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Reducing Healthcare Costs with Reference-Based Pricing

January 25, 2021

WHAT IS REFERENCE-BASED PRICING?

Reference-based pricing is a self-funded form of employer health insurance that limits healthcare costs. Reference-based pricing allows employers to set a limit on how much a plan will pay out for medical services that tend to have a wide variance in pricing. These plans set a “reasonable fee” for certain services, which is calculated based on Medicare pricing and general cost information. Considering the rising healthcare costs in the U.S., this strategy allows employers and employees to have more control over healthcare costs.

Unlike other goods and services purchased in the open marketplace, the cost of healthcare services can vary greatly based on location and between healthcare providers in the same geographic region. This is true even when the quality of care is virtually identical. It is not uncommon in some geographic locations for the highest cost of a procedure, like a CT scan, to cost well more than 10 times that of the same procedure at a different but similar medical provider. Reference-based pricing helps employers and employees circumvent these discrepancies and acts as a regulating force on providers.

In order to effectively implement a reference-based pricing strategy, employers must partner with a third-party administrator (TPA) with the necessary tools to help manage the plan. TPAs help employers provide member services, have the latest medical pricing data and negotiate with providers on a reasonable fee.

WHAT ARE THE BENEFITS OF REFERENCE-BASED PRICING?

For Employees:

  • No more networks
  • Provides cost transparency and certainty
  • Encourages proactive management of care

For Employers:

  • Significant healthcare cost savings
  • Maintains consistent quality of care
  • No network negotiations

CAN REFERENCE-BASED PRICING LOWER MY COMPANY’S AND EMPLOYEES’ HEALTHCARE COSTS?

Implementing reference-based pricing does not make sense for every employer. For some organizations, it is just not as cost-effective while others may simply not be ready to make the organizational changes necessary.

If you answer yes to several of these questions below, reference-based pricing may make sense for your company:

  • Does your company have 300 or more employees?
  • Is your organization fed up with the healthcare insurance status quo and willing to try something different?
  • Is your organization’s health plan self-funded?
  • Is your organization willing to leave its current health plan carrier?$
  • Does your organization have the ability to effectively communicate with plan members directly about the need for change in healthcare delivery and engagement?
  • Does your organization have an appetite for a longer lead time for transition?

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Employee Benefits

Practice Leader

Joseph Curcio

Vice President, Senior Sales Leader

15 years of Employee Benefits Experience

Connect With Us

jcurcio@connerstrong.com
856-552-4544