Reference Based Pricing and How Can Your Company Benefit From It?
Employers are constantly on the lookout for cost containment plans for their employee benefits plans. One often overlooked option is reference based pricing for healthcare costs. Today we’re going to discuss how this method can reduce healthcare costs for your business, and what you should consider before using it for your employee plans.
What is Reference Based Pricing?
Reference based pricing is a solution employers use for cost containment on employer-sponsored healthcare plans. As healthcare costs continue to rise, employers are searching for ways to mitigate coverage costs. Reference-based pricing is a trend within self-funded benefits communities and accountable care organizations. It allows employers to eliminate high-cost providers from networks by narrowing the network itself. This in turn drives savings by way of avoiding massive insurance companies and expensive network contracts.
How Does it Work?
Spending limits are what allows reference-based pricing to cut healthcare costs. It does this within certain procedures. Employees under this plan are only covered up to the established limit and would then have to pay out of pocket for the remainder of the procedure.
It is typically recommended that limits are set on shoppable services, meaning services that aren’t urgent and are available through several providers. This allows employees to take their time finding a payable solution that works for them. Some suggestions include prescriptions, lab tests, MRI’s and similar such healthcare services. By negotiating cost reductions on standard healthcare procedures, such as these, employers have more power over cost containment.
Employers can negotiate these costs with the help of a third-party vendor. Healthcare pricing is complicated, so having an experienced team of consultants on your side positions you for the best coverage without paying large sums out-of-pocket. That vendor provides extensive market research to negotiate pricing with providers. Without assistance from this vendor, employers can be left overwhelmed by the prospect of negotiating costs. But how does this vendor negotiate costs?
Pricing is based on demographics and the fair pricing methodology. By using this method, employers gain a strong advantage, as fair pricing practices benefit both themselves and their employees. In traditional models, pricing is non-transparent, leading to unfair contracts and higher prices for employers and employees. The result is discounts that are based on already over-inflated prices. Reference-based pricing is a better way of handling cost containment.
Of course, another hurdle is getting your entire company onboard with this change. Here are a few benefits you can use to sway your organization should you decide to make the switch.
How Your Company Benefits
Referenced based pricing provides multiple benefits. One is increased transparency. Most patients are completely blind to healthcare costs, and aren’t often diligent about comparing one service to another. The healthcare system isn’t set up to help them find out, either.
With RBP, employees can see exactly where their out-of-pocket expenses will rise. This in turn motivates them to be more proactive about selecting the right provider. Understanding these costs in advance enables them to navigate the system much more easily to make smarter decisions that save themselves and their employer money.
Employers benefit by selecting high-cost healthcare coverage for price limits. Instead of paying ridiculously high fees for healthcare coverage, employers find themselves paying far less for the same services. Employees seek out those options and naturally reduce costs to employers. Experts estimate that low healthcare literacy costs the United States some $106 billion annually. By putting employees in a situation where research is required to lower costs, you not only improve the costs they incur but also those of the insurance industry.
One final benefit is lowered cost renewals at the beginning of the following plan year. That’s something all employers can get behind.
Is Reference Based Pricing Right for You?
As with all healthcare cost containment strategies, there are some downsides to RBP. These can include lack of established markets, reduced negotiation leverage for small businesses, and a slight potential for increased employee costs because of balance billing. However, overall, RBP offers a better way to cut costs and save employees and employers money.
To make the most out of RBP, you need a qualified vendor on your side. To learn how Healthcare Consultants Inc., can help reduce your healthcare costs through RBP contact our team today.