Reference-Based Pricing: A Smart Healthcare Cost Strategy

Healthcare costs continue to climb, putting pressure on small and medium businesses trying to provide quality benefits while controlling expenses. If you're looking for ways to reduce your company's healthcare spending without eliminating coverage, reference-based pricing might be worth exploring.

What Is Reference-Based Pricing?

Reference-based pricing is a cost containment strategy that sets limits on how much your health plan will pay for specific medical services. Instead of accepting whatever hospitals and providers charge, your plan pays a predetermined amount based on a reference point—typically a percentage of Medicare rates.

Think of it like setting a budget for office supplies. You might decide your company will pay up to $50 for a desk chair, regardless of whether Office Store A charges $45 or Office Store B charges $75. Reference-based pricing works similarly for medical procedures.

How Reference-Based Pricing Works

Here's the step-by-step process:

• Setting the Reference Price: Your plan establishes maximum payment amounts for procedures, often based on 150-300% of Medicare rates
• Employee Seeks Care: When an employee needs a procedure, they can choose any provider
• Plan Pays Reference Amount: Your insurance pays up to the predetermined reference price
• Employee Responsibility: If the provider charges more than the reference price, the employee pays the difference
• Savings Opportunity: If the provider charges less, the employee pays their normal copay or deductible

For example, if your plan sets a reference price of $2,000 for an MRI and Provider A charges $1,800, your employee pays their normal cost-sharing. If Provider B charges $2,500, your employee would pay the extra $500 plus their normal cost-sharing.

Why Employers Choose Reference-Based Pricing

This strategy offers several business advantages:

Predictable Healthcare Costs: You can better forecast and budget for healthcare expenses when maximum payments are predetermined rather than subject to provider price increases.

Reduced Premium Growth: By controlling what your plan pays for services, you can slow the annual increases in health insurance premiums that strain your budget.

Market Competition: When employees become more price-conscious, providers may become more competitive with their pricing, benefiting everyone.

Maintained Coverage: Unlike other cost-cutting measures, reference-based pricing doesn't reduce the types of services covered—it just controls how much is paid for them.

What This Means for Your Employees

Employees maintain full access to healthcare services, but they gain more responsibility for cost decisions. They can:

• Choose providers that charge at or below reference prices and pay only their normal copay or deductible
• Select higher-priced providers but pay the difference out-of-pocket
• Shop around for better prices, potentially saving money on their portion of costs

This system encourages employees to become more engaged healthcare consumers, often leading to better decision-making about when and where to seek care.

Key Implementation Considerations

Reference-based pricing isn't right for every business. Consider these factors:

Employee Communication: Success depends heavily on helping employees understand how the system works and how to find cost-effective providers. Without proper education, employees may face unexpected bills.

Provider Networks: Some reference-based plans work with any provider, while others maintain networks. Understanding your options helps ensure employee access to quality care.

Claims Management: These plans require sophisticated administration to handle pricing calculations and employee support. The complexity demands experienced plan management.

Employee Tolerance: Consider whether your workforce will embrace the responsibility of price shopping for healthcare or if they prefer traditional network-based plans.

Making Reference-Based Pricing Work for Your Business

At Benton Oakfield, we help Long Island businesses evaluate whether alternative funding strategies like reference-based pricing align with their cost control goals and employee needs. We handle the complex plan design, provider negotiations, and ongoing employee education that make these strategies successful.

Our approach includes thorough employee communication programs that help your team understand how to maximize their benefits while minimizing out-of-pocket costs. We also provide ongoing support to address questions and concerns as they arise.

Reference-based pricing can be an effective tool for controlling healthcare costs, but it requires careful implementation and ongoing management. The key is ensuring your employees understand the system and have the support they need to make informed healthcare decisions.

Ready to explore whether reference-based pricing could help your business control healthcare costs? Contact our team to discuss your specific situation and learn about all your cost containment options.

Compliance Note: Benefit plan rules and tax implications vary based on company size and location. This guide is for educational purposes only. Please contact your Benton Oakfield representative to discuss how this applies to your specific situation.

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