Reference-Based Pricing FAQs: What You Need to Know
You’ve probably overheard employees or employers complaining about out-of-pocket healthcare costs and how these expenses keep growing. It seems such grievances are well-founded, as medical costs in 2022 rose by 4.4% per employee, and are expected to rise another 5.6% in 2023, according to global professional services firm AON. That means the average employer can expect to spend about $13,800 per year, per employee.
This troubling trend underlines the vital importance of healthcare benefits for employees and employers, who both pay dearly for them. Access to healthcare ensures continued health and productivity, and serves as one of the most important incentives for employee satisfaction and retention. Many employers simply choose to eat the increasing costs rather than lose valuable talent, even if the choice depletes their bottom lines.
Increasing numbers of savvy employers, however, are saving thousands of dollars on expensive medical procedures by adopting non-traditional methods of healthcare reimbursement. Reference-based pricing is one such method at the forefront of alternate healthcare models because of its power to offer substantial cost savings without sacrificing quality care.
If you’re looking for solutions to manage healthcare costs and also ensure that employees receive the same level of care, you may want to consider switching to reference-based pricing. This post gives a brief overview of reference-based pricing and discusses some of the most frequently asked questions (FAQs) to offer a clear summary of its potential benefits.
What Is Reference-Based Pricing?
Reference-based pricing offers an alternative to traditional healthcare models that offer rates discounted from those customarily set by hospitals. It is a data-driven cost containment approach that uses benchmarked payments for medical services and reimbursement rates so employers and brokers can negotiate more reasonable prices.
This pricing model exists outside the confines of traditional insurance carriers because it effectively aggregates the prices of medical services and creates a “reference point” to evaluate fair payments. It offers brokers and employers a more flexible approach to healthcare reimbursement that significantly cuts costs and increases transparency in the reimbursement process without reducing the quality of care.
Reference-Based Pricing FAQs
Now that you have a better understanding of reference-based pricing, you can probably see why so many employers are switching—or considering a switch—to this model. Before you decide to change your healthcare coverage model, however, you should be sure that it’s the right solution for your organization.
The answers to these common questions will help clarify any concerns you may have and help you decide if switching to reference-based pricing is the solution your organization needs.
Is Reference-Based Pricing the Same As Insurance?
No. Reference-based pricing is not an insurance plan. Instead of going through a private health insurance plan—as with traditional insurance contracts—reference-based pricing is a cost-saving concept that determines provider payments based on a Medicare rate.
Paying a split with an insurance provider may sound cheaper than being fully responsible for costs, but insurance companies are not going to negotiate lower payments for services–which is where the savings will come from.
Conventional insurance relies on a cost-sharing method, in which both parties—employer and insurer—contractually agree to pay a pre-arranged percentage to providers. In contrast, reference-based pricing first establishes service prices based on aggregated benchmarks that are then paid in full.
Will Reference-based Pricing Completely Replace Insurance?
It can, but it doesn’t have to. While some companies may be ready for a full network replacement and all the benefits that come with it, others may not. One of the benefits of reference-based pricing is the ability to “wrap around” existing coverage models and complement what they do well or fill in the gaps where they are weak.
What Are the Main Benefits of Reference-Based Pricing?
We’ve established how reference-based pricing saves money and increases transparency, a metric which employers see as increasingly relevant. It also has many other benefits:
- Easier budgeting. Because service prices are established via benchmarking, employers and employees know in advance how much they’re expected to pay. This takes a lot of the guesswork out of doctor visits.
- Freedom from networks. Because reference-based pricing doesn’t rely on insurance company networks for savings, employees are free to see any provider. This could dramatically increase the quality of care employees can access.
- Customized healthcare plans. For decades, cookie-cutter healthcare plans from insurance providers have been the norm. However, this one-size-fits-all approach to healthcare inevitably leaves some employees out. Reference-based pricing allows employers to craft customized plans to fulfill their employees’ specific needs.
Is Stop-loss Coverage Necessary?
Self-funded insurance plans can undoubtedly benefit from stop-loss coverage, which offers employers another layer of protection from catastrophic losses. Such expenses can usually be attributed to extreme cases with uncharacteristically high claims.
How Do I Explain This Change to My Employees?
Switching to a reference-based pricing model presents organizations with an understandable concern because some employees may find it radically different from traditional insurance. Establishing open, two-way communication habits between employers and employees is a crucial first step in switching to reference-based pricing successfully. Employers should start by keeping employees updated on any changes to their benefits and educated about how such changes apply to them.
Employees need to understand how to schedule visits, how bills work, and how much they will be expected to pay. These are just a few details to illustrate how third-party administrators can act as useful intermediaries by sharing their outside expertise. For instance, if an employee needs a procedure that costs $600 at the Medicare rate, and your organization’s rate is 150% of Medicare, the employee can expect to pay around $900. Most people appreciate knowing the costs in advance to help them make informed decisions about potential procedures. Brokers can provide employees with advance cost estimates and answer questions about case-specific details due to their expertise in this specialized field.
Are There Any Downsides?
While reference-based pricing has a multitude of benefits, like any healthcare model, it does have some caveats. Thankfully, there are easy ways to counter these potential drawbacks.
- Because reference-based pricing relies on providers accepting payment in full, if a provider refuses payment, they may send the bill directly to patients. This practice, called “balance billing,” could come as an unpleasant surprise.
Patients can avoid balance billing by asking their third-party administrators to work directly with providers for payment negotiations.
- Another possible weakness in reference-based pricing is the potential for more claims with higher-than-expected prices.
Stop-loss coverage helps protect employers from catastrophic losses, usually attributed to natural disasters, emergencies, or long-term hospital stays that accompany life-saving surgery.
6 Degrees Health: Your Partner for Reference-Based Pricing
We hope this reference-based pricing FAQ has answered enough questions to help you decide whether adopting a reference-based pricing model is right for your organization. The next step is partnering with a company that has a proven track record in reference-based pricing solutions.
6 Degrees Health is an industry leader that works with TPAs and brokers to secure lower healthcare costs for employers. By using proprietary medical benchmarking software, MediVI, our data-driven approach allows us to compare costs for medical services and negotiate lower provider payments. When you partner with 6 Degrees Health, you could lower your healthcare spend by up to 40%.
Do you have questions we left unanswered by these reference-based pricing FAQs? Speak to a representative today to discover how our reference-based pricing model can help you realize the true benefits of healthcare.
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