Should reference-based pricing be part of your healthcare benefits this year?

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Most medical decisions are made without knowledge of cost because that information has traditionally been unavailable, resulting in consumers being frustrated when surprised by a medical bill. In the U.S., employer-sponsored healthcare plans cover 91% of U.S. workers, and employee benefit costs are the second highest expenditure employers face, behind salaries.¹ As employers juggle the headwinds of inflation, recessionary fears, and employee retention, many are looking for ways to ease the burden of healthcare costs. Employers aren't the only ones with concerns. According to one report, 66.5% of household bankruptcies are attributed to medical expenses², while the cost of healthcare is preventing people from getting care or filling prescriptions.³ Nearly half of insured Americans are worried about covering their deductible.³

The pandemic and its aftereffects are pressuring employee benefit plans. As healthcare costs are projected to reach nearly $6.8 trillion by 2030 or 19.6% of the GDP, according to the Centers for Medicare & Medicaid Services, many agree that the way we purchase healthcare must change.⁴ Many employers are adopting value-driven health plan services (VDHPs) as part of a reference-based pricing plan, to control the cost of care. 

What is reference-based pricing (RBP)? Why should it be part of an employee benefits plan? 

Reference-based pricing (RBP) is an attractive solution because it often carries lower deductibles and contributions for members. Plans allow employers, supported by a third-party administrator, to pay an agreed-upon price for a healthcare service instead of a negotiated price with a provider. They have built-in guardrails that can help lower costs while ensuring transparent, high-quality care. It gives employers and employees access to quality and cost information so they can make more informed decisions about spending their healthcare dollars. In addition, members can also expect better health outcomes. 

In a nutshell, VDHPs that use reference-based pricing are high-engagement, low-cost health plans that: 

• Are customizable for use with or without a network
• Utilize interactive member and provider tools to drive quality and savings
• Promote pricing transparency to members and providers
• Generate higher provider acceptance

How does RBP work? 

Services are determined using publicly available data such as Medicare and cost information. The reimbursement for such claims can be negotiated with the provider before services are rendered, which helps ensure members receive a fair price and can shop for care. With RBP, employers lower their care costs and can promote their health system collaboration. 

What are the benefits of RBP? 

RBP makes healthcare more affordable. Industry estimates note that employers save an average of 20%-30% on their healthcare costs, which organizations can use to reinvest into their business or give back to their employees in the form of lower premiums. 

This option provides employers insight into the cost of their employees' healthcare benefits and helps control overall healthcare spend. In addition, offering a lower-cost option is shown to incentivize members to seek healthcare who might have otherwise skipped it due to the cost. 

RBP pre-prices claims, offering providers tools they can use to establish pricing ahead of services. Members can also see which providers accept reference-based pricing before scheduling care. 

When using an RBP plan, employees can use a specific reference price (for example, the amount Medicare would pay for a procedure plus a percentage of that Medicare price) to get a good understanding of how much they will pay for care. 

Frequently, RBP is used to determine how much a patient would pay for a facility or a "non-contracted claim" (often the same as an out-of-network claim). This means the provider who treated a patient does not have a contract or agreement with an organization's health plan or with their insurance company about how much the insurance company/health plan will pay that provider. Sometimes, as a result, patients may end up paying more for their care. 

However, when RBP is utilized, the patient may be charged the Medicare price plus a percentage of the other benchmarks, which will make the price lower than what the patient would have paid if a traditional plan were in place. 

In 2021, the RAND Corporation found that private U.S. health plans, those often sponsored by employers, pay more than 200% of what Medicare would pay.⁵ The "reference" in RBP services may help organizations understand how much an employer's health plan will pay toward employee/member care. 

Who should consider RBP as part of healthcare benefits? 

Self-insured employers can leverage RBP in their healthcare benefits to provide cost-effective services that produce high-value results, including: 

• Ability to see quality metrics on providers
• Transparency into expected costs before procedure
• Lower deductibles and employee contributions
• More control over cost savings
• Reduction of stop-loss premiums and claims
  • Ability to compare one facility's costs to another's and to see the quality of outcomes that the facility delivers for those services

A national provider of educational services replaced their traditional PPO plan with a VDHP, which included a PPO network plus the added benefit of access to nationally recognized health systems including Advocate Aurora and Beaumont Heath. The organization saw a medical cost reduction of 26% compared to its previous PPO Plan.

Research from SHRM's Employee Benefits Summary shows that most employers surveyed feel healthcare benefits are the most important type of benefit an organization can offer.⁶ During a time when all parties in the healthcare ecosystem are looking at cost containment strategies, adding RBP into an overall benefits package has upsides for both employees and employers.

References

1. 2021. 2021 Employer Health Benefits Survey.https://www.kff.org/report-section/ehbs-2021-summary-of-findings/.
2. Himmelstein, D., Lawless, R., Thorne, D., et al. Medical Bankruptcy: Still Common Despite the Affordable Care Act. Am J Public Health 109(3), 431–433. doi: 10.2105/AJPH.2018.304901.
3. 2022. Americans' Challenges with Health Care Costs. https://www.kff.org/health-costs/issue-brief/americans-challenges-with-health-care-costs/.
4. Centers for Medicare & Medicaid Services (CMS). "CMS Office of the Actuary Releases 2021-2030 Projections of National Health Expenditures." CMS press release, March 28, 2022. https://www.cms.gov/newsroom/press-releases/cms-office-actuary-releases-2021-2030-projections-national-health-expenditures.
5. Whaley, Christopher M., Brian Briscombe, Rose Kerber, Brenna O'Neill, and Aaron Kofner. Prices Paid to Hospitals by Private Health Plans: Findings from Round 4 of an Employer-Led Transparency Initiative. Santa Monica, CA: RAND Corporation,https://www.rand.org/pubs/research_reports/RRA1144-1.html.
6. Society for Human Resource Management (SHRM). 2022. 2022 Employee Benefits Survey. https://www.shrm.org/hr-today/trends-and-forecasting/research-and-surveys/Pages/2022-Employee-Benefits-Survey.aspx.

About the author

Ryan Day is president of HST, a MultiPlan Company