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Usual, Customary & Reasonable Charges in Insurance

Instructor: Deborah Schell

Deborah teaches college Accounting and has a master's degree in Educational Technology.

Your health insurance plan may not reimburse you for all costs as they apply criteria to determine the maximum payout. In this lesson, you will learn about usual, customary and reasonable charges.

What Are Usual, Customary and Reasonable Charges?

Let's meet Maxine who has a health insurance plan. She recently submitted her first claim but did not receive a 100% reimbursement of her costs. Her insurance company noted that it was paying based on usual, customary and reasonable charges but Maxine doesn't know what this means. Let's see if we can help Maxine with this problem.

Usual, customary and reasonable charges represent the maximum amount that an insurance company will pay to a policyholder in a particular situation. These charges are usually the lower of the usual fee that the provider (i.e. doctor or dentist) charges for the service, the customary fee that a provider would charge in that city, or the amount the provider charges for a service that is necessary given the policyholder's situation.

Usual charges are those that are consistent with the fee the physician or dentist usually charges for a particular procedure. For example, if Maxine went to the dentist and the dentist usually charges $100 for a visit, then this amount would represent his/her usual charge for an office visit.

Customary charges are those that are within a range that most doctors or dentists in a certain area charge patients for a particular procedure. Let's assume that the range of fees for an office visit in Maxine's town is $90 to $120. If her dentist charged her $100 for an office visit, then her fee would be within the range for her area. Customary charges are sometimes calculated using a percentile of all fees submitted by policyholders for a particular procedure for a town or city.

Reasonable charges are fees that are usual and customary or those charges that are consistent with the fee that would be charged for a policyholder experiencing a similar condition.

A number of factors can influence a policyholder's policy and coverage, including:

  • Geographic region
  • Network provider
  • Out-of-network provider

Let's examine each of these in more detail.

Influence of Geographic Region

Insurance companies monitor the charges that healthcare providers in communities charge for services they provide to policyholders. If a healthcare provider charges a higher amount than the insurance company determines to be usual, customary and reasonable for that procedure in the community, the policyholder will pay the amount that is greater than the usual, customary and reasonable charges.

Let's assume that Maxine incurs $700 of costs for a procedure in her hometown and her insurer pays 75% of the usual, customary and reasonable charges. Her insurance company determines that the usual, customary and reasonable cost of this procedure in her community is $450. Maxine would be responsible for paying $112.50 (25% x $450) for the amount of usual, customary and reasonable charges that her insurer doesn't pay plus $250 ($700 - $450), as the insurance company would base its reimbursement on $450. In total, Maxine would pay $362.50 for this procedure.

Influence of Network Provider

Many care programs have agreements with doctor networks who agree to be reimbursed for particular procedures at pre-determined rates. Therefore, usual, customary and reasonable charges don't normally apply if you visit a healthcare provider who is in your network. You may still be responsible for any co-payment amounts which are pre-determined prices for healthcare services.

Let's assume that Maxine visits a doctor that is in her network and she is charged $100 for the office visit. She doesn't have to worry about usual, customary and reasonable charges, but because her plan requires a $25 co-payment for a doctor's visit, she would pay this amount herself.

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