What is reference-based pricing?
How employers can save money on healthcare costs
What is reference-based pricing? This term refers to a healthcare cost containment strategy used by some self-funded employer groups.
Employers utilizing reference-based pricing provide a fixed amount to healthcare providers for their services. The "reference point" is Medicare's reimbursement rate – employers generally seek to pay between 140 and 160 percent of Medicare's rates.
This is a different method of paying for healthcare services than the traditional fully-insured plan. Because private insurers often approve reimbursement rates much higher than Medicare – and pass those costs onto employers – it can produce significant savings for businesses.
Here's how it works:
Typically, reference-based pricing is used for hospital services. These claims are fully paid by the employer, circumventing the traditional insurance network. Employers often work with reference-based pricing vendors or third-party administrators to negotiate the fixed payment with providers in the region.
For employees, these plans generally look and feel like traditional insurance, especially if vendors negotiate reimbursement amounts prior to the service, though some vendors work with the hospital to determine a payment amount afterwards.
The benefits of reference-based pricing are that it adds transparency to the health plan and produces significant cost savings for employers. However, adopting this strategy does require employer and employee education, which is why working with an experienced benefits broker is key.
Bernard Health's advisors are experts in the full scope of funding strategies available to employers. Interested in learning how our employer advisors can create a sustainable health benefits strategy for you and your employees? Click below to contact us.
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