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How to Save Money with HSA Qualifying High Deductible Insurance?

Covered Benefits?

Qualified Medical Expenses NOT the Same as Covered Benefits?

Explanation of Benefits (EOB)

In Network?

Allowable Charges


What About Paying Cash?

Record Keeping

Covered Benefits?

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 out-of-network providers!

Beware that the cost of “covered services” provided by 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.

Out-of-network coverage can range from nearly the same as in-network coverage to absolutely no insurance coverage at all for out-of-network providers.

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"Qualified Medical Expenses" NOT the same as “Covered Benefits”?

The federal government describes what expenses can be reimbursed on a tax-free basis from the funds in one’s Health Savings Account (see 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 qualified expenses.

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.

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Explanation of Benefits (EOB)?

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 according to 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 company.

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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 receive.

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.

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Allowable Charges

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 medical services.

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 paying cash, 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.

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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 work.

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What About Paying Cash?

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.  Some 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 insurance?

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 EOB 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 discounted amount.

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 account).

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 out-of-network expenditures.


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:

• The distributions were exclusively to pay or reimburse qualified medical expenses,

• The qualified medical expenses had not been previously paid or reimbursed from another source, and

• 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.

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