The popularity of high deductible health plans reveals a few interesting trends in American healthcare. Chief among those: many Americans seem generally willing to pay out-of-pocket for their healthcare IF they feel the prices of these services are transparently communicated and provide real, necessary value.
High deductible plans don’t work for all budgets and circumstances, but among the American consumers who opt into such plans, the proposition is clear: insurance plans are for big health issues, and cash is for, well, everything else.
Self-pay patients act like consumers in any other market. They budget for big purchases, demand price transparency and are willing to pony up for services they feel provide value.
As it turns out, healthcare professionals benefit true market conditions applied to healthcare too, and they welcome these cash patients. Doctors, nurses, therapists and other healthcare providers can save time and money by circumventing the health insurance system entirely, and in fact, some practices are moving toward a fully cash-based model.
How Cash Can Save Doctors Time and Patients Money
The biggest driver of savings lies in insurance companies' ability to negotiate highly inflated prices with healthcare providers. “The difference in price can be stunning,” said the Los Angeles Times in 2012. Los Alamitos Medical Center, for example, lists an abdominal CT scan for $4,423. Blue Shield says its negotiated rate at the hospital is ~$2,400. When The Times called for a cash price however, the hospital reported that price at a shockingly low $250.
What accounts for this staggering difference? Often, the inflated costs are baked into insurance company negotiations with healthcare providers themselves. In 2014, NPR noted, that, “Every hospital has its own master list of charges for different services”. Those charges though vary from hospital to hospital and it’s important to state that insurance companies don't pay those listed prices. Each insurer negotiates lower prices with each hospital and doctor on every single insurance plan. Cash patients effectively work around those negotiated prices, and as a result, can access healthcare prices that are much more in line with reality.
Doctors and hospitals are just now realizing what every other business has been doing since the beginning of time — “give a discount when you pony up all cash,” as Dr. Dike Drummond, The Happy MD, wrote.
Providers are often happy to accept cash in the moment rather than wait for insurance companies to foot the bill, which can often take up to a year. To cite two of many examples, Kyrene Internal Medicine in Phoenix and the Our Family Doctor clinic in Asheville, North Carolina, offer clear discounts to patients who are willing to pay cash. For example, the LA Times reported that while the Los Alamitos Medical Center bills insurance companies $4,423 for a CT scan, that scan would cost $250 if paid for in cash.*
To be fair, self-payment carries its own costs. As pointed out previously, cash payments for healthcare provision do not always count against an insurance deductible (though we do have a solution for that), and many people feel uncomfortable paying this way because it's just not the way things have been done.
Saving for Self-Pay Healthcare with HSAs
With this relatively new way of health-minded thinking, Americans need to proactively think about their future and the health costs it might bring. Health Savings Accounts (HSAs) are a good option for people who have high deductible health plans. These accounts are specifically designed so consumers can set aside cash for medical expenses. The money put into these accounts is exempt from federal income tax at the time of deposit - so it's ready for people to use when they need it.
There are limits to the annual contributions a person can make to an HSA (for 2015: $3,350 for individuals and $6,650 for families), but because those contributions can come from your pre-taxed income, these accounts are still an attractive way to save for future medical expenses.
Blogger David Weliver at Money Under 30 suggests taking a very long-term view with HSA investments. “A smarter way to use an HSA may be to simply contribute as much as you can, invest it, and let it grow tax-free to be used for medical expenses in retirement.” He also points out that people 65 and older can take money out of theirs HSAs for any reason, medical or otherwise, without incurring a penalty.
New Approaches to Doctor-Patient Relationships
Because so many patients are now demanding transparent, fair pricing from healthcare providers, new models of doing business are emerging at the clinic level.
In a recent piece for Kiplinger by Kimberly Lankford, some employers are embracing subscription models for their employees to access private care. That means the policy pays a flat, monthly fee to the employee’s healthcare practitioner, just as someone might pay a monthly fee to a utility or for a gym membership.
Lankford cites Wichita, Kansas-based family physician Doug Nunamaker, whose practice, Atlas MD, switched to a subscription-only monthly pricing model earlier than most in 2011. For complete access to all medical services in the network:
- Patients up to 19 years old pay $10
- Patients between 20 and 44 years old pay $50
- Patients between 44 and 64 years old pay $75
- Patients 65 and older pay $100
This, Nunamaker says, has allowed his practice to limit dramatically the number of patients under an individual doctor’s care to 600, or nearly one-seventh than the average doctor’s patient count of about 4,000.
Atlas MD is one of a growing number of practices offering what is known as concierge medicine, or all-inclusive healthcare, for a monthly fee.
Kimberly Samuel, a nurse practitioner at A Heartbeat Away clinic in Decatur, Alabama, told her local news that concierge models can reduce a clinic’s overhead expenses by as much as 40%, savings that the clinic can then pass on to its patients. "I'm doing a concierge type medicine where people pay a monthly amount,” she told news station WAAY 31. “It's a very minimum amount and I'll see them as often as they would like to be seen.”
Beyond cost savings, concierge medicine can also give doctors a sense of control that they might not otherwise have when working with insurance companies.
“A lot of physicians today feel somewhat powerless in their practice,” Phil Miller, a spokesman for medical consultancy and research firm Merritt Hawkins, told Healthline News. “They’ve gone through years of school, they feel like their fees are controlled by third parties. They feel they are being judged on things that are subjective.”
There has been some early resistance to the concierge model, specifically from analysts and consumers who argue that catering to patients who have cash to spend excludes many who don't. In time though, and with the changes that will inevitably take place to evolve this model, it may be a promising way to address health plans in a whole new way. Only time will tell.