Healthcare providers oppose reference-based pricing. Employers continue to migrate to reference-based pricing plans. The biggest mover to RBPs is the small business health insurance market. It’s all about the amount of money changing hands in the healthcare system and that is creating corporate opposition that previously did not exist between employers, health insurance companies, and healthcare providers.
What is Reference-Based Pricing?
Reference-based pricing is a form of medical provider payment that exists within the structure of a self-funded group health insurance plan that is employer-sponsored. Self-funded plans are common, especially in the large employer group market. Approximately 11% of small businesses (3-49 workers) and 91% of large businesses (5,000+ workers) are currently using self-funded plans in the U.S. according to 2022 statistics. In the simplest terms, an SFP requires that a portion of the employers’ total premiums paid are set aside by the carrier to cover the cost of employee claims for the plan year. If employee claims exceed the funds that are set aside, any additional healthcare costs are covered by stop-gap insurance. If there is a surplus because employee claims were low in any given year, the employer can receive a refund on those premiums.
Reference-based pricing is an optional component of a self-funded plan. It does not use provider networks, the typical provider networks are the PPO, EPO, and HMO that most of us are familiar with. These networks negotiate prices with medical care providers that are typically 40% less than what a person would pay cash for if they had no insurance, at least theoretically. Reference-based pricing works on a different model. It pays a specific percentage above the Medicare rate for tests, labs, procedures, and hospital care. This rate is significantly lower in most cases than what a medical provider would be paid through a network plan.
Are Reference-Based Pricing Plans Common?
Interest in Reference-Based Pricing is Growing.
- A 2016 survey on employer benefits found that only 5% of employers utilized reference-based pricing in 2016, however, 60 percent of those surveyed planned to use reference-based pricing in the next 3 to 5 years.
- Another 2019 study by Lockton surveyed 1,300 businesses. It stated that only 2% were currently using RBP, however, 10% of the companies surveyed said they were considering moving to an RBP plan in the future.
What are the Advantages of Reference-Based Pricing?
There are several advantages provided by RBP.
- There are no network restrictions. Employees can visit any healthcare provider.
- The premiums are lower because RBPs pay a relatively small percentage above the Medicare rate.
- The out-of-pocket costs for employees are lower if they follow the guidelines of the plan.
- Employers also benefit from the lower cost of medical services provided to employees. This translates to a greater likely hood of receiving a refund on their self-funded plan at year’s end.
What are the Disadvantages of Reference-Based Pricing?
Employees must be educated in the nuances of an RBP plan.
- Medical providers are largely against RBP plans.
- Employees may receive balance-due medical bills for the difference between the amount paid by the RBP insurance plan and the total amount charged for service.
- Employees are responsible for researching and finding the best combination of price and quality for tests and procedures.
What do employers need to know before considering an RBP plan?
Employers and employees must be properly educated on the issues that can arise when implementing an RBP plan. Three main components are vital to insure employees properly understand how to use their health insurance.
Employees must understand that they will need to be responsible for finding a healthcare provider that has the best combination of pricing and quality for any medical services they need. The tools to do so are readily available. The most common provider of these research tools is Healthcare Bluebook. For instance, Allstate Benefits offers RBP plans and provides their clients access to this specific tool to quickly and intuitively get accurate information on the best providers for their medical needs. This is an important component in saving money on medical expenses that is unique to the RBP plan.
Employees must also be made aware that they may be billed for the price difference between what the insurance carrier pays the medical provider and what the provider normally charges for that medical service. The employee must be properly trained to not pay the provider for this additional bill. They need to be trained to contact the benefits administrator for the plan and allow the appropriate channels to resolve the billing issue. There is only a problem if the employee does not contact the benefits administrator and pays the bill. If the employee follows this simple protocol, there will be no issues and the insurance company will resolve the issue directly with the medical provider.
Employees also need to be educated that many providers will initially tell them that their insurance is not in their network. This is to be expected because RBP plans have no network. The employee needs to be informed that they will need to tell the medical provider to bill them through their insurance and inform the provider that they can call the customer service number on the insurance card if they have any questions.
Why are Healthcare Providers Against Reference-Based Pricing?
Healthcare providers are concerned about their profitability and the RBP plan reduces their ability to make a profit. The American Hospital Association states that its official position is that “reference-based pricing is bad for patients.” Their statement goes on to say that RBPs increase bad debt for providers, undermine broader healthcare planning and erode the quality of medical care, among others. However, even with the growing implementation of RBPs by U.S. businesses, many hospital systems in states like Colorado and Texas have seen record profits in recent years. In fact, in Colorado, most hospitals charge between 2 and 5 times the Medicare rate for their services.
Is Reference-Based Pricing a Legitimate Form of Health Insurance?
Yes, and it will remain so. Reference-based pricing plans are protected by federal law due to the ERISA Act. It was further reinforced by the No Surprises Act. For employers, the only real issue is making sure that your employees are properly trained on the protocols that need to be followed for the successful implementation of a reference-based pricing health insurance plan.