providers. Whether you have an HMO (Health Maintenance Organization), a PPO (Preferred Provider Organization), a POS (Point of Service), or another variant of one of these plans, you generally have the most extensive coverage when you use a provider who participates in the provider’s network.
These providers may include physicians, hospitals, outpatient diagnostic facilities, radiation therapy centers, outpatient infusion centers, or any other provider of medical services. When you remain within your provider network, you are not subjected to balance billing or UCR rates and charges. When your insurance carrier receives a claim on your behalf, they process claims payment per the terms of the contract. Once the claim has been processed, the provider and the patient both receive statements more commonly referred to as “Explanation of Benefits” (EOB). It is important to review each EOB you receive, as they will tell you the amounts paid to the provider as well as any financial responsibility you may have.
Patients may choose to go to providers not participating in their network. If you choose to do this, it is critical to make sure that you have “Out-of-Network” (OON) benefits under your policy. If you do not have OON benefits and you elect to receive care at an OON facility, you may not receive any insurance reimbursement. If you have OON benefits, your claim will be processed using the prevailing UCR rates for the services provided.
- For example: You seek care at an OON facility, and your policy provides for 60 percent coverage for OON care. The bill for your service is $1,000.00. The UCR for that service is $400.00. Your carrier will pay 60 percent of the $400.00 deemed UCR. The insurance company actually pays $240.00 of the $1000.00 bill. You are responsible for the balance of the bill or, in this example, $760.00. Many patients find that they have larger than expected medical bills due to the application of UCR rates at OON facilities.
Even if your policy has an out-of-pocket maximum, it is important to understand that ONLY your portion of the UCR amount allowed is applied towards your maximum. In the example above, only $160 (your portion of the amount the insurance company deemed payable) of the $760.00 you paid is counted toward your yearly out-of-pocket maximum. For this reason, many patients have much larger than anticipated medical bills when seeking services at an OON provider.
Seek Help if You Need It
When you sign up for health insurance–just like when you sign your auto or homeowner’s policies—you are entering into a contract with the insurance provider. Regardless of who the carrier is or what type of insurance you have, you are subject to the terms of the policy, so it’s critical to understand the way your policy works. Unlike your home owners’ or auto insurance policies, however, many Americans’ health insurance policies are part of an employee group plan or are part of the government’s Medicare or Medicaid plans. Many of the decisions regarding services are therefore not open for individual choice. However, understanding what type of plan you have and what limitations it contains will make you a better informed consumer of healthcare services.
When it comes to your health insurance policy, your best approach is to read and understand your plan. Should you find yourself facing unexplained charges, UCR disputes, or insurance denials related to your chronic or life-threatening illness, contact the Patient Advocate Foundation at 1-800-532-5274 or www.patientadvocate.org for individual assistance.