to Save Money with HSA Qualifying High Deductible Insurance?
Qualified Medical Expenses NOT the Same as Covered
of Benefits (EOB)
What About Paying
Your insurance policy describes what kinds of medical
services are “covered benefits”. This means that the insurance company will
pay for/ cover certain medical services (covered benefits) and the cost of these
services (allowable charges) that you pay for out-of-pocket count toward meeting your annual
deductible and out of pocket maximum limits.
Some medical services are NOT covered by your
insurance (not covered benefits) and anything you pay for these services
generally does not count towards your deductible or your maximum
out-of-pocket annual expense limit.
Even if it is a “Covered Benefit”, it may not
be covered if you receive that care from
Beware that the cost of “covered services” provided
out-of-network physicians or hospitals may not count toward your
annual deductible or maximum out-of-pocket limits. The insurance policy may
establish different deductibles, coinsurance rates (the share of a charge
you pay) and maximum out-of pocket limits for out-of-network care.
coverage can range from nearly the same as in-network coverage to absolutely
no insurance coverage at all for out-of-network providers.
The federal government describes what expenses can be
reimbursed on a tax-free basis from the funds in one’s Health Savings
IRS Publication 502, “Medical and Dental Expenses" and
IRS Publication 969, "Health Savings Accounts and Other Tax Favored Health
Plans"). These are generally called “Qualified Medical Expenses”.
“Qualified Medical Expenses” are NOT the same thing as “covered benefits”.
Covered Benefits are those expenses that an insurance
policy describes as insured and which if incurred will either be reimbursed
or will count toward meeting your deductible and out-of-pocket maximum under
your HSA qualifying policy.
The Federal government is really quite generous with
regard to what one can reimburse tax-free from an HSA. Unfortunately,
insurance company definitions of “covered benefits” are almost
always much more restrictive than the federal government’s definition of
So be careful; the fact that the expense is
reimbursable tax-free from the HSA in no way means they are covered expenses
from the insurance perspective.
Once services are billed to the insurance company,
eventually (and this may take quite some time) both you and the doctor’s
office will receive an Explanation of Benefits (EOB) from the insurance
company. The EOB will show the charges (usually
CPT Codes) that were billed for your care. Check
the CPT codes using the link provided to make sure they accurately describe the care
you received from your doctor (see
AMA CPT Code Search to identify what various codes mean). Also,
AMA resource can tell you how much Medicare would have allowed for a
particular CPT Code.
The EOB will generally show what services the
physician provided and his or her charges, what the insurance company allows
(the amount they be responsible to pay or credit to your deductible) for that service and what portion of the bill will be your responsibility to
pay. If this is an in-network physician (a provider with the contracted
PPO) then you get the same discounted rate that the insurance company would
get if it were paying the bill.
If you haven’t met your deductible, then you will
need to pay the full allowed amount up to the point where you have met your deductible.
Once you have met your deductible, you likely still have
to meet an annual maximum out of pocket expense limit before the insurance
company begins to pay the whole bill. So, you will likely be
required to pay a portion of the charges (called coinsurance)
above your deductible, depending on what your insurance policy says (e.g. you might pay 50% of the
charges in excess of your deductible with the insurance company paying the other half up
until you have met your maximum out-of-pocket limit).
With HSAs, once you have met you
Maximum-Out-Of-Pocket limit (there can be different Maximum Out of
Pocket limits for out-of-network care), the insurance company pays 100% of any further covered benefits during that year.
For example, suppose your family
HSA qualifying HDHP has a $4,800 deductible
with a 50% coinsurance rate in-network after the deductible until you meet a
$5,800 dollar annual maximum out-of-pocket limit.
If you incurred $4,800 in expenses for covered benefits
in-network in one year, then you would have to pay $4,800 dollar that year
which can be paid from your HSA if you desire.
If you incurred an additional $3,000 in covered
expenses above the $4,800 deductible ($7,800 in total expenses), then you
would be responsible to pay 50% of the next $2,000, or $1,000. At this
point you will have spent $5,800, your maximum out-of-pocket limit, and the
insurance should begin to pay 100% of all in-network covered benefits
thereafter during the year.
Typically, a single illness or injury occurring at the
end of a year and carrying forward into the next year may be treated as
occurring in the prior year, but you should confirm this with your insurance
Most high deductible insurance policies have networks
of Preferred Providers (the insurance companies use Preferred Provider
Organizations, PPOs). This means that the insurance company has access to
pre-negotiated discounted fees often referred to as
Allowable Charges for the doctors , hospitals and other health
care providers in their network.
