Understanding reference-based pricing in employee benefits

By Higginbotham on February 13 , 2019

GettyImages-Health Benefits Claim FormReference-based pricing (RBP) is the newest health plan model to make waves in employee benefits. It’s a fairly simple idea that’s creating a lot of buzz, and companies are eyeing it as a way to control costs.

What Is Reference-Based Pricing?

The first key to understanding RBP is knowing what reference it’s based on. The answer is generally Medicare. RPB is not a Medicare plan. However, it uses the Medicare rates as a basis for the amount of coverage available.

PBP plans typically pay more than the Medicare rate, say 150 percent or even 200 percent. So, let’s imagine the Medicare fee schedule for a given service is $100, and let’s imagine that our hypothetical RBP plan pays 150 percent of the Medicare rate. In this case, that’s $150.

This is a fairly straightforward way for a self-insured employer plan to determine rates, and to keep those rates low. However, as with everything, there is a catch.

Out-of-Pocket Costs

Medicare fees are generally quite low. In fact, according to a poll from MGMA Stat, two-thirds of medical practices say that the 2019 rates are too low to even cover the cost of delivering care.

Even though the payments made through a RBP plan are higher than actual Medicare rates, they may still be lower than average, and the employee may be expected to cover the difference. Because of this, RBP can lead to high out-of-pocket costs and balance billing. 

Employer Value

Employers who use RBP have the potential for two main benefits: lower total health care expenses and higher employee engagement in health care decisions.

Health coverage usually extends to any in-network procedure, regardless of cost. With RBP, employers don’t risk paying exorbitant prices for services that could be done more inexpensively. By setting a limit on certain procedures, employers are empowering employees to take charge of their health care decisions.

Having established limits on specific services means employees must consider cost, in addition to quality, when choosing where to have a procedure. This requires research on the employee’s part, encouraging active participation in his or her health care. It’s estimated that low health literacy costs the United States $106 billion to $238 billion annually. By promoting employee engagement in health care decision-making, you’re helping to educate employees, while lowering overall health costs.

Potential Cons

There are a number of considerations to make when implementing RBP, given the complexity of the model. It is paramount you work with a vendor who is reliable and experienced in the RBP process. The vendor must be able to ensure a smooth transition into this model, otherwise you risk disrupting highly utilized providers. If you choose a vendor who is inexperienced, your RBP limits might be too low for the services your employees need, making the plans unaffordable. Moreover, not using a vendor (and its legal advocacy) could potentially leave you vulnerable to providers attempting to balance bill.

Need help with your employee benefits strategy? Contact your Higginbotham insurance agent.


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