Allowable Cost

What Does Allowable Cost Mean?

Allowable costs are the expenses that a health insurer agrees to cover under a policy. Any costs exceeding these allowable amounts must be paid out of pocket by the policyholder. What an insurer treats as an allowable cost ties directly into the rest of your cost-sharing, which is broken down in our guide on premiums, deductibles, co-pays, and coinsurance.

Insuranceopedia Explains Allowable Cost

To keep their policies affordable and minimize risk, health insurance providers typically limit the types of costs they cover. Instead of compensating for all medical procedures, consultations, and devices, insurers restrict which expenses policyholders can claim.

A significant distinction lies in the perceived necessity of treatment. Medical procedures, treatments, therapies, and medications deemed necessary are generally (but not always) included as allowable costs. Conversely, those considered cosmetic, therapeutic but not essential for daily activities, or otherwise inessential are often excluded from coverage. Comparing how different plans define allowable costs is one of the things worth checking when you’re choosing a health insurance plan, since two policies with similar premiums can leave you with very different out-of-pocket bills.