5 Basic Insurance Terms for Therapists Explained

With health insurance comes a lot of complicated terms and concepts. We understand it can be overwhelming and frustrating. That’s why we offer professional billing services that take care of all this complicated insurance nonsense for you.

But even if you take advantage of our cost-effective billing services, it is still helpful to understand some basic insurance terms. So, below, check out our quick explainer of four basic insurance terms.

Allowed Amount (or Contracted Rate)

Generally when you contract with an insurance company there’s the rate you charge and the “Allowed Amount” (aka “Contracted Rate”). This means you may normally charge $150 for a standard one-hour office visit (90837), but you agree to charge and take payment of $100 from the insurance company or its customer for the same type of visit.

When you bill the insurance company your full rate, they will automatically adjust it down to your allowed amount.

Deductible

A deductible is a threshold determining when your client stops paying the full cost of their healthcare. For example:

Brian has a $1000 deductible. Starting in January, he sees you five times at your contracted rate (the rate you’ve negotiated with Brian’s insurance company) of $100 per session. He also has a hospital stay that charges $500.

Brian is responsible for paying $1000 for healthcare, $500 to you and $500 to the hospital. That is within his deductible, so he’s responsible for paying the full $500 to you and $500 to the hospital. His insurance company will not reimburse you because Brian is responsible for the full cost.

Note: In some plans, certain services are exempt from the deductible. If that’s the case for your services, clients will only pay coinsurance or a copay regardless of the plan’s overall deductible. Read on to learn more about those two terms.

Now that Brian has reached his deductible, going forward he will not be responsible for the full cost of his care. Instead, he’ll have to pay…

Coinsurance

Coinsurance is where the cost of healthcare is split between the client and their insurance company. This is always expressed as a percentage of the cost of care.

If Brian’s coinsurance is 20%, Brian is responsible for paying 20 percent of the the Contracted Rate. If you bill $150 for a 90837, but your contracted rate is $100, the insurance company will pay you 80% ($80) of the contracted rate and Brian would owe you 20% ($20) per session after reaching his deductible.

However, Brian’s plan may not have coinsurance when he reaches his deductible. Instead, he may pay a…

Copay

Instead of being percentage-based like coinsurance, a copay is a flat fee that you charge the client per session. This rate is determined by the insurance company.

In this scenario, Brian has reached his deductible and is now responsible for a flat $35 per session, regardless of how much your contracted rate is. The insurance company will then reimburse you for the remaining $65.

Brian will continue paying either a copay or coinsurance until he reaches his…

Out-of-Pocket Maximum

The out-of-pocket maximum is the maximum amount of money a client is allowed to pay for healthcare in a year. This usually includes all costs that counted towards a client’s deductible and all coinsurance or copays they paid after reaching the deductible.

Once a client has reached their out-of-pocket maximum, they will not pay any more healthcare charges that year.

For instance, Brian has an out-of-pocket maximum of $3000 per year. Once he’s spent $3000 on healthcare for the year, you won’t charge Brian at all for the rest of the year. Instead, the insurance company will reimburse your for your full contracted rate of $100.

Those are five basic insurance terms that will help you understand how much money you’ll make from insurance clients, how much you should charge the client directly, and how much insurance will reimburse you.

If this is all still a bit too much, you should check out BreezyBilling, our professional billing services just for therapists. We’ll check your client’s insurance benefits, handle all the insurance billing, and more. Then you can focus more on doing what you love: helping your clients and growing your practice.