## What is 'Unallocated Benefit'

An unallocated benefit is a health insurance provision, in which the insurer covers extra hospital expenses up to a predetermined maximum amount, instead of specifying a maximum payment for each individual type of expense.

Next Up

## BREAKING DOWN 'Unallocated Benefit'

An unallocated benefit reimburses policy holders for extra hospital expenses, such as the costs of anesthesia, X-rays, lab tests, medications and supplies, all of which may be provided without entirely conforming to a schedule.

Grouping these various costs together saves the insurance company a lot of time and resources because it prevents it from having to examine each individual expense. Instead, it just ends up reimbursing the person for a certain amount of the total cost for the various expenses.

A health insurance policy's schedule of benefits lays out which services the policy covers, how much the policy will pay toward the cost of those services and how much the policyholder is expected to contribute. It also states the policyholder's annual deductible, annual out-of-pocket maximum and lifetime maximum, and shows the difference in benefit amounts, if a medical service is acquired from an out-of-network provider, rather than an in-network provider.

## How Costs are Calculated for Unallocated Benefits

Hospital reimbursement contracts are negotiated with each payor separately and depend on the relative leverage the hospital and health plan have with each other. Every payor contract has different terms and conditions.

Each hospital has a chargemaster or charge description master (CDM) list that often contains more than 45,000 line items. The CDM list includes every product, procedure, or labor cost incurred by the hospital—up to and including each aspirin, knee implant, diagnostic test, and bed linen.

Hospitals create chargemaster prices by multiplying the cost they pay for a product by 300 to 1,200 percent.

With every patient having a different health plan, hospital administrators and CFOs track the revenue generated by every inpatient treatment, deductible, co-pay, and hospital contract by using something called the cost-to-charge ratio (CTCR).

Calculating CTCR is simple. Simply divide the cost of the item by the chargemaster price. Thus, if a hospital pays \$1,000 for a device and marks it up to \$10,000, the CTCR is 0.1. The lower the number, the more likely that a product or procedure is revenue positive for the hospital. Each year, hospitals submit average CTCRs for their departments to the Centers for Medicare & Medicaid Services. These reports are published in the American Hospital Directory, which is public data.

RELATED TERMS
1. ### Loss Adjustment Expense (LAE)

A loss adjustment expense (LAE) is an expense associated with ...
2. ### Carryover Provision

A carryover provision is an insurance policy clause that allows ...
3. ### Commercial Health Insurance

A type of health insurance that covers medical expenses and disability ...

Additional Expense Coverage is insurance coverage that provides ...
5. ### Channeling

Channeling is a commercial insurance policy, which insures employees ...
6. ### Participating Policy

A participating policy is insurance that pays dividends to policyholders. ...
Related Articles
1. Insurance

2. Insurance

### Is Loan Protection Insurance Right For You?

Loan protection insurance can keep you from defaulting on your loans when you're in financial trouble, but it's not for everyone. Learn more on how it can help you.
3. Insurance

### Services That Health Insurers Often Decline

Learning how to navigate health insurance pitfalls will make you a more educated healthcare consumer.
4. Insurance

### How does dental insurance work?

Understand how dental insurance policies work and find out what to look for when comparing policies.
5. Insurance

### Do This If Health Insurance Doesn’t Cover Your Bills

Health insurance doesn't pay enough to help the millions of consumers who are drowning in medical debt. Are there any other options to soften the blow?
6. Insurance

### Investing In Health Insurance Companies

Health insurance companies work a little differently than most companies. Here's what you need to know as an investor.

### Who Should Buy a Guaranteed Issue Life Insurance Policy?

Guaranteed issue life insurance policies have added costs and reduced benefits that make them suitable for only a limited pool of buyers.
8. Insurance

### Critical Illness Insurance: Get Paid If You Get Sick

This coverage will allow you to focus your attention on getting well, rather than getting by.
9. Insurance

### The Good News About Long-Term Care

Two options have emerged that allow long-term care policyholders to gain control over premium increases.
RELATED FAQS

Hot Definitions
1. ### Inflation

Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
2. ### Discount Rate

Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
3. ### Economies of Scale

Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
4. ### Quick Ratio

The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
5. ### Leverage

Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
6. ### Financial Risk

Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...