It’s open enrollment season again. I’m sharing my experience with choosing an insurance plan that doesn’t cover my doctors and ending up saving money on both insurance and out-of-pocket expenses.
At last year’s open enrollment for ACA health insurance, we switched from a PPO plan to an HMO plan, because the premium for the HMO plan was lower by $470/month. Both plans have a $6,000/person annual deductible. We decided to continue seeing our doctors, now out of network, and just use the $470/month savings to pay cash for the services we actually use. See previous post When ACA Insurance Does Not Include Your Doctor.
I had an opportunity to test this new setup last month.
After I had a haircut shorter than I usually get, my wife noticed some dark spots on my scalp. Those spots could’ve been there all along because they were hidden under the hair, or they could be new. Skin cancer jumped into her mind. She said I should see a doctor and have them checked.
When I had skin problems a few years ago I went to a dermatologist. She prescribed a cream and the condition was treated successfully. I decided to see this dermatologist again. When I made the appointment I told the front desk that I would self-pay because my HMO insurance doesn’t cover out-of-network doctors. At the time of the visit, I was asked to pay $150 as a deposit. No problem.
The dermatologist examined the spots. She told me not to worry. Those spots weren’t skin cancer. No treatment was necessary. Great.
A few days later I received a bill. The total for the visit was $230. After the $150 deposit, I had a balance of $80. The health system advertises a 30% discount for self-paying patients if bills are paid in 20 days. I called the billing office and asked for the discount. The rep there said she had to send a request to another team and it would take a few days. No problem. A few days later I received a revised bill with the 30% discount. The total came down to $161. I paid my $11 balance. Done.
When I saw the same dermatologist 4 years ago, I also had a high deductible plan. My records showed that I paid $360 with insurance after the in-network discount, because I hadn’t met the deductible.
There, 4 years later, paying cash to see the doctor out of network cost less than half of seeing the same doctor in-network with insurance.
Why?
1. The health system billed more to insurance than it billed me.
This is not unique to healthcare. Insurance is seen as having a deeper pocket — better ability to pay. When I wanted to have a broken windshield replaced for my car, every glass shop quoted me two prices: going through insurance or not going through insurance. The price for going through insurance was about 50% higher than paying cash.
2. The health system offered a larger discount to a self-paying patient than to insurance.
This health system is a major player in our local market. Insurance companies have to include them in their network in order to sell their plans to employers. They can’t get much bargain from the dominant health system. On the other hand the health system understands that self-paying patients by definition have choices, and prices are an important factor when they consider where they go.
The combination of these two angles made paying cash less expensive than paying the in-network price toward the deductible. I accidentally discovered that the insurance company’s negotiated in-network rate could be a very high rate. When you have a high deductible plan, going through insurance means you are agreeing to pay that high rate.
I learned from this episode that having a very high deductible is a blessing, not a curse. When you have little chance to meet the deductible anyway, it gives you the freedom to choose any provider. When you pay cash, every provider is in your network because they all accept cash. When you pay cash, you get the rate by your perceived ability to pay, not the rate reserved for the insurance company. When you pay cash, you save money on insurance because you don’t have to choose the more expensive insurance plan that covers your doctors in-network.
While it’s true the amount you pay for out-of-network doctors won’t count toward you deductible, when you have little chance to meet the deductible anyway, counting or not counting toward the deductible is moot. Even if in one year you would’ve met the deductible otherwise, the money you save in other years will make up for it.
It’s not just me, not just for ACA plans, and it’s not new. I found this blog post by Jeanne Pinder on Clear Health Costs: Is it cheaper to pay cash than to use your insurance? Maybe. It has many more stories along the same lines. It also links to several newspaper articles and other blog posts that reported the same phenomenon.
Of course this approach isn’t for everyone. If insurance premiums among different plans are similar, you choose the plan that covers your doctors. If you have a lot of health issues, you choose a plan with a low deductible. If you are having a major surgery that costs tens of thousands of dollars, go through insurance. But if you are healthy in general, you may be able to save a lot of money by choosing a less expensive plan, even if that plan doesn’t cover your doctors. You may be surprised you end up paying less for your office visits too!
