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What does “UCR” mean in health insurance?

Keep in mind...
  • Usual, customary, and reasonable is a standard that insurers use to determine the price of a benefit or service
  • The usual, customary, and reasonable amount can affect the consumer’s coinsurance for a covered benefit
  • The usual, customary, and reasonable price then determines the amount of cost sharing the insurer provides
  • UCR differs from maximum allowable charge and consumers should be aware of the cost sharing method used

Usual, customary and reasonable (UCR) is a method for determining the price of a covered benefit or service. Insurers can use research from a specialist company or use their experience in a given market to determine the usual, customary, and reasonable price.

Once they find an average range for the territory or market, the insurer typically sets the UCR figure in the range of 80 to 90 percent of the average. The actual cost share amount depends on the terms of the agreement.

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Why is UCR important to consumers?

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The usual, customary, and reasonable standard sets prices when insurers need to determine their cost sharing amount. The insurance agreement calls for a deductible and then a percentage of costs sharing.

The UCR standard sets the price so that the insurer can apply its percentage for payment. UCR is important to consumers because it affects their payment of coinsurance.

The MAC Standard

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The insurance company can determine the market value of a service by using the price it pays in-network to its medical care service providers. This agreed price is the maximum allowable charge method since the in-network price is the most the insurer pays when members use network providers.

Medicaid is a good example of a MAC system. The Centers for Medicare and Medicaid set limits on many medical care items such as physicians fees.

HMO and Outside Providers

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The insurers must use the usual, customary and reasonable standard when determining a price for an outside network service or benefit. The prices for network providers are set in the network agreements. When subscribers use outside services, insurers must determine their cost share amount.

HMO plans usually pay nothing for outside resources, and the consumer must pay the entire charge. HMO plans do pay emergency events, and the HMO-POS model pays for referrals to outside specialists

PPO and Outside Fees

Preferred Provider Organization plans offer flexibility for consumers and they can self-refer to outside network resources. The PPO plans cover outside resources with costs sharing at lower rates than when using in-network resources.

Outside Network Cost Sharing

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The market can determine a range of prices for a service. Some outside prices can be much higher than the standard in-network fees. Specialists in particular sometimes respond to demand and volume with higher prices during the insurance cycle. UCR determinations can swell the amount consumers must pay.

  • The UCR can determine the allowed amount for a claim.
  • The UCR is usually based on a geographic area or territory.
  • The UCR uses market-rate fees charged for the same or a similar service.

UCR and Medicare

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Medicare has two prominent parts; they are the Original Medicare and Medicare Advantage. Original Medicare leaves the choice of medical care provider to the members.

Medicare controls the price and care providers must accept or find the balance from the consumer on their own.

Medicare Advantage plans are private insurance plans that set prices through network agreements. Both parts of Medicare may have occasion to use a UCR determination to decide the amount of cost sharing they must pay.

UCR and Consumer Debt

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UCR determinations can leave consumers holding far more debt than they expect and more than they can easily pay. UCR uses averages and then fixes either a percentage for cost sharing or a maximum allowed cost. With either method, the consumer must pay the balance.

Given the use of outside resources and not getting the benefit of in-network pricing, consumers can encounter large and unpredictable levels of debt.

Medicare Advantage Networks

The Centers for Medicare and Medicaid maintain oversight over plans and networks in Medicare Advantage. They have a particular concern with the adequacy of plan networks.

When plan sponsors present a program with an unfinished network, CMS places an additional burden on the provider. They must execute an agreement to build out the network and to pay as much as the rate paid by Original Medicare.

In this setting, Original Medicare rates are the usual, customary, and reasonable price for the covered benefit.

UCR Covers All

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Usual, customary and reasonable refers to the range of benefits, supplies, and services covered by insurance. The essential health benefits may have to be determined by reference to usual, customary, and reasonable costs. The below-listed items describe the requirements for a UCR determination of a covered benefit, service or medical supply.

UCR and Value-Based Payment

Obamacare began a fundamental shift in policy more than two years ago. It began to move away from traditional measures of success in healthcare based on volumes of cases or patients served.

The shift to value-based payments was the crown for a fundamental shift to value-based analysis of patient outcomes.

The movement to emphasizing the quality of patient outcomes over the sheer numbers is a profound difference. It portends the rich possibility of increasing customer satisfaction by reducing hospital visits and medical care due to better patient health.

Impact of UCR on National Healthcare Costs

UCR is a driver of inflation in health care costs. It relies upon a sort of automatic reaction when setting prices that are not in step with the policy shift to value over volume. To emphasize value, there should be far less UCR and MAC type of pricing and more value-based payments throughout the Medicare system.

UCR is an Important Reference in Health Insurance

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Usual, customary, and reasonable is a method for setting the price for medical services. This standard help managed care providers determine prices when working in unfamiliar geographic areas or markets.

Providers must sometimes use point of service agreements to meet their obligation to service a plan membership, and the usual, customary, and reasonable standard help determine the prices they should pay.

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