In paying off my $2,500 portion of the $48K hospital visit, I have learned that it is very, very useful to have an emergency fund. And not just so you can pay the bills!
Reason #1: I was able to contribute post-tax dollars to my HSA, which will give me tax money back.
So… my employer switched our health insurance from a conventional plan to a Health Savings Account. Basically stuff is covered similarly as before, but the HSA has a much higher deductible ($1500 vs. $300) and a much lower out-of-pocket max ($2500 vs. $5000). To offset the high deductible, participants can contribute up to $3,300 to the HSA (in addition to the $500 my employer throws in there) to pay this high deductible with pre-tax dollars.
Not having foreseen this hospital calamity, I had not elected to contribute pre-tax dollars in advance. But once the bills arrived, I researched and discovered that in fact you can contribute post-tax dollars to the HSA, submit a receipt to the IRS with your taxes the following year, and receive tax back with the tax returns as if the money had been contributed pre-tax. Pretty freakin’ sweet. My initial $2,500 bill came to $3,100 with follow-up appointments, so I put $3,100 in the HSA to “launder” my money through this system before paying. Because this reduces my 2015 taxable income by $3,100, I will get about $868 extra at tax time next year.
Linking your bank account to the HSA website is not a stroll in the park, and each transaction takes about 5 days to clear. So if I did not already have the money saved and was relying on excess from each paycheck, I would not have had time to do this and meet the net-30 day billing period on time.
Bottom line: I had all the money available, so I was able to funnel the money through the tax-sheltered HSA system before paying. I will get/save $868 that I would not have been able to preserve if I did not know about or have time to make this contribution prior to paying the bills.
Reason #2: The hospital which issued the majority of my bills has a “prompt pay discount” which I was able to get in on.
And what a discount: 20%! I could hardly believe it.
I think anybody who has ever had medical bills would know that you don’t really have to pay them on time. It’s not like a credit card bill; they generally do not levy a late fee. I would imagine a hospital would have a hard time getting a late fee out of someone who has not paid because they cannot afford it anyway. And it would have to be pretty severely overdue to even get sent to collections or reported to a credit agency. So even I have come to think of medical bills as a pesky thing to get around to. The due date of a medical bill does not set fear into my heart and chills onto my neck the way a credit card bill does.
Then I noticed a strange little anomaly between the price on one of the bills and the price listed on the website when I went to pay. It was lower. So I called and the hospital billing guy said “oh yeah, that’s our prompt-pay discount, but it goes away after 30 days.” So if you pay on time, you will get a discount relative to what was billed against your deductible, and if you pay late, you will owe exactly what got billed against your deductible. So I proceeded to do exactly what those clever marketing/accounting executives wanted, and said to myself, “Holy shit I need to pay these bills asap!!!”
Bottom line: I had the money available, and a novel billing system got my attention. Because I chomped on the bait to pay quickly rather than follow my instinct to get around to it later, I saved a pretty incredible $500 across the 4 different bills. Seems like cash flow is more important to the hospital than profit margin.
Total money saved/retained: $1,368
Overall I would say that having an emergency fund also gives you the right mindset for saving more money. I knew I could pay the bills, and had a bit of time and latitude to investigate options and get all the facts before forking over my savings. I have been on the alternative situation as well, sweating getting the bills paid at all. And I have to say that in that mindset, you are not cool-headed enough to get clever. Make that 3 good reasons to have an Emergency Fund.