Definition
Payers set an allowed amount as the total they recognize for a covered service under a contract or fee schedule. It equals the payer payment plus patient responsibility, such as deductible, copay, or coinsurance. For in-network claims, the provider cannot bill the patient for charges above it.
Why it matters
Posting should compare each allowed amount to the contracted rate. If the payer allows less than the contract, that is an underpayment, not a contractual adjustment. Patient cost sharing is calculated from the allowed amount, so errors here also misstate patient balances.
Example
A payer allows $120 on a $200 charge. The patient owes a $20 copay, the payer pays $100, and the $80 difference posts as a CO-45 contractual adjustment.