Reference-based pricing plans (RBPs) impact costs by paying healthcare facilities – that’s to say hospital outpatient facilities, and ambulatory surgical centers – a percentage over the amount that Medicare would pay for the same service. This practice contrasts the reimbursement methodology the traditional insurers use, which is a discount off of the facilities’ billed charges. The result is that payments to facilities are much lower than traditional insurers pay. Employers realize these savings because the self-funded financing model passes those along directly to them.

Viewpoints from Matthew Presutti

I spend a lot of time debating the state of affairs in health insurance and discussing the pros and cons of new trends. RBPs are a relatively new approach to health insurance that can dramatically lower costs for employers and employees. In many cases, health plans are experiencing 18% to as much as 30% reduction in their healthcare spend. After hearing for years and years that healthcare and health insurance rates are going in one direction only, I believe it’s worth exploring how these plans are bringing costs down.

As with any effort to reduce costs in health care, RBP strategies carry some risk. It’s important for employers that are contemplating an RBP model to understand that their plan may conflict with the objectives of their local health care providers – hospitals and outpatient facilities in particular.

There will be employees who receive balance bills, some of which may be large, as my colleague wrote about recently. In rare instances, providers take legal action against a plan. A well-constructed RBP plan will provide the legal resources to remove the member from that legal action.

This is why it’s imperative that employers should objectively consider the risks and proceed with a set of strategies based on their risk tolerance.

Careful selection of administrators and service providers is critically important to minimize these risks. Among other considerations, it’s a must that employers select vendors who are contractually obligated to provide legal defense of the plan and members, and who become fiduciaries of the plan. Equally important is to select vendors who have a long track record in the RBP space and can provide a number of references. Finally, stop loss contracts should be in place that continue coverage of a large claim even if legal disputes delay the final amount of that claim.

Reference-based pricing is advanced health insurance for its possible complexity, but it does have a place in the spectrum of programs available. A great broker can help your company explore these options.


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Matthew Presutti

Managing Principal, Employee Benefits – New York, NY