Why would someone pay cash for their healthcare needs when they already have insurance? That’s a question that’s getting asked a lot these days; and the answer is more complex than you might imagine. The most surprising reason is that, in some cases, it’s actually cheaper to pay a provider directly than to pay a portion of the insurance rate. While insurance carriers negotiate discounted fees, these can be vastly higher than rates offered to those who pay directly for some or all of their healthcare costs. Hospital markups, which are unsettlingly inconsistent dramatically affect procedure pricing, according to a recent study. In this post we’ll explore a few plausible reasons as to why this might be, when it makes sense to pay cash for health services, and what patients should be aware of in order to make that decision.
It may seem strange that insurance company pricing would differ from cash prices at all. But indeed, they can be drastically different. One possible explanation has to do with upfront payment, or a doctor receiving payment before providing a service. If doctors go the normal route, i.e. submitting a claim through a patient’s insurance company, they must endure the arduous billing process complete with payment delays, disputes and associated overhead costs. This may result in waiting as long as A YEAR before getting paid or - not getting paid at all. Another explanation for high insurance price tags is that some doctors negotiate the highest possible payment rate for any given service. Through recent decades, doctors have grown accustomed to insurance delays, which can affect business operations, and perhaps surprisingly, results in patients not paying their bills. Some, have accordingly been trained to estimate the expected percentage of insurance coverage, weigh the likelihood of the patient paying and then, bill the full cost back to the insurance company, hoping to get as much of the total as they can. Although inefficient and arguably dishonest, the fractures in the system have left people with no choice but to make the system function not as best it can - but in any way it can.
There is a growing number of high deductible health plan laden patients (15% more each year since 2011) who are quickly realizing that they are responsible for paying for pretty much everything (except for the most basic preventative care) until they meet their ‘high’ deductible - which can be upwards of $13,000 for a family plan. Until then, insurance either doesn’t kick in or doesn’t pick up certain costs patients might otherwise expect them to.
The realization of these deductibles is causing consumers to look more carefully at the prices incurred from testing, doctor visits and procedures - and with good reason. An LA Times story shared reasons why consumers are smart to do this. In their research, they found that one medical center charges $4,423 for an abdominal CT. The insurance negotiated rate was $2,400, while a self-pay patient would only pay $250, almost 90% less than the already discounted rate. Yet if that patient gave the clinic their insurance card up front and hadn’t yet satisfied the deductible, they could end up paying as much as the full $2,400. As a self-pay patient, they’d save more than $2,150 for the same exact service at the same exact location, from the same exact medical professionals.
The self-pay route does, of course, come with its costs. First of all, you’re paying out of pocket - up front - which tends to resist the anti-commerce healthcare model to which we’ve grown accustomed. Also, by bypassing the insurance company, the amount paid will not count against the insurance deductible until it has been submitted directly to the insurance company, by the patient. So, later in the year, if a patient faced more expensive medical care that would benefit from insurance coverage, he or she would need to submit the previous bill in order to have it counted toward his or her deductible. Another option might be to use funds from a Health Savings Account, if that option is available. Using this tax-free fund means a patient could save close to 25%, since the money is automatically deducted from one’s salary without Uncle Sam taxing it first.
It’s important for patients to know a few things before they initiate these payment related conversations. First of all, while some medical professionals are thrilled to avoid insurance involvement, some providers may not offer the discounted cash rate if they know a patient is insured. Doctors and health systems who are contracted with insurance companies are often required to charge their negotiated rate - even for those who want to pay cash. Patients should also be familiar with the manual claims submission process if they want to apply any bill against their deductible. Finally, it’s important to be hyper aware of markups and price transparency. According to a study done by Ge Bai of Washington and Lee University and Gerard F. Anderson of the Johns Hopkins Bloomberg School of Public Health, all U.S. hospitals charged patients (or their insurers) 3.4 times what the government believes these services cost. “In other words, when the hospital incurs $100 of Medicare-allowable costs, the hospital charges $340.” The study notes that the ratio of hospital charges to costs has increased from 1.35 in the mid 1980s to 3.3 in 2011. In sum, it’s wildly important, now more than ever, to be not only an informed patient, but also an aware consumer.
Price transparency and patient education are hot topics in healthcare today. While the digital health space is certainly working toward improving the experience, there’s still a long way to go for patients to be able to make savvy decisions. Our marketplace along with other up-front payment services, specifically in the telehealth space, are great steps in the right direction. The future of medicine calls for a time where, like in the vast majority of other industries, payment expectations are set prior to checkout; and now, for perhaps the first time, that reality is on the horizon.
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Tags: Consumer, Enterprise, Provider