By Andy Yost
Reference-based pricing is a hot topic in the health insurance industry. Let me provide a brief overview of reference-based pricing, sometimes referred to as RBP.
Traditional Health Insurance
Traditional health insurance plans are based around contracts between insurance companies and providers, doctors, hospitals, and things like that. These contracts are the foundation for carrier networks.
Essentially, an insurance company approaches a provider and requests for its members to receive discounts off of the provider's services.
For example, if the retail cost of an MRI at your local provider is three thousand dollars, a carrier contract may state that their members get a forty percent discount off of this rate. While that discount may be great for the member, the discounts are based off a retail cost that some may say tends to be a bit inflated.
Referenced Based Pricing - An Attractive Alternative
That's where reference-based pricing offers an attractive alternative. Reference-based pricing flips that model. It utilizes an already established benchmark for healthcare services and pays a percentage based on this reference point.
The most common reference point comes from CMS or the Center for Medicaid and Medicare Services. CMS requires providers to report costs for services, and then Medicare or Medicaid pays based off of this rate.
To continue the illustration of the MRI, under Medicare, the same provider that charged a retail cost of three thousand dollars may have that same service listed with CMS at nine hundred.
On a reference-based pricing plan, the plan would pay a percentage above the CMS amount. Reference based pricing plans, therefore, boast that they have no network or provider networks similar to Medicare.
Beware of Balanced Billing
One thing that members and employers must be mindful of on a reference-based pricing plan is what is known as balanced billing. This is where the provider bills the member directly for whatever the plan didn't cover based on the retail cost.
To continue the illustration of the MRI, if a reference-based pricing plan covers one thousand dollars for that service that a provider has a retail cost of three thousand dollars. The provider will pay one thousand dollars, but the member will get a bill for two thousand dollars that the plan didn't cover.
Most plan providers that utilize reference-based pricing have a provision in place to protect a member from a balanced billing situation, but It is still a great risk and might not be the best plan to implement for you or your employees.
Contact a Benefit Advisor at Hummel Group to learn more about your plan options and what may be the best fit for you and your employees.