If you have PPO insurance and are seeing an
in-network provider, once you identify yourself as having PPO coverage the
doctors are usually required to bill the insurance company for any services you
If you are seeing an in-network provider and you want
to have your insurance company billed, then let the doctor’s office know you
have that kind of PPO insurance coverage in advance.
In-network providers agree to accept as payment in full, the
health plan's allowable charge, often
referred to as the usual, customary and reasonable charge (UCR or UC).
This is what the insurance company will pay and usually the maximum amount
the insurance company will credit toward your deductible for particular
These fees are considered proprietary by most
insurance companies, so it is very hard if not impossible to discover in
advance or even at the time of purchase what the insurance company will pay
the doctor, or reimburse to you for what you pay directly to the doctor.
In that regard, especially if you are
be careful that you keep good records regarding what you spent your money
on; and if you anticipate spending will be close to your deductible, submit
these claims to the insurance company early and begin to ask you doctors to
bill the insurance company from there on out.
A mistake here could cost you a lot of money!
If you go out-of-network, you might have limited or
even no insurance coverage at all. Federal law allows insurance
companies to write HSA qualifying insurance policies that have different
coverage limits for out-of-network care than they do for in-network care.
An exception MAY be for true emergency services. For
instance, if you have a heart attack and are taken emergently to an
out-of-network hospital and are cared for by out-of-network physicians, most
policies will have at least some degree of coverage for those emergency
services. Clearly when choosing a policy and after getting your policy, you
should familiarize yourself in advance on how out-of-network coverage will
Many doctors, dentists, hospitals outpatient surgery
centers and even pharmacies offer very significant
discounts for full cash
payment at the time of, or prior to service (sometimes this includes
payment by credit or debit card). Many providers recognize the value of full cash payment,
especially when there is no billing or insurance paperwork to file.
offer substantial cash discounts of 50% or more off the usual and customary
charge under these conditions. If the doctor doesn't offer a
significant cash discount, ask the doctor to bill your insurance company.
Most people with HSA qualifying high deductible
coverage will not meet their deductible each year. So, you may actually save
time and money by paying in cash rather than having the provider bill your
When you see an
in-network provider and ask them to bill
your insurance company, the insurance company very likely has a contract
with that doctor to offer discounts to their insured. In this case,
when a charge goes through the
will show a discounted rate, the
allowable charge for that service that will
be applied to your deductible. If you have not met your deductible,
then you will be responsible to pay the full amount of the allowable charge.
It is often hard to determine whether a
cash discount offer by a physician will be a better deal than the discounted fee
an insurance company has negotiated for itself? Some companies have a
phone number that you can call, or a web site where you can go to find their in-network fees
(usually according to
CPT Code). If the in-network discounted fees are
lower than the cash discount offered by a physician, and you knew that in
advance, you would certainly ask that physician to bill your insurance company.
Unfortunately, once a physician has spent the time
and money to bill your insurance company and received the EOB showing the contracted rate, doctors and other providers
usually will not offer a discount for full cash payment of the already
In some cases a provider will offer a cash discount
and also bill your company for you. If the EOB allowable charge is
less than what you paid in cash, then you should receive a refund of the
amount you paid in excess of the contracted rate (a refund of a credit on your
If you pay cash in order to get discounts
offered and you have a lot of charges that are close to meeting or exceeding your deductible
or maximum out-of-pocket limit, then you should submit your receipts to your insurance company.
Hopefully, they will recognize your expenses and apply them to your
deductible, but more often than not insurance companies are very difficult
to deal with on these issues. That is especially true for
Important: Save your checks, receipts and
ask for itemized statements showing which doctor provided what services (CPT
codes for physicians), for which family member and what diagnoses/ problems
(ICD codes). This may help you get reimbursed by your insurance
company, and it is good practice anyway, since the IRS might require that
kind information from you if you are audited after
reimbursing qualified medical expenses.
According to the IRS, you must keep records sufficient
to show that:
distributions were exclusively to pay or reimburse qualified medical
• The qualified
medical expenses had not been previously paid or reimbursed from another
• The medical
expenses had not been taken as an itemized deduction in any year.
Do not send these records with your tax return. Keep them
with your tax records.