I got a very good question from a reader that I thought I should add as
a post since others may have the same question.
James asked “Very informative article. Truly appreciate the
transparency and simplicity. You stated that hospitals write off the difference
between what the insurance company actually pays and what the hospital actually
charges? Wouldn't that mean that that the patient would not be billed after
insurance is applied? Again, thanks for the explanation.”
James, thank you for your question. It is a very good one and the
answer can be a little confusing. I hope I can be clear, but if not feel free
to ask follow up questions as needed.
Insurance companies have a set amount that they will “allow” for
medical services and procedures. The keyword is allow. The amount that the
insurance allows is NOT always the same as the amount that the insurance will
pay. The allowed amount is the total amount of money that the medical care
provider can ultimately have. It is a combination of the amount the insurance
will pay plus the amount for which the patient is responsible. The calculation would
look like this:
Patient responsible amount + insurance payment = allowed amount
The patient must pay any difference between the allowed amount and the
insurance’s payment amount. Like this:
Allowed amount – insurance payment = patient responsibility
The write off amount is the amount that exceeds the insurance company’s
allowed amount. For example:
A medical care provider charges $1,000 for a service.
The insurance ‘allows’ $500
The insurance pays $250
Charge : $1000
Allowed amount: -$500
Write off: $500
Of the $500 that the insurance allowed, the insurance (in this
hypothetical example) only pays $250, therefore, the patient is responsible to
pay $250. The total of the patient payment plus the insurance payment matches
the allowed amount of $500.
As you see in the example, the patient cannot be billed for the write
off amount (e.g. the difference between the charge and the insurance’s allowed
amount). The patient can, however, be charged for the difference between the
insurance’s allowed amount and the amount that the insurance actually paid.
I hope this was clear. If you do have follow up questions, please feel
free to post them and I will do my best to answer. Again, thank you for the
question!
