Healthcare providers who contract with a health insurance provider or government programs enter into legally binding agreements that dictate what they can charge for services. Services that are covered under these contracts are paid set fees that determined to be reasonable and necessary for the provider to continue in business and serve his or her patient population. There are no restrictions on how collected, earned income must be used, but most of it is deployed to pay overhead expenses so the practice can continue delivering care.

By contract, healthcare providers cannot charge more than the agreed-upon, contractual rate. Services are translated into universally accepted code and submitted to a health insurance company. The company then determines that the service was medically necessary and falls within the patient's covered benefits. According to the patient's coverage, the third party payer will reimburse the provider and assign the patient a set dollar amount as his or her out-of-pocket responsibility. Providers are forbidden from charging the patient more than the amount described in an insurer's explanation of benefits that is issued for every healthcare claim.

Many insurance plans provide a set copayment for office-based healthcare encounters. Others, such as Medicare, have a set percentage of the predetermined fee that patients' are responsible for, usually 20 percent. Laboratory tests, outpatient surgical procedures, and inpatient hospital stays are often covered at 100 percent, or at a set percentage, with the patient being responsible for the balance of the contracted rate.

Healthcare involves many overhead costs that are often invisible to the patient. These include staff salaries, malpractice insurance, administrative costs, equipment purchases and maintenance, as well as rent, utilities, and the cost of supplies. Whatever profit is left over is usually reinvested in the business to expand services and purchase training for staff members to that the quality of care can be increased.

Insurers provide the necessary income for a provider to continue to promote the health of his or her patient population. A health insurance provider also offers guarantees to patients that they will not be overcharged for covered services. Any money received from a patient above the amount allowed by a health insurance company should be promptly reimbursed by the provider since they are obligated to accept no more than the contracted amount for any given service.

Non-covered services are another matter. If a patient receives a procedure or test that is not covered by their healthcare insurance policy, they are obligated to pay the full fee charged by their provider. This can be a considerable expense, and patients are advised to be aware of their insurance benefits before receiving services.