About 50% of U.S. hospitals set their cash prices for services lower than their median insurance negotiated prices. 20% set their cash price lower than their minimum insurance price1. Why is cash king? And what does paying cash actually cost you?
Your local gas station offers cash discounts because they don’t want to pay credit card fees. Same with your local restaurants. You can probably even score a discount with your local tradespeople, too. They all take cash because it reduces their overhead and administrative burden.
The same is true for hospitals, doctors, and other healthcare providers.
When those providers agree to become part of an insurer’s network, they must live by that contract. This includes learning how to send claims, handle insurance reimbursements, and manage any disagreements that arise. There are other hoops to jump through, too – insurers might require additional patient screenings that eat up valuable time.
Some providers will take a lower price to get out from under all that.
At first, this seems like a good deal for everyone. The provider reduces their overhead costs, and you pay a lower price for care. But, there’s a hidden cost to not using your health insurance policy.
When you pay cash for care, you’re cutting your insurer out of the loop. While that may yield short-term benefits for you and your provider, it may not pay off over the long run.
In the background, your healthcare providers send claims data - a documentation of your treatment and its method - to your insurance company. That data helps determine what you might owe for care. Carriers routinely analyze their claims data to identify patients who might be eligible for extra no-cost support.
For example, if your medical records show you're receiving treatment for high blood pressure, they may offer you free help from a nutritionist and tracking devices. You might get similar support for high cholesterol, diabetes, asthma, or other chronic conditions, too.
When you pay cash, your insurer also can’t track that spending toward your yearly deductible or out-of-pocket maximum. There may be a year when you handle your primary care needs with a cash arrangement, and all the money goes to your doctor.
But if you break a leg at your next rec league soccer game, you’ll have to meet your deductible before your insurance starts paying. You’d be out the cash you’ve paid to your doctor, your premium costs, and your deductible. And that might be more than you’re willing (or able) to handle.
That’s a personal choice that will depend on your circumstances. Maybe it wasn't actually a choice for you at that moment: you gladly took that cash discount and were thankful you could afford it. But, when we think about the overall purpose of insurance, it’s to protect our finances from the largest risks. Cutting your insurer out of the loop means your policy might not kick in when you need it most, leaving you with an even larger hole in your budget.
1. Jiang J, Makary MA, Bai G. Comparison of US Hospital Cash Prices and Commercial Negotiated Prices for 70 Services. JAMA Netw Open. 2021;4(12):e2140526. doi:10.1001/jamanetworkopen.2021.40526