Whether you consider it a blessing or a curse, we can certainly claim that we “live in interesting times.”
The unexpected volatilities in today’s market serve as constant motivation for employers to find new ways to trim operating costs and increase their bottom lines without negatively impacting products, services, or employees. Knowing this, it’s important to note that, on average, employers pay about $8,000 per employee for annual healthcare coverage.
Not only that, but healthcare costs are rapidly rising. Moreover, the costs for healthcare can be prohibitively expensive, so that many employees choose to forgo coverage altogether. This can result in poor retention and recruitment rates for companies, which further complicates an already costly problem, when replacing an employee can cost from one-half to twice their annual salary.
One potential solution can help employers retain employees, and even boost morale while drastically reducing their healthcare spend. A reference-based pricing model is a data-driven approach to healthcare coverage that functions as a cost-containment method. Read on to learn more about the benefits of reference-based pricing.
Benefits of Reference-Based Pricing
Distinct from other approaches, reference-based pricing determines a reasonable amount to pay the healthcare provider or facility by comparing costs reported by the hospital or physician to Medicare reimbursement rates.
Reference-based pricing models can also help third-party administrators (TPAs) and brokers by providing employers with sizable savings on their annual healthcare spend.
Big Savings for Employers:
Switching to a reference-based pricing model can lower healthcare claim costs by up to 40%. Because it employs evidence-based data, a reference-based pricing model negotiates prices from a position of knowledge instead of allowing providers to devise their own pricing schedules.
For example, an employer with 500 employees who spends an average of $8,000 per employee for healthcare coverage ends up paying nearly $4 million in annual healthcare spend. Using reference-based pricing, however, makes a 40% reduction in costs possible and saves the employer about $1.6 million. And, because members are not restricted to specific in-network doctors, they can get the best care possible at a reasonable price.
- Lower healthcare costs up to 40% = Increased revenue, employee retention
- Lower costs for employees = Peace of mind, better health
- Out-of-network options = Increased accessibility
Client Retention for TPAs and Brokers:
Simply having a reference-based pricing model in their pockets will give TPAs and brokers a competitive advantage over companies that may only offer typical healthcare coverage models. In addition to significantly lower fees through reference-based pricing, the pricing structure is per employee per month rather than a percentage of billed charges. When combined with in-house components, reference-based pricing allows TPAs and brokers to become full-service vendors. Those TPAs using reference-based pricing models will be able to offer employers significant healthcare savings.
Since 2008, when HIPAA laws required significant operational changes, the TPAs that have not only survived, but also grown significantly, can credit reference-based pricing models for their success. Some additional reference-based pricing benefits include:
- Specialty Care Network Access
- Claim Reviews
- Claim Negotiations
Proven Results: Case Studies
As you can see, a reference-based pricing model can offer savings and flexibility at many levels. But what does that look like in practice? The case studies below can give you a clear, quantifiable picture of the benefits of reference-based pricing:
- A Kansas-based company with over 1,000 employees partnered with 6 Degrees Health for a full replacement of their PPO network. After 12 months, 6 Degrees had lowered their plan spend by $4.3 million, resulting in an ROI of 20.0x.
- A Washington state-based employer with just under 1,000 employees calls 6 Degrees Health the “largest cost savings initiative in the company.” The VP of Human Resources reports that switching to RPB with 6 Degrees generated $2M in annual savings—a total of 57.7% saved—without changing a single employee benefit.
Switching healthcare models offered both companies more control of their healthcare spend, as well as increased flexibility unavailable with other pricing models.
Your organization could be the next success story. Take a moment to speak with one of our experts today to learn more about the benefits of reference-based pricing and experience the future of healthcare.