Compound It! Cash? Insurance? How about your HSA?

Has your dental or medical office ever offered you a discount for paying cash for treatment? If so, that might make you wonder whether you'd get a better deal if you skipped your health insurance and just paid cash for some of the care you need. Let's take a look at what you need to know about this, and how your HSA can fit into whatever strategy you decide to use.

If a cash discount is available, you're free to take advantage of it. And you can use money from your HSA to pay the bill. You must have coverage under an HSA-qualified high-deductible health plan (HDHP) in order to make contributions to your HSA.

But tax-free withdrawals from the HSA can be made to cover your out-of-pocket costs for any qualified medical expense, regardless of whether a claim is filed with your insurance or what sort of insurance (if any) you have at that point.

That means your HSA funds can be used to pay for things that aren't covered at all under your HDHP, such as dental care, infertility treatment, LASIK, etc. (your HDHP may or may not cover things like this, but either way, your out-of-pocket costs for them can be paid with HSA funds). As is always the case, you can choose to use your HSA funds immediately, or reimburse yourself years or decades later.

When to use cash instead of other forms of payment

If the medical service you're receiving is not covered at all by your HDHP and your doctor, dentist, chiropractor, etc. offers a cash discount, paying cash to get the discount is probably a wise plan, if you can swing it from a savings or cash-flow perspective.

Keep in mind that when the office says "cash payment," they might literally mean you have to show up with cash in hand, not just an immediate payment in the form of a check or debit card (including a card that's linked to your HSA). Find out in advance what it takes to get the cash discount — you don't want to show up with your HSA debit card and find out that you won't get the cash discount if you use it.

But what if the service is covered by your HDHP? This is where it gets a little complicated, and there are several things to keep in mind:

"Covered" means that the health plan will pay some or all of the expense, assuming you had already met your deductible, copays, and coinsurance). But if you have an HDHP, you already know that you need to pay a sizable chunk of money for your deductible before your health plan starts to pay your medical bills.

If you have to pay a bill yourself but it counts towards your deductible, that's considered a "covered" expense. And assuming that you opt to have a claim filed with your insurance, you're going to have to pay whatever rate your insurer and medical provider have negotiated — without any sort of additional discount — even if you pay with cash.

When we refer to non-covered expenses, we're talking about things your health plan wouldn't pay for even after you meet your deductible. Depending on the plan, this can include things like out-of-network care, dental/vision care, cosmetic procedures (which you can't use your HSA for either), etc.

If your HDHP provides coverage for out-of-network care, you can get the cash discount and still submit the claim to your insurance company. Out-of-network providers don't have any contractual arrangement with your insurer, which means there's no negotiated rate. And since it's common for patients to have to submit their own out-of-network bills and wait for reimbursement, this works well with cash-pay scenarios.

Keep this in mind...

You can only use HSA funds for medical expenses that aren't reimbursed by any other entity. So if you see an out-of-network provider, pay cash, and then submit the receipt to your HDHP for out-of-network claims processing, pay attention to the details. If you haven't met your out-of-network deductible and the entire amount is going to be an out-of-pocket cost even after the insurance company processes the claim, you're free to reimburse yourself from your HSA.

But if you've already met your out-of-network deductible and your HDHP is going to be sending you a check to reimburse some of the amount that you paid to the out-of-network provider, you'll only be able to reimburse yourself from your HSA to cover the portion of the bill that isn't paid by your HDHP. If in doubt, it's best to wait until the claim is processed before withdrawing funds from your HSA in situations like this.

If you see an in-network provider, it's up to you to decide whether you want to pay cash, or have the provider submit a claim to your insurance and then send you a bill for whatever you owe after the claim is processed. But there are a few things to understand here:

  • Depending on the size of your deductible, the doctor or hospital might ask you to pay some or all of your deductible in advance. But they would still be submitting your claim to your HDHP, so your up-front payment would not qualify for a cash discount. If you have concerns about the request for up-front payment, you can reach out to your insurer to discuss the issue.
  • HIPAA regulations (45 CFR 164.522) state that as long as you pay the bill in full (ie, whatever cash-pay rate the provider charges), you can ask the provider to not tell your health insurer about the treatment that was provided to you, and they have to comply.
  • If you get a discount by paying cash to an in-network provider, the money you pay won't be counted towards your health plan's deductible or maximum out-of-pocket costs, since a claim won't be filed with your insurer.

Clearly, there's no one-size-fits-all when it comes to whether you should take your provider up on their cash discount offer. It depends on several factors, including whether the service is covered by your insurance, how much care you think you'll need during the year, and of course, whether you have the cash to cover the bill.


Compound It! is your weekly update of achievable, effective, no-nonsense HSA saving and investment advice, delivered by people who make it work in their own lives. For the latest info about your health and financial wellness, be sure to check out the HSA Learning Center, and follow us on Facebook and Twitter.

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