A transformative shift in the healthcare industry has emerged on the horizon for residents of Texas and Tennessee. Both states have signed into law a groundbreaking healthcare reform that is poised to reshape the way Americans think about shopping for healthcare: insured consumers in TX and TN can now receive deductible credit when they opt to pay in cash for covered medical services.

This legislative leap forward is not just a win for those who prefer the simplicity of cash transactions. It signifies a monumental step toward fostering a real market for healthcare, where the traditional boundaries set by insurance plans are more permeable. What does this mean for the consumer? Let's dive into the implications of this reform and how it can potentially alter the healthcare playing field for patients across the U.S.

Here’s why this new reform is so exciting:

In the past, insured consumers have only had two choices when they’re paying for their healthcare: they can (1) go through their insurance, or they can (2) opt for a self-pay (also known as cash-pay) approach.

Option 1 (going through insurance) means that patients have to meet their deductible before their insurance company starts to pay their share for covered services. Think of it as a threshold of spending on health care services. For example, if you have a $2,500 annual deductible, you will be responsible for paying the first $2,500 of the medical expenses that you incur. After you have paid this $2,500 out-of-pocket, your insurance company will typically begin to pay a portion or all of the remaining covered expenses, depending on your policy details.

The problem with this approach? When patients pay through insurance, insurance companies direct them towards a preselected set of health providers (called a network). While patients often assume that their insurance companies have negotiated the lowest rates possible with these providers, in-network prices can actually be more expensive than out-of-network alternatives.

This means that insurance-negotiated prices are not necessarily competitive - and it also means that many patients with higher deductibles often delay or forgo the medical care they need because they cannot afford to pay in-network rates out-of-pocket. This can have devastating consequences for preventative care, management of chronic conditions and overall health.

Option 2 (the self-pay approach) is a simpler process: “Self-pay” or “cash-pay” care means that the patient pays the provider or facility directly without getting third parties like insurance companies or the government involved. The benefit of paying in cash is that you can shop around for care at different providers or facilities and find the most economical price – and many providers and facilities also offer discounts for paying in cash, since they’re able to sidestep the paperwork, claims, and complicated fees associated with insurance.

The issue with this approach? When you pay in cash for your health care, insurance companies may not always allow you to apply those expenses towards your deductible. When they don’t, this can potentially lead to higher overall costs if you later require more significant care within the same policy period.

The Problem

The challenge here is that insured individuals are stuck between a rock and a hard place when it comes to paying for healthcare services: should they pay in cash for their care and benefit from upfront lower out-of-pocket costs, but forsake the ability to contribute those payments towards their deductible and risk spending more if they require more costly care within the same coverage period? Or should they go through insurance, which does not always negotiate the lowest possible rates with healthcare providers and which does not offer transparent pricing before booking care, making it nearly impossible to calculate the cost of medical services?

The Solution

Luckily, individuals in Texas and Tennessee will no longer be faced with these challenging payment decisions. New legislation passed in these states allows for patients to apply cash price services to their deductible if the cash rate is lower than the average in network price. In other words, if a patient finds a cash-pay price that’s cheaper than what their in-network providers are charging, their insurance company must apply that expense towards the patient’s deductible.

Why? Because as demands for more pricing transparency in healthcare increase, it’s becoming more and more evident that cash prices are often better than insurance negotiated prices, and that price transparency drives health costs down for patients.

For example, LASIK eye surgery is considered an elective procedure, so it’s typically not covered by insurance. This means that surgeons generally offer up-front, transparent prices in order to beat out the competition, since it’s easy for consumers to comparison shop for their eye surgery. The result? At about $4,400, it’s estimated that a LASIK procedure today is approximately 20 percent less expensive than it was ten years ago.

The success of these dynamics is also evident on Sesame; the marketplace provides transparent, up-front cash prices for medical services, generating competition that organically lowers the cost of services, drives the quality of the care up, and expands access to medical care. In 2022, for example, the cost of a self-pay virtual primary care appointment was just $37.

What does this new legislation mean for healthcare consumers?

In Texas and Tennessee, it means that shopping around for cash pay care on marketplaces like Sesame is a no-brainer. The bigger picture, however, is that there’s finally a huge incentive for individuals to actively seek cost-effective, high-value care. Now that payments can be counted towards their deductible, patients financially benefit from shopping around for better cash rates without the concern of losing out on their insurance benefits. This fosters a more competitive healthcare market, empowers patients to make more informed choices based on both quality and cost, and could ultimately drive down prices as healthcare providers compete for the cash-paying customer.
For decades, American healthcare consumers have been forced to make significant financial and health-related calculations about their care, complicated by factors such as the unpredictability of future healthcare needs, lack of price transparency, and the intricacies of insurance benefits. These new healthcare reforms serve as a massive opportunity for patients to save significant amounts of money on their medical expenses - and hold the potential to change the American health care landscape as we know it.

Sources:

• ARSC. “How Expensive Is LASIK?” Refractive Surgery Council. americanrefractivesurgerycouncil.org
  
• “Can Cash Prices for Healthcare be More Affordable Than Insurance Rates?” Ciceroinstitute.org