What is the Difference Between the Medicare-Approved Amount and What a Provider Charges?

When you receive medical care covered under Medicare Part B, there is often a difference between the amount Medicare approves for payment and the amount your provider charges for their services. This discrepancy between the Medicare-approved amount and a provider’s charges can impact your out-of-pocket costs.

Let’s take a closer look at how Medicare payment amounts are determined, when you may owe more than the approved amount, and strategies to minimize your medical bills.

How the Medicare-Approved Amount is Determined

The Medicare-approved amount, also called the Medicare-allowed amount, is the total payment amount Medicare agrees to pay providers for a covered medical service or item.

This approved amount is not set arbitrarily. It is based on either:

• Medicare Fee Schedule Rates – A schedule of over 10,000 service-specific payment rates Medicare has developed for Part B services. These are based on the resources required to provide each service.

• Competitive Bidding Rates – For durable medical equipment, the approved amount is set through a competitive bidding process among suppliers. This aims to establish market-driven prices.

So Medicare uses fee schedules or bidding rates to calculate a dollar amount it deems appropriate to pay providers for each covered service or equipment item.

Providers who agree to “accept assignment” for Medicare claims agree to accept the Medicare-approved amount as full payment.

But not all providers accept assignment. So in some cases, your provider’s charges may exceed the amount Medicare approves.

Participating vs. Non-Participating Medicare Providers

An important distinction that affects your costs is whether your provider participates in Medicare or not:

Medicare Participating Providers

• Agree to accept assignment for all Medicare patients and claims
• Accept the Medicare-approved amount as full payment
• Charge you only the standard Medicare coinsurance and deductibles

Medicare Non-Participating Providers

• Do not agree to accept assignment for all claims
• Can charge you up to 15% above the approved amount
• Require you to pay the excess amount not paid by Medicare

Always confirm whether your providers participate with Medicare or not to understand your potential out-of-pocket costs.

What is the Medicare Part B Excess Charge?

The additional amount a non-participating provider charges above the Medicare-approved amount is called the Medicare Part B “Excess Charge.”

This is the key cost difference to be aware of if you see non-participating providers.

By law, non-participating providers can only charge you up to 15% above the Medicare-approved amount for covered services. But this excess charge is still your responsibility to pay.

For example, say the Medicare-approved amount for a doctor visit is $100:

• A participating provider would charge $100 total and you’d pay 20% coinsurance ($20).

• A non-participating provider could charge up to $115 total. Medicare would cover $100, but you’d owe the remaining $15 excess charge.

So with non-participating providers, you essentially pay an additional surcharge through excess charges. Always getting cost estimates up front can help avoid unexpected medical bills.

Should You Use Non-Participating Providers?

In general, sticking with participating Medicare providers is wise to minimize out-of-pocket costs. But you may choose to see non-participating providers in some circumstances, such as:

• Your doctor does not accept Medicare assignment
• You need a specialist not available from participating providers
• You need emergency care at a non-participating hospital

Just be aware you’ll likely pay more compared to participating providers. Some strategies include:

• Ask the provider in advance if they’ll consider reducing their charges
• Request an estimate of the excess charge amount
• Consider paying cash up front for discounts
• Use a Medigap or Medicare Advantage plan that covers excess charges

While non-participating providers charge more, you still have the freedom to choose your providers under Medicare.

How Much Will Medicare Pay?

Exactly how much Medicare pays depends on your specific Part B deductible and coinsurance obligations, which are:

• Part B Deductible – $226 in 2023. Medicare pays $0 until you meet the deductible.

• Coinsurance – 20% of the Medicare-approved amount (after the deductible is met). Medicare pays 80% of the approved amount.

You pay 100% of costs up to the deductible, then 20% coinsurance until you reach the Part B out-of-pocket maximum, which is $8,300 in 2023.

So Medicare will pay:

• 0% until your deductible is met
• 80% of approved amounts after your deductible up to the out-of-pocket max
• 100% of approved amounts for the rest of the year once you reach the out-of-pocket max

Never pay more than your 20% coinsurance for participating provider services. But expect to pay excess charges for non-participating providers.

Does Medicare Pay the Full Approved Amount?

One important clarification – Medicare does not necessarily pay the full approved amount for a service. They pay 80% of the approved amount after your Part B deductible is met.

For example:

• The approved amount for an office visit is $100.

• Your deductible is met for the year.

• Medicare will pay 80% of the $100 approved amount, which is $80.

• You owe the remaining 20% of $100 as coinsurance, so you pay $20.

So Medicare only pays a portion (typically 80%) of its approved rates. You are still responsible for paying deductibles and coinsurance costs.

Strategies to Minimize Medicare Costs

Here are some tips to help reduce your potential out-of-pocket costs with Medicare:

• Use Medicare’s Plan Finder tool to compare plan costs

• Choose a Medicare Advantage plan that caps your out-of-pocket spending

• Consider a Medigap or Medicare Supplement plan to help cover Medicare costs

• Ask providers upfront if they participate with Medicare

• Request cost estimates from providers before receiving care

• Negotiate excess charges with non-participating providers

• Ask your doctor about less expensive treatment options

• Use in-network providers if you have a Medicare Advantage Plan

Controlling Medicare costs takes some extra research and planning. But taking advantage of the cost-saving tools and options Medicare offers can minimize your medical expenses.

Does Medicare Cover Everything?

No, traditional Medicare does not cover 100% of all medical costs. Some key gaps in Medicare coverage include:

• Routine dental care
• Routine vision care
• Hearing aids
• Long-term care
• Cosmetic procedures
• Acupuncture
• Routine foot care

Medicare Advantage plans may offer additional benefits beyond what original Medicare covers. But no Medicare plan will cover all health services completely.

Always check Medicare.gov to confirm whether a procedure or service is covered before receiving care.

Key Takeaways

• The Medicare-approved amount is the total payment for a service Medicare agrees to pay providers.

• Participating providers agree to accept the Medicare-approved amount as full payment.

• Non-participating providers can charge up to 15% above the approved amount – called excess charges.

• Medicare pays 80% of approved amounts after your Part B deductible is met.

• Stick to participating providers when possible and use supplemental coverage to help minimize out-of-pocket costs.

Frequently Asked Questions

How do I find a Medicare-participating doctor?

Use Medicare’s Physician Compare tool online to search for participating doctors in your area who accept assignment. You can also call providers to confirm if they accept Medicare assignment.

Can a provider charge me more than the excess charge limit?

No, federal law prohibits non-participating providers from charging more than 15% above the Medicare-approved amount for covered services.

What if my provider doesn’t know the Medicare-approved amount?

They can submit your claim to Medicare to find out the specific approved payment amount for the services you received. This amount determines how much you will owe.

Does my Medigap plan cover excess charges?

Only Medigap Plan G covers Part B excess charges from non-participating providers. Plan F also covers them but is no longer available to new enrollees.

Can I negotiate lower excess charges with my provider?

Yes, you can ask non-participating providers if they are willing to waive or reduce the excess charges to lower your out-of-pocket costs.

The Bottom Line

The Medicare-approved payment amount sets a limit on how much providers can be reimbursed for services. Participating providers agree to abide by this limit, while non-participating providers can charge more. Understanding when you may owe excess charges and utilizing Medicare’s cost-saving tools can help you spend less on medical care.