For the employer who is in the right position to use it, an alternative to expensive health insurance might be a form of self insurance called Reference- Based Pricing (RBP).
Typically, under RBP an insurance carrier is not involved, nor does a provider network negotiate covered services for the plan. Instead, the employer sets a fixed limit on the maximum amount its plan will pay for certain healthcare services.
The fixed limit is often based upon a percentage or multiplier of what Medicare would pay the provider. However, the question then is whether the healthcare provider will be willing to accept these fixed limits, which can be much less than what a traditional insurance carrier or provider network would pay, warns Melissa Shimizu, an attorney with the law firm of Fisher Phillips.
One example: A participant needs a certain kind of surgery, and a hospital would expect to be paid $2,500 for it even if some insurance carriers may have contracted to pay less than that. The Medicare rate is $500, and the RBP plan’s fixed limit is 200% of the Medicare price, which comes out to $1,000.
With RBP, the hospital may perform the service and expect to receive $2,500. After the hospital is paid only $1,000 by the employer, it may seek the $1,500 balance from the patient. This concept is referred to as “balance billing.”
The patient, the employer, or a third-party administrator may then help negotiate down the amount of the balance billing. Of course, there are varying degrees of success for these negotiations.
“From the employee’s perspective, however, this situation may not be ideal – they may feel uncertain about the amount they will end up paying out of pocket for a procedure and figuring out the cost ahead of time may require significant research,” Shimizu points out.
For RBPs to generate cost savings, she stresses that employees must be well-informed consumers.
The Affordable Care Act limits the amount of an individual’s out-of-pocket expenses for in-network health care costs. RBPs do not have traditional networks, so government agencies issued guidance on the subject to make sure employers did not use RBPs to circumvent these out-of-pocket maximums.
The agencies agreed that, in general, a plan could treat any health care provider who accepts RBP negotiated prices as an in-network provider, and all other healthcare providers can be considered out-of-network, as long as plan participants have access to quality healthcare.
Implementing an RBP solution allows employers to reduce their total healthcare costs by up to 30%, states Steve Kelly, chief executive officer of ELAP Services, an RBP healthcare solution provider for employers, primarily in the manufacturing sector.
“With this model, employers pay either the actual cost it takes to deliver a medical service, or the Medicare reimbursement rate, plus a reasonable profit, instead of the inflated and variable charges common in the current PPO-based environment.”
He says this kind of costs control is needed because employee contributions to healthcare are rising faster than wages and at an unsustainable pace.
A recent RAND Health study shows that, on average, private employer-sponsored health plans are paying hospitals 241% of Medicare. “It’s raising a lot of questions and outrage among employers who are tired of paying unfair prices for healthcare,” says Kelly RBP doesn’t cut the cost of care by reducing coverage, as a limited-benefit plan would, but by identifying the actual cost and paying a fair margin above that to the medical provider, he explains.
For instance, the average cost of a CT scan in the U.S. can vary by more than $1,000 among hospitals. Medicare pays about $200, but on an RBP plan, the employer could pay only about $240.