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Brendan says
This is a nice story, and outlines an interesting problem, but seems to convey that “self pay” will be cheaper for patients. This is not true more often than it is. The experience you outline here is a so called “E&M” visit (evaluation and management billing code). These are small peanuts to most healthcare providers compared to procedures. Had she needed to biopsy or surgically remove the lesion, the tables would be turned. If you get cancer and require chemo and radiation, or are in a car accident and suffer trauma and require emergency surgery(s) I guarantee you that the hospital bills will bankrupt all but the most wealthy–no matter what price you “negotiate.”
Harry Sit says
With so much difference among patients, providers, services needed, insurance plans, and areas in the country, we will never have a one-size-fits-all solution — always use insurance or always pay cash. Because we are so ingrained in making sure providers are in-network, if this short post plants a seed in people’s mind that sometimes going out of network doesn’t automatically mean paying much higher prices, it will have served its purpose. To be clear if I need emergency surgery I will use my HMO insurance.
FinancialDave says
This is very true. I recently found a dentist that gives a 5% discount on the amount due to them and they give the discount to me and not the insurance. So if the insurance pays half then I get a 10% discount on my amount. The catch is I have to pay on the day of treatment the total amount and then let the insurance send the check to me. Ok, as I just made a pretty good return on my money for the 1 to 2 months I had to wait for my reimbursement.
msf says
I agree with Brendan’s comment that while one may come out better with E&M, the main value of insurance is catastrophic coverage. Without that, you’re sunk if you have a major health issue.
My own experience with self-pay is mixed. Years ago I selected my ophthalmologist in part by referral and in part because he took lots of different types of insurance. But when ACA came in, he accepted no ACA plan (just group plans). He said he was giving me a cash discount, but my SO (covered under a different plan) paid half as much (still high deductible). Ultimately switched doctors.
On the other hand, I’m paying about the same amount at another specialist without coverage as I was paying with my ACA plan. (My ACA company stopped issuing policies and no other insurer covered all my doctors; so I had to either switch doctors or self-pay someone.) How well you do with cash depends on the provider.
Similar positive result with physical therapy. There the (old) insurer denied additional sessions. So I self-paid slightly less than the negotiated rate while I appealed the decision. Had I still been subject to a deductible that year, I would have come out at least as well by paying for the service myself.
I had to go to the state attorney general’s office to get the sessions covered. (Ultimately I won and got reimbursed.) That’s another problem with insurers. They’ll fight tooth and nail over the petty stuff. Sometimes it can be worth it to self-pay (if it doesn’t cost more) just to avoid the hassles.
MG says
Quoting your last statement – “Sometimes it can be worth it to self-pay (if it doesn’t cost more)”.
How do you know what costs more? I have an HDHP. So how do I know if self-pay will end up costing less or going through the insurance?
I had this very question after reading this article as well. I don’t think the health providers will tell you that they will bill the insurance companies “more”, but will bill an individual less. On top of that, sometimes insurance companies have “discounts” for in network providers, so even if they bill the insurance company more, the discount brings it down to a different amount and one should compare this amount with the self-pay amount. How are you going to find out this “net” amount without involving insurance provider?
msf says
What I had in mind when I made that statement was that if you’ve maxed out, it won’t be cheaper to pay cash. Nor will it usually be cheaper to pay cash if you’ve got a fixed co-pay.
Addressing the issues you raised: the price the provider submits to the insurer doesn’t matter. it’s fictitious. Same as a hospital chargemaster (price list). What matters is how the service is coded (typically CPT, e.g. 92113 for a midlevel office visit). If you’ve gone to a provider for the same procedure in the past year or so, you’ve got a pretty good idea of how much the insurer will pay, i.e. how much you will pay under an HDHP. Blood test, x-ray, etc. same idea.
