How to Explain Reference-Based Pricing to Employees: A Guide for Employers

Due in large part to skyrocketing healthcare costs, many employers are seeking alternative methods of healthcare reimbursement for their employees. This is a direct result of the ways traditional healthcare models cut into employers’ bottom lines with multiple fees and premiums. 

Employers can expect healthcare premiums to increase by upwards of 5% this year, even after factoring in the many available cost-management programs. When close to 95% of US employers claim that healthcare costs will be their main priority over the next two years, the issue of healthcare coverage becomes an economic concern as well as a personal problem. 

Employers realize that offering quality healthcare coverage to their employees plays a huge part in their employees’ well-being and ability to perform productive work. However, discovering how to balance employee health and production against the inflated costs of traditional healthcare demands a more nuanced solution.

This quandary has caused many employers to seek alternative health plans including self-funded models. Reference-based pricing (RBP) is one particularly beneficial healthcare cost containment solution that has become increasingly popular. 

Because reference-based pricing is so different from conventional healthcare models, it can be difficult to explain clearly to employees. Your description must be clear enough to ensure they understand the benefits of this unique cost containment approach.

How To Explain Reference-Based Pricing to Employees

If your organization is considering implementing reference-based pricing, or has already made the switch, you’ll likely find your employees a bit confused by the proposition. Such confusion is understandable, as RBP is drastically different from traditional insurance health plans. 

Approaching the topic from a position of confident understanding helps ensure your employees’ receptiveness to new information rather than provoking immediate skepticism. When explaining reference-based pricing to employees, it’s important to emphasize that you (their employer) are acting as their insurance provider. Highlighting the differences between self-insured plans and  traditional insurance coverage is a crucial first step in understanding the full benefits of reference-based pricing. Unlike traditional plans, self-insured plans have the opportunity to use this reimbursement model to lower payments for medical services.

Traditional Medical Reimbursement Methods

Fee-for-service: This is the most common type of medical reimbursement and the one that most of your employees will likely be accustomed to. In this model, providers charge an itemized amount based on the services rendered, typically to an insurance company, which then pays for services before billing the employer and employee for a co-payment. Fee-for-service models require annual premiums and out-of-pocket minimums, as well as aforementioned co-pays wherein the employer and employee share a percentage of the amount paid to the insurer, usually divided 80/20.

Capitation: Capitation is another commonly used method that varies between providers. Typical payments cover all services for a group over a specific period. The main difference between this and fee-for-service is the ceiling placed on reimbursement amounts for procedures. However, both the employer and employee can expect to pay the same types of co-pays, premiums, and out-of-pocket minimums. 

Reference-Based Pricing in a Nutshell

In stark contrast to traditional methods, reference-based pricing does not include a private health insurance company. It’s important to explain this to employees early on, so they understand this fundamental difference and avoid later confusion.

Instead of dealing with insurance companies as a middleman, you can explain that a reference-based pricing model is not very different from comparison shopping for a new home appliance. Many big-box stores such as Home Depot, Best Buy, and Lowe’s sell the exact same product, but at different prices and with varying benefits for buying from each. 

Reference-based pricing gives employees the same flexibility and control in paying for healthcare procedures. Not only that, but reference-based pricing uses reference points, often the price Medicare pays for services, to determine the value of a specific service. For example:

You can explain to employees that this allows TPAs and brokers to negotiate much lower prices from providers by having this reference point in their back pocket. Without knowing the average prices paid for services, hospitals and providers can easily charge heavily inflated prices because insurance carriers will pay the percentage spelled out in their contractual obligations. Both insurance carriers and providers are profit driven. Preventing cost-to-charge ratios protects patients from price-gouging.

In comparison to traditional healthcare models, the main factors differentiating reference-based pricing are:

• Greater flexibility allows users to “shop” for coverage
• Lower prices due to pre-payment negotiations for billed amounts
• Increased transparency and integrity in the billing process
• Balance of control shifts in favor of patients
• Better employee health and job satisfaction

6 Degrees Health Brings Powerful Reference-Based Pricing Solutions

Knowing how to explain reference-based pricing to employees is just one of the first steps in implementing this non-traditional healthcare model. 6 Degrees Health is not an insurance company. Instead, by working with employers acting as their own insurance carriers, 6 Degrees Health partners with TPAs—for over a decade now—to reprice claims, balance bills, and help with access issues.

By utilizing a data-driven approach backed by our sophisticated MediVI software, we can compare the costs of services to negotiate fair and reasonable payments. We are determined to shift power away from profit-minded providers in favor of employers and their employees to help American workers enjoy quality, affordable healthcare coverage. Our reference-based pricing solution could help you lower healthcare spend by up to 40%.

Need more tips on how to explain reference-based pricing to employees? Speak to a representative today to find out how our reference-based pricing model can help you realize the true benefits of healthcare.