Risk & Business Magazine JGS Insurance Summer 2021 - Page 4

HEALTH CARE INSURANCE

Reference- Based Pricing :

A New Health Insurance Paradigm

Health care costs continue to rise , and this year is no exception . Many experts believe that the coronavirus pandemic will cause health care costs to rise at a higher rate than in the past . This rise in costs will lead employers to explore many alternative health plan funding options . One such strategy is to employ Reference-Based Pricing ( RBP ).

RBP is a relatively new method for managing health costs set outside traditional insurance programs . While a small number of employers have implemented RBP , it is growing in popularity as a viable way to reduce the cost basis of medical claims for the employer . However , many employers are still very unclear about how RBP actually works as well as the pros and cons of RBP when considering whether or not to make this significant change .
Remember back in the 1990s when the health maintenance organization ( HMO ) was the new solution to addressing rising health care costs ? And then at the start of the 21st century with the dawn of highdeductible medical plans with your medical carrier while offering a self-insured Health Reimbursement Arrangement ( HRA ) to offset employee expenses ? Both concepts were very new and scary , and there were tremendous concerns about employee disruption , the unknown , and everything else . And yet , while HMOs and HRAs were not the saviors of health care , they have become mainstream in health care . And likewise , RBP is also here to stay .
WHAT IS REFERENCE-BASED PRICING AND HOW DOES IT WORK ?
RBP is a self-insured health plan design strategy that caps what the plan will pay providers for covered services . This cap — also known as an allowable amount — is based on the Medicare reimbursement rate .
Medicare ’ s buying power and access to hospital data enables it to set relatively low prices for treatment .
RBP PLANS DIFFER FROM TRADITIONAL HEALTH PLANS IN SEVERAL WAYS :
• With traditional plans , insurance carriers negotiate significant discounts on services when they contract with participating providers . Payment of that discounted cost is shared between the plan and the participant . For out-of-network care , insurers generally limit what they will reimburse to a percentage of the “ usual , customary and reasonable ” rate ( or a percentage of Medicare ) for the service . Employers generally have little control over what they pay for a specific employee ’ s healthcare , especially since the price of any given service can vary significantly depending on where the employee decides to receive care ( most employees are unaware that they can shop around for cost-effective services at all ).
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