The rising cost of healthcare has left employers seeking alternative options for their employees instead of traditional health insurance. Different insurance choices are coming out every few years, but more and more companies are turning to self-insurance and using reference-based pricing. This cost-saving strategy eliminates negotiating rates between employers and healthcare providers.
Employees seek companies that can offer affordable healthcare and insurance, and reference-based pricing allows companies to offer that as part of their benefits package. Here is all you need to know about reference-based pricing, how it works, and its advantages and disadvantages.
What Is Reference-Based Pricing?
Reference-based pricing is a health plan strategy where the employer sets a cap on the amount it will cover for health services rather than the insurance provider setting the cost. The employers will pay a fixed percentage of the healthcare service for their employees, and any amount above the set rate falls on the patient’s responsibility. Most employers set their coverage prices based on Medicare as a reference.
Basing the coverage amount on Medicare costs ensures that the employee pays a set rate for the procedure or service instead of an inflated price. Reference-based pricing in healthcare offers more clarity and stability to the cost.
How Does It Work?
A traditional, fully-funded plan administers an employer’s healthcare claims for a fixed monthly cost. This makes it difficult for employees to predict their healthcare costs since prices for services and treatment can vary from any provider. Traditional healthcare plans usually have a network and only offer coverage within that network. With reference-based pricing, employees don’t need to stick with a network since the coverage amount is already agreed upon regardless of the provider.
Reference-based pricing insurance plans are administered by independent third-party administrators. Employers work closely with third-party administrators to establish the coverage amount and limits for specific healthcare services and procedures. The third-party administrator pays the provider based on the set costs in the plan and negotiates with the provider if there’s a balance billed to the patient.
The Benefits of Reference-Based Pricing
One of the main influencing components employers consider for reference-based pricing is cost transparency. Employees can see a healthcare provider and already know the cost of the service. There is no more guessing the balance at the end of the visit. Here are the other top benefits of reference based pricing:
- No Networks – Employees are free to see the provider of their choosing. There isn’t a network payment tier. As long as the provider is in compliance and agreement with the reference-based pricing, employees are able to see any provider.
- Easier to Budget – Since the employees know exactly the amount that will be covered, they’re able to set a budget for healthcare spending. Reference-based pricing takes the guesswork out of going to the doctor.
- Retains Employees – Employees are likely to stay with a company if they’re getting a favorable benefits package. Health insurance is one of the top considerations for employees.
- Saves Money – Offering a reference-based insurance plan saves money for both the employee and the employer since they both know the exact amount they will be paying and covering.
Drawbacks of Reference-Based Pricing
As with any health insurance plan, reference-based pricing has some flaws. But most employers would argue that the benefits outweigh the cons. One of the drawbacks that need to be considered is providers can deny care, as not every provider accepts reference-based pricing amounts as payment.
There can be a situation where the patient has already received care only to find out they don’t accept the reference-based pricing amount, resulting in the patient receiving a bill for the unpaid balance. This is referred to as balance billing. Typically, the third-party administrator will work with the provider to address any balance billing issues and determine a solution. Having a third-party administrator alleviates the stress of the balance off of the employer.
Most companies that are choosing to self-fund and get reference-based insurance plans also consider stop-loss insurance. This is additional insurance that protects employers from higher-than-expected claims. It helps minimize the risk with self-funding insurance.
Let Alltrust Help You
Finding the right health insurance route can be overwhelming. Employers want to offer the best options to their employees while keeping their bottom line in mind. Knowing which plan will meet their needs will be difficult without any help. At Alltrust, we understand the importance of taking care of your employees.
We can help find the right plan for you and how to educate your employees on the details of their coverage. Our team of experts can evaluate all of your insurance options and discuss factors to consider. Not every insurance plan is the right choice for certain companies. There are circumstances for every avenue. With reference-based pricing, things to note would be the employee base’s age demographic and if there are enough providers available that accept reference-based pricing.
Alltrust specializes in employee benefits and can help create a healthier organization. We can guide your company with employee benefits consulting, benefits technology solutions, cost management strategies, and mental health and wellness programs. Contact us today to learn more about our services and to see if reference-based pricing will be a good fit for your company.