This short article will explain what the allowed amount, or contracted rate, means on your mental health EOBs.

Like every industry, the insurance claims industry has developed a fair number of new terms and its own jargon.  Allowed amount, contracted rate, disallowed amount, deductible, coinsurance, par and non participating providers, PPOs and HMOs and Open Access. If you went to school to become a therapist, it’s sort of insane that you have to spend all your time learning what all of these terms means, just to do your job.

At TheraThink, we’re here to help, both with content like this, our Q&A portal, and of course, our mental health billing service.

What Does the Allowed Amount Mean?

On any explanation of benefits (EOB from an insurance company, the allowed amount, also called the contracted rate by some insurance companies if you are in-network, will be listed per appointment / service code billed.

The allowed amount is what the insurance company deems you are eligible to receive in the form of payment from the insurance company and the client, combined, for that claim.

Every claim has an allowed amount listed.

It is important to note that your allowed amount is not your full fee.  We regularly correct therapists about this fact:  when you are submitting a claim to an insurance company, they are almost always going to negotiate your full fee down in some way.  This reduction of your full fee for the client is called a EOB claim adjustment.  You are not eligible to collect this amount from the client.  Doing so is insurance fraud.

What Is the EOB Formula to Understand Who is Paying For What?

Your Full Fee – Claim Adjustment = The Allowed Amount (also called the Contracted Rate — they are exactly the same)

The Allowed Amount = The Reimbursement From The Insurance Company + The Patient’s Responsibility For Payment.

Allowed Amount Example Scenarios on Mental Health EOBs

Scenario 1

You bill $150 over to Cigna.

They adjust your claim by $70.  This is the amount you are not allowed to collect from anyone.  Please do not do so!  That is insurance fraud.

The allowed amount amount is therefore ($150 – $70) = $80.

The client has a $20 copayment for each individual 60 minute therapy session.  They pay $20.

Therefore, the amount the insurance reimburses is $60.

$20 Copay + $60 Insurance Reimbursement = $80 Allowed Amount.

Scenario 2

You bill $150 over to Cigna.

The client has a high deductible plan.  Cigna doesn’t adjust the claim down at all.  Therefore the client pays $150 out of pocket directly to the provider.   This $150 is also applied against the client’s deductible, and as each claim is adjudicated for payment, the amount remaining on their deductible decreases.

So, your full fee is $150.

The allowed amount is $150.

The patient responsibility, as a deductible payment, is $150.

You collect $150 directly from the patient.

Scenario 3

You bill $150 over to Cigna

The client’s deductible is met, and they have a 40% coinsurance.

Cigna allows $80 for this claim.  $80 is the allowed amount.

Therefore, with a 40% coinsurance payment on the allowed amount, the patient responsibility is $32.

The insurance company pays $48.

Totaling the allowed amount of $80.

Scenario 4 (advanced)

You bill $150 over to Cigna.

The client’s out of pocket maximum has been met on their high deductible and 40% coinsurnace plan on this exact date of service / claim.

Cigna allows $80.  The client only had $22 left on their out of pocket maximum.  So they pay $22, instead of $32 (scenario above), and the insurance pays $58.  Then henceforth they have no coinsurance payment.

EOBs are Hard to Explain No Matter Who You Are

You can see from these example cases that the amounts posted on EOBs, even for very similar plans, can vary dramatically.  As in scenario 4, a provider may be very confused about why the client’s patient responsibility has changed, often looking at the insurance company to fault.  The simple fact is that there are many different factors at play influencing each amount on EOBs and they can be extremely difficult to understand.

How Can I Always Understand EOBs?

Unfortunately, it required reading each one and tracking all of their payments, including many phone calls to their insurance plan, to understand perfectly what’s going on with each payment.

This is one of the biggest reasons that mental health providers looking for insurance billing help choose TheraThink:  we provide EOB accounting and reconciliation as a major feature of our service.

Your best bet to do it on your own is to call, use a very detailed spreadsheet, and take extensive notes for each date of service when  you do a call.  We track the claim number, allowed amount, patient responsibility, amount reimbursed by the insurance company, check number for that payment, and reference number for that call for each date of service we finalize.   We compare that information against our most recent eligibility and benefits verification phone call and possibly do another to confirm changes.

It’s a big time commitment to track this information perfectly and our process is extensive, but required to provide the outcomes we want to provide to the folks we work with.

But hopefully you now understand, as a mental health provider, what the allowed amount on EOBs refers to and how to use it to understand the amount the client owes and what you’ll be paid by insurance.