As we are all aware, the only constant in life is change. This has never been more true than in 2020. As a result of COVID-19, many non-emergency medical procedures and preventative screenings have been delayed or canceled, and experts expect health care costs to be on the rise. Employers will be searching for new opportunities to contain costs and maintain attractive and affordable benefit options for their employees. One solution the employer may consider is switching their health plan to a reference-based pricing model.

What is it?

Reference-based pricing, or RBP, is a cost-containment strategy that pays providers a percentage of an established benchmark, in many cases set by Medicare, according to the localized health care markets. The RBP method allows a measure of flexibility by which the availability of care is not dependent on a network and those using RBP can access almost any provider for their health care. Employers negotiate with their benefits partners to agree upon fair and reasonable prices for service offerings acceptable to group practices, hospitals and other health care facilities.

The pricing predictability offered by RBP can reduce the employer’s health care claims spending by 20 to 30 percent. In 2016, the State of Montana shifted its employee health plan to an RBP model to better control the state’s healthcare expenditures, saving $13.6 million from 2016-2019. And in 2018, Pacific Steel and Recycling saved $5 million by implementing the system, proving this model works well in both public and private sectors.

Although the RBP model has been around for some time, adoption remains limited. A 2019 survey of more than 1,300 U.S. employers by Lockton, a benefits broker and consultancy, found that two percent of respondents currently used reference-based pricing for targeted health care services, and an additional 10 percent are considering it for the future. With all our country and economy have experienced in 2020, we are hearing from our clients that the future is now.

Education is Key

Ultimately, the cost savings for reference-based pricing is tangible, which is why this model is gaining attention with companies and organizations across the country. However, when considering a move to this new model, employers should go through a thorough vetting process with a trusted health benefit advisor to determine if the savings is worth transitioning away from their existing health benefit plan.

Here are some key points to be addressed when considering if RBP is right for your client.

Regional Markets will Vary

We must always consider that health insurance is affected by location and where you live and work impacts the cost of Medicare—and, as a result, the benchmark from which savings are generated. One state may have a Medicare reimbursement of 260 percent while another may be 180 percent. RBP will save organizations money in both states, but those in the state reimbursing 260 percent will ultimately save more.

It is also worth noting that there is often a pricing variance of as much as 10-40 percent between companies in the same region offering an RBP solution. 

Billing Issues Could Arise 

When considering a switch to reference-based pricing, know that there may be an impact on employees, as it relates to balance billing. When using RBP, if the cost of medical services exceeds the amount agreed upon by an employer, the employee may be required to pay the remaining balance. An employer must supply their workforce with the appropriate educational materials and a point of contact who knows RBP inside and out to ensure their employees are represented and receiving maximum benefit.

Pick the Right Vendor

Understanding the specific differences vendors provide regarding cost savings is key. Options that appear to save more initially may not necessarily result in accumulating the most cost savings in the long run. Again, educating yourself on the mechanics of every vendor’s plan is essential to picking the one that best meets your client’s needs.

Constant Customer Support

Finding an administrator who will be your advocate is the keystone to a working RBP plan. When issues like balance billing do arise, the administrator must be willing and have the capabilities to represent an employee’s best interests in trying to get those fees waived. While reference-based pricing is a streamlined approach, it also adds a level of complexity to health care. An administrator who simplifies the process will help keep employees who use RBP satisfied.

In the coming years, the employee health benefit space will be moving through new and uncharted waters. It is unclear what the ultimate impact the COVID-19 pandemic will have on the health care industry. The landscape five years from now will probably look much different than today. What is clear is that, as we navigate through these uncertain times, we must dedicate ourselves to providing the education, guidance and resources clients will need to thrive. Now is the time to enhance your role as strategic advisor and deliver advice that will offer all clients sustainable, valuable and essential solutions to their employee benefit concerns.

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CBR Search Specialists is dedicated to the success of our client partners. We strive to stay up to date on the most important topics in the employee health benefits space and bring awareness to what we hear is happening now in the industry. For many brokers and consultants, reference-based pricing is becoming a significant part of conversations surrounding employee health benefit design and is a model that is being adopted more frequently. Becoming the informed expert is central to the quality of advice you can provide.

Carol Benson, President | CBR Search Specialists
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