The person on the other end of the phone was a representative from my medical care provider asking about my outstanding balance. She stated they were willing to reduce my bill by 20% if I could pay in full over the phone.
My outstanding bill was leftover from an ER visit last year, and we were on a 10 month payment plan so that I could use my monthly pre-tax HSA contributions instead of using after-tax out of pocket funds. Given we were half way though our payment plan, and had made our payments on time each month, I was a little surprised they would make such an offer.
I declined the offer since I actually save more by making payments using my monthly HSA contributions. But it had me thinking, maybe I could save even more money on significant health care bills by getting on a payment plan even if I had the money to pay the bill in full.
Working The System
Let’s use the same example as my previous post, a $1000 medical bill.
Using an effective tax rate of 25%, I would save $333.33 by getting on a payment plan and making monthly payments from HSA contributions. Here’s the math, for review:
If HSA funds were used, the bill cost $1000 of pre-tax income. If out of pocket funds were used, it would have first been taxed. To figure out how much pre-tax income it really cost, we need to do a little algebra.
Where N = Pretax Income, and 0.25 is a 25% effective tax rate and pretax income minus 25% of pretax income results in $1000 in your actual paycheck.
Calculation:
- N – (N*0.25) = $1000
- 0.75N = $1000
- N = $1000 / 0.75
- N = $1333.34
If you use pretax HSA contributions, your medical bill is actually $333.34 cheaper.
Now, let’s say I ask to be put on a payment plan for 10 months, paying $100 a month even though I have $1000 in my HSA. Half way through the payment plan the medical provider calls me and offers a 20% discount on the remaining balance and I take them up on the offer. Since my remaining balance is $500, I save 20% of that, or $100.
Now, my total amount paid is $900, and I’ve paid it using pre-tax HSA funds. Instead of consuming $1333.34 of my gross earnings, it’s only used $900 taking into account the funds are pre-tax AND my discount given to me from the medical provider for a total savings of $433.34.
Ethics
I don’t know if all medical providers would offer a discount, or even if my own provider would do this on a consistent basis. But as far as the ethics of doing this I have zero problem with it. Medical providers already negotiate a lower rate with insurance companies to get their business. Given what medical providers charge for things (I was once charge hundreds of dollars to have a doctor tape my ankle), if they offer a discount, I’m taking it.
How about you, EOD nation, have you ever been offered a discount on your medical bill if you could pay in full? Would you get on a payment plan purely to see if you would be offered a discount?
