What is Reference Based Pricing?
Forget everything you know about traditional PPO and HMO insurance networks! Reference based pricing is here to turn our whole insurance healthcare model on its head! And like any good innovation, reference based pricing aims to simplify and improve how health insurance works.
Reference based pricing provides a healthcare provider reimbursement for services based on a percentage of how much Medicare pays for those same services. Usually this figure ranges from 140-180% of Medicare reimbursement.
That’s right, reference based pricing insurance actually pays providers MORE than Medicare does. If Medicare pays a hospital for $100 for a procedure, a 150% reference based pricing plan would pay the hospital $150 for the same procedure. Simple! Although this reimbursement rate is higher than Medicare, it is usually FAR less than a provider will get on the “network PPO and HMO” contracts.
Since the payment to providers is based on the set price of Medicare, there is no longer a need for networks. Under a reference based pricing plan you can go to any doctor, hospital or facility. The insurance plans that use reference based pricing usually look the same as the network insurance plans that people are used to.
Why do we Need Reference Based Pricing? What is the Problem with the Current System?
The network insurance system that we currently have works by providing insurance companies a discount to services for their clients. In return, all doctors that sign up for the network get access to a large number of potential clients.
Sounds good right? Here are the problems:
- Pricing is not transparent to consumers under these networks.
- Cost of services is usually heavily inflated before the network “discount” is given.
- These networks are complex and can cause problems. You can go to an in-network hospital and end up seeing an out-of-network doctor resulting in a massive balance bill.
- Maintaining these networks require more manpower.
The result? Ever increasing health insurance costs in America. It makes sense when we read about people being charged $15 for Tylenol in a hospital that costs pennies to make. These costs are not shouldered by the insurance company, they are passed on to consumers.
Why is Reference Based Pricing Better?
There are several reasons why reference based pricing is ideal for the consumer. First and most important is that reference based pricing offers significantly cheaper insurance costs than the current network system. Setting the price at a percentage of Medicare is just cheaper than current network pricing. Price is a significant motivator for companies due to the high cost of group health insurance.
While price is the main benefit, there are other pros such as greater flexibility and ease of use in not having to deal with a network and greater accountability and transparency in basing prices off a fixed price. It works great in or around Atlanta due to the large amount of hospitals and healthcare providers!
Potential Issues with Reference Based Pricing
- Due to the lack of competition, reference based pricing does not work well in rural areas. This is due to the fact that hospitals and providers usually have a monopoly on the market and are less willing to accept the lower payments from reference based pricing.
- Balance billing can be an issue with reference based pricing. If a provider charges more than the plan reimburses, the insured could receive a bill in the mail. It is important that employees are educated to not just pay the balance bill but rather send it to your agent or TPA. They will fight the bill so that the insured does not have to pay it.
- It can be a hassle initially for employees using the plan. Reference based pricing is still relatively new. Many healthcare provider employees will not know how to handle someone trying to use a reference based pricing plan. Thankfully many carriers offering reference based pricing plans offer services that will contact healthcare providers on behalf of the insured.
Do not let anyone tell you that a reference based pricing insurance plan will be trouble free. However, many employers are deciding that the potential savings are worth the potential problems with reference based pricing.
Reference Based Pricing in the News
As reference based pricing becomes more popular, it is getting more coverage in the news. The latest story centers on North Carolina. The North Carolina Treasurer Dale Folwell is trying to switch the state insurance plan for 700,000 works to a reference based pricing plan. Mr. Folwell says that the change in plans would save works and taxpayers hundreds of millions of dollars.
This sounds like a great move, but the hospital lobby is fighting back and there is current legislation in NC House of Representatives to stop the switch. It will be very interesting to see if this plan goes through and how much it ends up saving the people of North Carolina.
Is Reference Based Pricing Right for your Company?
Determining if reference based pricing is right for your company will depend on multiple things. Here are a few:
- Are you employees resistant to change?
- How much does price matter?
- Where are employees located?
- How well do staff and management communicate?
Give us a call and we will go over everything you need to be aware of when making this decision. We can help you look at all the options and compare the very best insurance carriers and TPA’s in Georgia. Don’t get stuck paying to much for your insurance or receiving sub-par service for your insurance plan.
Does it sound like we may be a good fit for your company? Give us a call! We are open 9am-5pm and you can call our office anytime at 770-452-9335. Alternatively you can set an appointment to talk with our lead employee benefit agent, Daniel Potter, here: https://calendly.com/ga-health-insurance/daniel-meeting?month=2019-07.
Read more about why you should choose to work with Georgia Health Insurance for your Employee Benefits HERE!