Office Administrative Assistant Practice Exam

When an insurance company uses local averages for allowable amounts, which method are they employing?

1. Fee-for-Service

2. Managed Care

3. UCR

4. Capitation

The correct answer is: UCR

The correct choice indicates that when an insurance company uses local averages for allowable amounts, they are employing the UCR method, which stands for Usual, Customary, and Reasonable. This method is based on the prevailing rates charged for services within a specific geographic area, allowing insurance companies to determine how much they will reimburse for various medical services. By setting allowable amounts that reflect local standards, UCR facilitates comparison among different healthcare providers, ensuring that insured individuals receive care at rates that align with standard practices within their community. Fee-for-Service refers to a model where providers are paid for each specific service performed, which doesn't focus specifically on local averages. Managed Care encompasses various plans and provider networks aimed at reducing costs while maintaining quality care, without directly relying on local averages for reimbursement rates. Capitation is a payment arrangement where providers receive a set amount per patient, regardless of the number of services performed, which again does not utilize local averages in determining payment amounts.