Another example. I could have taken a silver policy with fixed co-pays and no deductibles for office visits. Or I could save $150/mo in premiums and take a bronze plan where I’d pay the negotiated rate. With office visits around $150, it wasn’t even a close call. Take the cheaper plan, pay out of pocket, and save the difference. Even in a month when I see a doctor, I save the copay: instead of paying $150 in higher premiums plus copay, I pay $150 cash on the barrel. Other months I save the full $150.
Same idea in the original article. Instead of paying up to get a provider included in-network, take a cheaper plan, pay cash, and pocket the net savings. In these situations you know how much it would have cost the other way: the increase in premium costs (plus whatever in-network payment you’d have to have made).
Harry Sit says
MG – Some (many? most?) insurance companies provide a cost estimator tool that shows you the estimated cost for the service you need at each contracted provider. The insurance company has incentive to steer you to a lower cost provider. I showed how I used the cost estimator tool to find a lower cost MRI facility. See Shop for Healthcare Cost When You Have High Deductible Insurance. It has links to the cost estimator tool from UnitedHealthcare, Cigna, Aetna, Humana, and Kaiser Permanente. If your insurance isn’t through one of them, try Googling the name of your insurance company plus “cost estimator.”
Frugal Professor says
When you self pay with cash (presumably outside of the insurance system) do these payments count towards your deductible? I would assume not.
If you aren’t planning on hitting your deductible, I can see why this is a non issue.
However, if you end up breaking a leg next month and require a $20k surgery (putting you over your OOP max), would there be any way to retroactively apply historical 2019 medical payment towards that deductible?
If not, then there is a risk that you’ll exceed the OOP max by first paying cash then subsequently having a catastrophe. That said, given the relatively low risk of catastrophe (and the high probability of not hitting OOP max), I think I’m totally on board with your strategy.
Harry Sit says
My HMO plan doesn’t cover out-of-network providers. Cash payments to out-of-network providers won’t count toward the deductible. With a $6,000/person deductible, chances are slim I will ever meet it. I’m OK with the risk that in a year when I break a leg I could’ve have had some office visits covered had I used insurance with an in-network provider. I will make it up in other years.
DB says
Did you consider using a Kaiser dermatologist for this issue? Have you used Kaiser since you signed up for their ACA plan?
Harry Sit says
No, because we were content with using part of the premium savings on office visits. I just had an annual physical with my Kaiser primary care physician.
yyz says
I had a prescription price change from about $100 through employer paid health plan to about $10 with GoodRx.
GoodRx is totally free, you don’t have to give any personal information. It’s a prescription discount card and there are many other similar cards.
I did a little bit of googling and found that insurance companies use “pharmacy benefit managers” (PBMs) to negotiate prices and it’s not always a good deal for the consumer. It’s often a very bad deal for the consumer
https://www.goodrx.com/blog/how-does-drug-pricing-work/
Ken says
Having a very high deductible and paying cash should theoretically encourage people to shop around and force providers to lower prices through competition. But even for the most savvy consumer that’s not always true. Did you price compare dermatologists before your appointment? How?
When you pay outside of the insurance system, you aren’t forced to pay their (sometimes higher, sometimes lower) negotiated prices. But cash charges outside the system won’t apply to your deductible. This is perhaps the biggest benefit of paying into the catastrophic insurance system because the real benefits only kick in after meeting the deductible/OOPM. It’s all a numbers game based on probabilities which are hard to calculate at the individual level.
Harry Sit says
I didn’t price compare dermatologists but you can if your insurance provides a cost estimator tool. See link to previous post in reply to comment #3.
CMR says
In the interest of comparing apples with apples, did you check to see if the billing CPT/E&M codes were identical for both visits? There are different codes, and different associated charges, for a new patient vs an established patient even when the service provided is identical. Likewise for a longer visit vs a shorter visit, even if they both seemed the same to you. It could easily be a difference of $100 or more just because it was coded differently, and may not be insurance related. At many clinics, self-pay = “rack rate”, and only negotiated payors get discounts.
