Customary Charges in Insurance Plans

The use of reasonable and customary charges isn't found in all insurance plans. Instead, these charges are generally applied to fee-for-service plans as well as out-of-network visits in PPO and POS plans.

In fee-for-service plans, or indemnity insurance plans, you have the freedom to pick which doctors or hospitals you want to use, but the insurance company only pays a certain percentage of the bill. In these plans, the insurance company will usually pay 80 percent of the reasonable and customary charge of your medical service. Therefore, you're required to pay the additional 20 percent of these charges. This amount is known as coinsurance. However, if there's a discrepancy between what your provider charges and what your insurance plan is willing to pay, then you'll be responsible for even more of the bill.

Photographer: Elnur I Agency: Dreamstime.com Insurance companies will pay a certain amount of the bill, the remaider, or co-pay, is your responsibility.

For example, if your doctor charges $125 for which the insurance company's reasonable and customary charge is $100, the insurance company will only pay 80 percent of the $100, or $80. Thus, you will be responsible for the remaining 20 percent of the bill in addition to the balance above the customary charge, or $45 total in this example.

In point of service (POS) and preferred provider organization (PPO) plans, reasonable and customary charges don't influence your bill if you stay within the plan's network. When staying in network you're often only responsible for a co-pay. And depending on the service, a deductible. Otherwise, the insurance company agrees to pay 100 percent of the provider's bill. The insurance company is willing to do this because when a provider is in an insurance company's network, he or she has agreed to set fees for a given service. Therefore, an insurance company knows what your service will cost and eliminates the need to apply reasonable and customary charges.

However, once you go out of an insurance company's network, this arrangement is canceled. Therefore, in order to avoid paying high fees and to keep their overall costs in order, insurance plans will apply reasonable and customary charges to a given medical services you receive out-of-network. Normally, the percentage paid by the insurance company for an out-of-network fee is 80 percent of the reasonable and customary charge. In addition, before you can enjoy an out-of-network benefit, your deductible usually needs to be met, no matter what the service.