How to Understand In-Network vs. Out-of-Network

In-Network and Out-of-Network

Everyone uses different criteria to select a new doctor. But, is the insurance company’s network part of your list? You may wonder “how does it impact me and why should I even care?” Well, unless money grows on trees at your house, paying attention to whether or not your healthcare physicians are in your insurance company’s network is a good idea and an excellent way to save, or at the very least avoid paying more than what’s necessary. While in-network and out-of-network terminology sounds confusing, this guide will help you to understand the impact of your insurance company’s network.

What is a Network?

Your insurer has identified a group of physicians who are “in-network” and has contracted with these physicians on your behalf to get services at “discounted” rates. The primary advantage of using an in-network physician is that you receive this negotiated or discounted rate for their services, and your insurance generally picks up a larger portion of the bill than with an out-of-network physician. For an example of how the network may affect your pocketbook, see the next page.

Understanding How In-Network vs. Out-of-Network May Affect Your Pocketbook

An example: A visit to an in-network physician may charge $100 for an office visit. Your insurance company has contracted with them to discount this visit to $60. If your insurance company covers 80% of the cost, the patient responsibility would be $12. Compare with an out-of-network physician that also charges $100 for the visit. Without the negotiated rate from your insurance company, your cost will remain $100. For out-of-network physicians and care, your insurance may only cover 50%, making your patient responsibility $50.

I Went to an In-Network Physician. Why Weren’t All of my Services Covered?

Remember, just because a physician is in-network, it does NOT mean all the healthcare services and treatments you receive will be covered. Using an in-network physician simply means that when you receive services from the physician, your insurance will get you the negotiated rate for the services. They will then provide you with the coverage outlined in your policy. Insurance plans can be confusing, so make sure to check your insurance policy (you should receive a booklet that outlines the scope of your coverage) when you have questions about your coverage.

Issue 1: Are They In or Are They Out? How Do I Find Out Who’s In-Network?

Doctors frequently move in- and out-of-network. The day the network book is printed or the website is updated, it’s out of date. Doctors have been added. Doctors have failed to renew their contract or opted out of a network. Basically, the information is out of date and until you check with the physician, you really don’t know

What to do: Check with your physician when you schedule a visit or before you receive services (when you check in for the appointment). They will need to know your insurance, possibly your group number as well as your “network.” All of this information should be on your insurance card.

Issue 2: The Out-of-Network Service Provided through an In-Network Physician

It’s possible to go to an in-network physician and receive services from a physician who is out-of-network. A common example might be that you go to a physician for a checkup and have lab work done. The lab company may be out-of-network. Another fairly common example is that the hospital where a surgery is performed may be in-network but the anesthesiologist is out-of-network.

What to do: Awareness that this could happen is the first step to prevention. When you are verifying an appointment of this nature, be sure to ask network questions. If you specifically asked and were not told ahead of time that you were receiving services from an out-of-network physician, the out-of-network physician may be more likely to provide in-network pricing. Contact your insurance company and make them aware of the situation and enlist their help in sorting out what an in-network price should have been. They will have leverage with the physicians that you may not.

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Issue 3: I Want to Use an Out-of-Network Physician

As we’ve discussed, going to an out-of-network physician tends to be more expensive, but it happens. Sometimes you can’t help being out-of-network – if you’re out of town or your current insurance plan has a limited network.

What to do: Be up front with the physician. Tell them you know they are out-of-network and that you would like to receive the in-network negotiated rate if possible. Get that from them in advance and in writing to save yourself countless hours of headache and expense later. Also, be aware that your payments may not be applied to your deductible. Once you’ve met your deductible, out-of-network expenses may be your responsibility to pay either in full or a substantially larger portion. It’s a good idea to check with your insurance carrier to make sure you understand your plan specifics. Being aware of the potential exposure and knowing the appropriate questions to ask will help you to navigate the system.


Allowed Amount: usually refers to the amount of payment a physician has agreed to accept for a service, treatment, or product under the terms of their negotiated contract with the insurance company. This can also refer to the maximum amount the insurance company will “allow” a physician to bill for a service, whether they are in or out-of-network.

Billed or Charged Amount: is the amount initially billed by a physician for a service, treatment or product.

In-Network: refers to physicians who are contracted with an individual’s insurer to provide services at a pre-determined rate.

Insurance Policy: is a contact between the insured individual and the insurance company detailing which health and medical services are covered by the insurer and the price for coverage paid by the individual.

Network Discount: is the amount by which a physician’s bill is adjusted as a result of a negotiated rate covered under a negotiated capitated contract between the physicians and the insurer. The network discount term often appears on an Explanation of Benefits, but it does not appear on all since those forms vary by insurer. Insurers use many variations on this term including Adjustment, etc.

Out-of-Network: refers to physicians who are not directly contracted with an individual’s insurer to provide services at a pre-determined rate. Most insurers maintain a capitated contract with the physicians commonly used by their insured. Many of these contracts are regionally confined since insurers are authorized on a state by state basis as a result of ERISA.

Patient Responsibility: is the amount that you owe the physician based on information sent from your physician to your insurance company. This should include any co-payments, deductibles, co-insurance and/or excluded charges.

