[birdiebill]

Medicare and private insurance reimbursements for medical claims are determined by taking the average of all usual and customary fees for a given procedure code. All health care providers know that they do not get reimbursed by insurance for the full fee they charge. They know what amount they will receive from either Medicare or private insurance and set their fee accordingly.

While I do not know the specific percentage of usual and customary fee, I will use this example. Suppose, in the case of the $1000 charge for a particular procedure, the approved amount by Medicare is $600 which is 60% of the average of all usual and customary billed amounts for that procedure. Remember this is just an example for easy math; I do not know the actual percentage applied to the average of the usual and customary fees. If the patient has met his medicare deductible, Medicare then pays 80% of the $600, or $480, and the patient or his/her supplement is billed for the remaining $120. The provider "writes off" the remaining $400 of the original charge. Writing it off means the provider deducts the $400 from the patient's account balance; the provider can not count the write off as a tax deduction against income though. It is just an accounting procedure to show the account has a zero balance after all insurance approved amounts have been paid.

If the provider knows that he/she will only get $600 approved for the procedure he bills the insurance, why does he not just bill $600 instead of the $1000? The reason is if the usual and customary amount for that procedure is billed by all providers at $600.00, insurance then will recalculate what they will allow. In the example above if the percent is 60%, the new allowed amount is .60 x 600 = $360 which is now the new amount allowed instead of the original $600.

The person without insurance is the one who suffers because when they get billed the usual and customary fee, they are expected to pay for the entire charge, not the amount that insurance companies approve. That is because providers must charge their usual and customary fee to all patients, or that fee is not usual and customary. They can not have one fee for insurance and another for non-insurance patients.