Every year it seems like healthcare costs keep skyrocketing. As an employer, it’s important to consistently look at different health insurance alternatives to determine what works best for your company. In this article, we will walk through a “newer” healthcare model called Reference Based Pricing (RBP).
What is Referenced Based Pricing?
RBP is an alternative health care pricing methodology that uses a bottom-up approach to create fair and reasonable prices. This method pays doctors, labs, clinics and hospitals a percentage of an established benchmark. Most often, the reimbursement rate is 120% to 300% of Medicare pricing for a given service, “based on what’s reasonable in terms of the local health care market.”[1]
How does Reference Based Pricing work?
RBP works in conjunction with self-insured health plans, allowing employers to have more control and transparency of covered care. Both employers and employees receive an itemized bill so they can ensure they are only paying for services they used. Employers will cover a specified maximum coverage amount and the employee will be responsible for any remaining balance beyond the maximum coverage amount.
Advantages:
- Cost
RBP premiums could potentially be more than 20% lower than traditional network options. Therefore this cost savings typically results in lower total health care expenses for both the employer and the employee.
- No More Networks
Members using RBP for their entire plan are not limited to in-network providers. No network means employees have more choices when it comes to health care providers. RBP options are flexible as well, meaning the employer can pick and choose specific areas to apply RBP, such as facility claims or out-of-network claims.
- Employee Literacy and Transparency
RBP provides transparency that allows employees to see exactly what they’re paying for different claims. Providers/facilities charge different rates depending on the specific insurance plan covering the procedure. According to the WSJ, the cost of a caesarean section could fall anywhere between $6,241 – $60,584 at the same hospital.[2] RBP also provides higher employee health literacy which indirectly leads to better clinical outcomes and lower health care expenses. By setting a limit on certain procedures, employers are empowering employees to take charge of their health care decisions.
Disadvantages:
- Balance Billing
Balance billing is the difference between what a provider charges and the allowed amount based on the insurance plan. For example, if a provider charges $100 and the allowed amount is $70, the provider may bill you for the remaining $30.[3] This can potentially result in unexpected bills like out-of-network PPO claims, ultimately leading to adverse financial outcomes for the member. Most RBP administrators have programs that help their members resolve these claims with providers. These programs may help reduce or eliminate paying additional out-of-pocket costs.
- Third Party Administrator
RBP requires working with an experienced third-party administrator (TPA) to ensure the plan runs smoothly. It takes work to setup this type of plan, as there as there are several considerations to make. Given the complexity of this model, it is vital to partner with a TPA that can appropriately setup this model and ensure a smooth transition. A common mistake of an inexperienced TPA is setting RBP limits too low, therefore making you and your employees vulnerable to unaffordable balance billing.
- Location
Certain locations work better for RBP. Smaller communities are less ideal for reference-based pricing due to the lack of competition between the providers available.
- Employee Education
RBP requires a lot of employee communication and education. Ensuring that employees are well-educated on RBP will help them understand out-of-pocket costs and why provider’s prices of the same service differ. Giving them a better healthcare experience.
As with any employee benefit plan, there are always pros & cons. There are several things to consider before implementing RBP, and it isn’t the best option for every employer. When evaluating whether RBP is a fit for you, make sure you work with an experienced and reliable consultant. Also, It’s critical to communicate and educate your employees when implementing a plan like RBP. Communication will help manage expectations, prevent hiccups, and ultimately lead to better health care decisions. Reach out to our benefits team at benefits@simafg.com or (804) 285-5700 if you have any questions about health insurance alternatives like RBP and whether it is a fit for your company!
Christian Mosier – Benefits Consultant
[2] https://www.wsj.com/articles/how-much-does-a-c-section-cost-at-one-hospital-anywhere-from-6-241-to-60-584-11613051137
[3] https://www.healthcare.gov/glossary/balance-billing/
Disclosures This content is not intended to be exhaustive, nor should it be viewed as legal or tax advice. Information presented is believed to be current and is provided for general information and educational purposes based upon publicly available information from sources believed to be reliable. We cannot assure the accuracy or completeness of this information. It is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid any penalties. You should always consult an attorney or tax professional regarding your specific legal or tax situation. This information may change at any time and without notice. All opinions represent the judgment of the author on the date of the post and are subject to change. Content should not be viewed as personalized advice. SIMA reserves the right to edit blog entries and delete comments that contain offensive or inappropriate language