Harry Sit says
My bill doesn’t have that level of details. It’s possible that my previous visit was billed at a higher level. Suppose the provider would bill the same $230 to insurance for this visit. My experience with my previous insurance and this health system was that the in-network discount is about 10%. My out-of-pocket cost with insurance would still be higher than without, plus I’d have to pay $470/month more for that privilege.
EEB says
Yes. This is the key. They very well may have billed a lower E&M for looking at just a couple spots. Also, the charges and reimbursement values are different for established versus new patients. It makes sense that your previous new patient visit cost more. Unfortunately, without knowing what was billed at each visit you cannot fully compare.
Laurel says
I recently retired to Mexico, where the norm for U.S. expats is to buy catastrophic health insurance and pay cash for extremely affordable preventive care and routine visits to doctors, ER, etc. My annual premium with a respected international health insurer is $1,800/yr, with a $2,000 deductible. The premium would be lower if I were younger (I’m 63) and didn’t have a rider that includes up to $100,000 if I need medical care while visiting U.S. I’ve taken several friends to the emergency room, and in each case they were there for about four hours, saw a regular doctor and then a specialist, got X rays and blood work, and left with a couple prescriptions — all for about $300.
MikeG says
I have been through this twice.
First is my dentist. When I retired I lost my dental coverage. I have used this dentist for many years BTW. So I asked that they allow me to pay in cash at the amount they were getting from my insurer. I got a lot of it depends on what exact dental dental plan you have is and it’s impossible to just look it up – we have to submit to see what is covered. I pushed them around over several discussions and we agreed on a set of prices for routine cleaning and xrays. At the end of this painful set of discussions I think I’m paying close to what Delta Dental was paying for these items. Should I need something else in the future who knows. At the end of the day, it was a painful negotiation (and I’m comfortable negotiating). Since i trust my dentist I’ve not bothered trying to find one more willing to negotiate.
Second was my dermatologist. This was a good 5 years ago so details a bit sketchy. However, I asked for the cash rate and was told something along the lines of they can’t give a discount below the rates they charge Medicare (or Medicaid). It would be tantamount to insurance fraud. So I ended up paying pretty much the rack rate. He’s now in my network so this issue is largely moot.
Based upon this limited sample size my experience negotiating medical rates for cash has not been good.
msf says
I’ve been able to get reasonable Delta Dental insurance through the health exchange. About $20/mo with a $50 deductible, covers exams 100% and some percentage on minor procedures. In a good year (just checkups), it winds up costing me a few bucks, in years with other minor stuff, I come out slightly ahead.
The key benefit is getting negotiated rates on everything. (This is because the plan is designed for pediatric care and for kids it covers everything. Thus even though the adult plan doesn’t cover major work, you still benefit from the negotiated rates.) For example, I just had a crown recemented; D2920. Wasn’t covered by the adult insurance, but the price I paid was excellent. (I’m hesitant to state the exact price because this is insurer-proprietary info, and I’ll respect that.)
Another alternative is to purchase a dental discount card. (They run about $100/individual/year.) They resemble insurance in the sense that they get you negotiated rates, like insurers do They’re not insurance; all you’re getting are negotiated rates – you pay the bills.
Most plans say simply that they’ll get you a percentage discount off the dentist’s rates. At least one, DentalSave, provides some actual fee schedules. (Different dentists agree to different fee schedules, so you have to look up your dentist to see which schedule applies.) This may give you a sense of how much one could pay for various services. I’ve used various discount cards from different providers in other years, and been satisfied with their value.
Here’s their page with links to their various fee schedules:
Fee Schedules
Ben B says
My experience as an HDHP, occasionally-with-cash-out-of-network payer, is that the pricing varies quite a bit, and it can be quite hard to get precise costs ahead of time. (Obviously in time-sensitive scenarios, it’s nearly impossible.)
Calling around to find the best deal still works, sometimes. But, other times, I’ve found my network’s in-network negotiated pricing to be better, especially on more substantial procedures.
James Boweler says
If you are in Florida, checkout https://medixall.com. I paid $250 for an MRI with contrast. If not, it would have been $550 with contrast. It’s freaking crazy.
Sam Seattle says
This is a good article, Harry. Thanks.