As a business leader who must manage the rising costs of health insurance, what would you say to someone who could offer you a program that provides price transparency while adopting a fair market value approach to costs? Sounds interesting, right? What if that program required a significant up front effort by you, your business leaders, and your employees? Still interested? Reference-based health pricing (RBP) is a healthcare concept that is not particularly new to the industry, but relatively new as a technique that employers can use to help control benefits spending. However, it’s not for the faint of heart or for those that simply want “traditional” health insurance without the hassle. RBP is a system that allows employers to set a cap on the amount they will agree to cover under their self-funded health plan for certain services.
The fundamental concept behind RBP is cost—and in this instance, we’re speaking of the cost of a particular service that a health care provider performs. As you know, the amount a provider bills is not necessarily the actual cost that the provider incurs to perform that service, nor is it a reflection of the market value of that service. In a traditional setting, each network provider has a “contract for services” with carriers that stipulates how much they will be reimbursed for each service—this is termed a negotiated rate. However, for most providers, the only universally recognized payment amount is the Medicare-negotiated price. In a RBP model, the negotiated rate becomes a variant of the Medicare-negotiate rate—specific to each employer contract.
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So how does this work in practice? This consumer-driven approach to health care can produce substantial plan savings to the employer via rates negotiated as a percentage above approved Medicare reimbursement rates (i.e., 110% of Medicare rates). However, this process can also place a new burden on employees who have to weather the barrage of letters from providers who attempt to “balance bill” the employees for the billed amount above the negotiated reference based reimbursement. In these circumstances, employee education about the nuances of RBP is critical to the success of this type of program. If employees are armed with the necessary education and support, these hurdles are not a significant impediment.
As you can see, there are important issues that must be addressed as an employer who would consider a RBP model. To better manage the risks and rewards associated with a RBP model, it would be wise to work with a broker who fully understands the concept and who has a network of third-party administrators (TPA) at their disposal who manage RBP plans. Working through an experienced TPA and an experienced broker will dramatically reduce the implementation noise that can sometimes occur with a RBP model. The TPA will also be able to provide the legal support necessary to stem the tide of balance billing requests from providers.
So are we all good with RBP? The jury is still out and there is much more ahead for RBP plans. As this pricing methodology becomes more widely used and accepted, we’ll see a greater adoption rate among employers who are seeking relief from the ever-growing health care costs to their organization.