Choosing an insurance plan that fits employees’ needs can be difficult, especially with the high demand for competitive benefit packages. Tasked with absorbing increased healthcare prices, many employers are seeking alternative funding methods to improve cost-containment. Since 2016, the rate of employers self-insuring has increased between 8 and 10 percent and is expected to continue as costs associated with traditional healthcare plans become more expensive to maintain. As a result, reference-based pricing (RBP) has become a popular method of self-funding due to its potential for savings, plan flexibility, and overall cost transparency. However, RBP is not something to rush into without a strong understanding of how the payment model works and the benefits of implementing this non-traditional arrangement.
Unfamiliar to most, RBP can be daunting when compared to traditional insurance-carrier contracts because pricing for services is set outside of carrier-negotiated networks. With RBP, employers set a maximum reimbursement amount, or reference price, for certain non-emergent medical services. The price index for these pre-determined services is typically tied to a percentage of Medicare’s fee reimbursement levels. Employers pay claims directly to providers, usually in excess of the amount that Medicare would pay for the same service. Employers use these fixed amounts to develop an internal pricing structure that provides employees with a list of covered services, providers who will accept the reference price for each service, and the upfront cost. This transparent pricing model has generated a lot of interest because many employees are tired of being victims of balance-billing.
One of the major benefits to RBP is its ability to protect members from balance-billing by reducing the price gap seen within carrier costs. Showing employees the cost of services upfront and providing them with a list of providers who will accept these fixed limits allows employees to better control their healthcare and limit their financial risk. This method of self-funding also allows employers to profit from low-claim years. If the company’s anticipated yearly-medical costs are lower than funded, the employer has the opportunity to collect the surplus to use towards future healthcare expenses. This flexibility in plan structure, when implemented wisely, can be financially advantageous to both the employer and the employee.
While RBP sounds like the perfect solution to alleviate the cost burden associated with unexpected expenses, there are some limitations to using this method of plan funding. For example, RBP reduces the risk of being balance-billed, but it does not completely protect an employee from unanticipated medical expenses. Like traditional carrier network negotiating, RBP has in and out-of-network providers. Those who accept the fixed reference price for certain services are considered in-network providers, while those who do not participate in the arranged pricing method are considered out-of-network providers. If, in the event of an emergency, an employee seeks services from a non-participating provider, they are responsible for the cost. It is imperative to do research beforehand to ensure that the service is covered and the provider is in-network. RBP also limits the providers that can be seen, as the number of providers who accept RBP is usually much narrower than those who participate in traditional carrier networks.
With reference-based pricing, research is key. Employers interested in implementing this type of program need to understand how RBP differs from traditional healthcare plans, as well as how it will affect those enrolled. Employees participating in RBP plans need to be educated on how the method of funding works, what the plan’s limitations are, and how to avoid financial risk.
At TDG, we make it our priority to advise and support both employers and their employees. If you are interested in learning more about reference-based pricing and if it is the right fit for your group, feel free to reach out to your dedicated Team Member.