In the world of health care, nothing is ever static. The very nature of the benefits ecosystem — varying levels of competition, increasing prices, an always-evolving landscape of regulations — means that new approaches are constantly cropping up. (And that old approaches are constantly evolving or fading away.)
Currently, one new approach to health care is quickly gaining momentum across the country: reference-based pricing. Traditionally, health care functions on a fee-based pricing model. That is, prices for medical treatment are negotiated by an insurance carrier: an entity like Aetna and UnitedHealthcare determine how much to charge for a visit to the orthopedist or surgery in a hospital. Typically, this is anywhere from 250 to 400 percent of Medicare rates that are determined by the federal government. With referenced-based pricing, the reimbursement can be as low as 120 percent of Medicare.
Under reference-based pricing, the insurance carrier isn’t in the equation. Instead, employers pay health care providers directly. In many cases, employers will work alongside reference-based pricing specialists to implement the model.
A diverse set of industries are experimenting with this reference-based model, from engineering firms to manufacturers to municipalities.
But perhaps your mind began to wander at “a new approach to health care is gaining momentum across the country.” Navigating the realm of health care can be a tricky and trying exercise for employers and employees both — so news of yet another change might stir up apprehension.
JDM Benefits is quelling that apprehension. We provide our clients with valuable insight and personalized service relating to all things benefits, so clients can focus on what matters most — running their core business.
Reference-based pricing wouldn’t be gaining momentum if it didn’t have perks. First, there’s more transparency into the health care process. Employers with the assistance of a third-party administrator can analyze a bill line by line and see the breakdown of prices: how much the procedure cost, how much the medication cost and so on. Normally, employers would simply receive a single, monolithic bill from insurance carriers.
Then there’s the potential for cost savings. With employers engaging with medical providers directly, eliminating the inflated reimbursement rates, prices will likely decrease and outcomes will improve. And over time, employers can build relationships with a network of physicians, eventually ironing out prices that both parties can grow used to — no surprises.
There are companies that work with employers to implement reference-based pricing. And they report major health care savings for their clients — up to a 30 percent overall reduction or an average savings of $150,000 per 100 employees in the course of one year.
CEOs and CFOs are frustrated with receiving a 10 to 20 percent increase every year on an already inflated number. Increased transparency and decreased costs aren’t just good news for employers, of course — they’re also good news for employees. Lower costs can mean fewer out-of-pocket expenses and less in employee-plan contributions. We give our clients the opportunity to treat their medical premiums like any other business expense.
No system is perfect. While reference-based pricing brings positive change, there are also pain points.
The issue: Without the buffer of an insurance carrier, when employers and providers disagree on a cost, employers may have to pay the higher fee — or face balance billing, which ultimately could lead to litigation if not paid. Even if this never occurs, the prospect of not having an insurance middleman to absorb those costs can be daunting. However, the right third-party administrator can provide member advocacy and legal defense to protect members from balance billing or collection at no added cost.
As reference-based pricing gains traction, hopefully this overview is helpful in determining if it’s the right fit for you and your organization. Navigating the realm of health care can seem overwhelming — but careful research and a reliable partner can uncover the best path forward for healthy employees and a healthy company.
Joseph D. Moschitto is president of JDM Benefits in White Plains. He can be reached at firstname.lastname@example.org.