Allowable Cost

Last Updated: March 29, 2018

Definition - What does Allowable Cost mean?

Allowable costs are the costs that an insurer agrees to cover through a health insurance policy. All other costs will have to be paid out of pocket by the policyholder.

Insuranceopedia explains Allowable Cost

To keep their policies affordable and reduce the risk of issuing them, health insurance providers will typically limit the types of costs that they will cover. Instead of providing compensation for any and all medical procedures, consultations, and devices, they will restrict what types of expenses policyholders can claim.

One major division concerns the perceived necessity of the treatment. Medical procedures, treatments, therapies, and medications deemed necessary are typically (but not always) included as allowable costs. On the other hand, those that are considered cosmetic in nature, therapeutic but not required for performing normal daily activities, or simply inessential will often be excluded from coverage.

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