Pre-Negotiated Discount: also referred to as network discount, is the amount by which a physician’s bill is adjusted as a result of a negotiated rate agreed upon between the physician and the insurer.

Mathematics of Going “Out of Network”

Source: G. Keith Smith, M.D.

Let’s say you belong to a PPO (preferred physician organization). You need surgery and decide to do some checking on which of the surgeons “on the panel” you want to use. Your regular doctor has made an appointment for you with an orthopedist but you have three friends who in the recent past have had a horrible experience with this particular surgeon and you want no part of this guy. You are wondering why “your doctor” recommended you to this particular orthopedist. Two other orthopedists are in “the network.” Both it turns out have horrible reputations in the community. Both are also employees of a big hospital and as a loyal reader of this blog you know that means that if a conflict presents itself between what’s best for you versus what’s best for the surgeon’s boss… know how that’s going to go. And if the surgeons could work for themselves, why would they work for someone else?

Everyone you know that has had surgery at a particular surgery center you know about is thrilled with the care and the service they received there. You decide that’s where you want to go and begin to seek a surgeon that operates at that facility. You make an appointment with your regular doctor to let them know where you stand and to seek his assistance.

“You can’t go there!” “I sent you to an excellent surgeon!” “None of those guys over there are in your network!” “It will cost you a fortune!” This guy was your doctor long before he went to work for the hospital, but now you are seeing that he too, is compromised.

You call one of the “out of network” orthopedists that work at the surgery center about whom you have heard so many great things. You know within seconds of meeting this guy that you have made the right decision. (“Why isn’t he in my network,” you ask yourself?) Once he has indeed confirmed that you need surgery, you let him know that your preference would be to have your surgery at the surgery center. ”That’s great.” ”That’s where I had my surgery recently,” said the surgeon. “It’s obviously my preference, too.”

“My regular doctor told me that you and the surgery center were ‘out of network’ and that this was going to cost a fortune.”

“We’ll see about that.” Those guys are usually good about pricing and giving you cost estimates.” Now the math.

Your deductible is $1500 if you stay in your network. Your deductible is $3000 if you go out of your network. Your insurance company has actually acted in violation of state law by acting as if these deductibles don’t “cross apply.” That means that if you have met your “in network” deductible of $1500, and you go “out of network,” you start over at dollar 1. You don’t start at $1501.

OK. Your PPO pays 80/20 if you stay “in network.” It pays 60/40 if you go “out of network.” This means that the insurance company will pay 80% of the “allowable bill,” and you pay 20% of the same “allowable” amount, if you stay in network. It means that your insurance company will pay 60% of the “allowable bill” if you go “out of network” and you pay 40% of the same “allowable” amount. Still with me?

No surgery centers are “in network” with your insurance company….only “not for profit” hospitals are “in network.” The allowable amount for your surgical procedure at the “in network” hospitals is much more than the allowable amount for your surgery were it to be done at an outpatient facility (get that?…actually a completely different number!). Let’s keep going.

Allowable amount at the “in network” hospital = $25,000. After you pay your deductible ($1500), you owe 20% of ($25,000-1500), or $4700. Your total “out of pocket” expense is ($4700 + $1500), or $6200. If you have already met your deductible for the year, your “out of pocket” expense is the $4700 figure.

Allowable amount at the “out of network” surgery center = $2650. Your “out of network” deductible remember is $3000. Your deductible is more than the insurance company allows for payment for the entire procedure at the surgery center! You are better off paying for the entire surgery “out of pocket” at the surgery center, insurance not being involved at all, than staying “in the network.” If you have met any of your “out of network” deductible at all, this decision becomes even more apparent.

Your PPO representative says “Wait! That’s not fair! ’Out of network’ physicians can charge whatever they want and aren’t constrained by our fee schedule!” Wrong. Your insurance company is going to pay an “out of network physician” from a fee schedule, not based on any charges the facility generates. Furthermore, the “out of network” physician is boxed in by the “in network” fee schedule for this reason: should the charges “out of network” be too high, the price pressure difference will push patients back into their restrictive network.

The numbers I have used above are from an actual case. I would like to tell you that the above situation is unusual. It is not. Patients many times are financially better off to go outside of their network. Insurance companies spend a lot of time and resources spreading fear about “out of network” experiences. Some are sending letters to patients telling them (falsely) that they spent too much money for their care because they went “out of the network.” Physicians are receiving threats from insurance companies for having operated on patients at facilities outside of the network.

Questions. Did you notice how much the insurance company paid out of their pocket for the above surgery? Zero. You would think they would be thrilled! What’s eating at them? Why are they threatening physicians and lying to patients? What on earth would make them want to change this arrangement? You would think that their profits would soar the more patients exercised the “out of network” option, wouldn’t you? After all, aren’t their profits just the premiums collected minus the claims paid?

Obviously there’s more to it. If you have followed this blog you have an understanding of the “PPO repricing fee” scam and how that works. This is the bizarre situation created by insurers receiving fees for reducing exorbitant hospital bills, an activity that perversely leads insurers to seek out the most expensive physicians. ”Leakage” out of the network also threatens the continuation of certain “discounts” offered to the insurance companies by the big hospitals for various services. Try to keep this in mind if you are discouraged from venturing outside of “your network.”