Why Do Insurance Companies Use a UCR Fee Structure to Pay Claims?

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Patients filling out forms in a medical office.
Patients filling out forms in a medical office. (Image: John Moore/Getty Images News/Getty Images)

Health insurers typically set limits on how much they'll pay for a particular service or procedure. These limits are known as "usual, customary and reasonable" fees, or UCR fees. Insurance companies use UCR fee structures in an effort to keep costs down.

How Fees Are Set

UCR fees are supposed to be based on the typical cost for a service or procedure among health care providers in a given geographic area. However, it's entirely up to insurers to determine their UCR fees. No laws or regulations define what's usual, customary and reasonable, and private insurers generally don't publish their UCR rates. The government-run Medicare program does publish its rates, though.

Purpose of UCR Fees

Insurers aren't going to unquestioningly pay every bill that comes in, as that would essentially invite providers to overcharge for services. That's why they pay claims according to a UCR fee structure. Usually, the doctors and facilities that are in an insurer's provider network will agree to bill according to that insurer's UCR fee. One of the reasons it's more expensive to go to an "out-of-network" provider is that there is no such agreement in place, and the provider bills for the full cost of the service.

Basis of Payments

Patients should understand that the UCR fee for a service is not necessarily the amount the insurer will pay. Rather, it's the amount that the insurer will base its payments on. Say that your insurance covers 80 percent of costs. You visit the doctor for a treatment that has a UCR fee of $300. The insurer will pay 80 percent of the $300, or $240. You have to pay the rest yourself.

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