There are smart ways to cut your health insurance spending. Ways that minimize the impact on your employees. One option that is becoming increasingly popular with employers is reference-based pricing. Let's discuss what exactly this is and how it can be used to cut your healthcare costs.
What Is Reference Based Pricing?
Reference based pricing is a relatively simple concept: you set a maximum amount you will cover for certain medical procedures. In many cases two providers will charge wildly different prices for the same procedure. That's because there are no regulations on what a hospital can bill for a procedure. They can set the price at whatever they feel is "fair". Oftentimes this results in providers charging exorbitant fees for procedures as a sort of negotiation practice. They'll charge you 500% of what a service like Medicare would pay, you negotiate down and receive discounts that still leave you paying over double what Medicare would pay.
Reference based pricing aims to skip this messy and time-consuming process altogether. You set the price that you're willing to pay for a procedure. Providers can either accept this price or negotiate upwards, which still leaves you in a much better position than you would be otherwise.
How Reference Based Pricing Drives Down Costs
There are many ways in which reference based pricing saves you money. The first source of savings comes from employees simply choosing cheaper providers. If your employee knows you'll pay up to $5000 for a procedure but provider A gives them an estimate of $10,000, many are going to go somewhere else to avoid the potential of paying out of pocket. The second source is employees who would prefer a specific provider and are willing to pay and utilize cost sharing to make up the difference. The third and final source is providers reducing their prices to your reference price. You can read more about the cost-saving benefits of reference based pricing in this study done by the Employee Benefit Research Institute.
Other Options For Cutting Cost
Right now reference based pricing has the spotlight, but aren't there other options? The reality is that there's no one-size-fits-all answer to cutting health insurance spending. Different businesses need different solutions. Reference based pricing is one of the many options you can utilize but it may not the best or the only way to cut your spending.
One tried and true method of reducing costs is by partnering with a benefits provider that has expertise in cost containment. Your job is already difficult and keeping up with the ever-changing health insurance market is another job altogether. A partner with experience in the health insurance market and a strong background in cost containment.
At Summerlin-Roberts we leverage our expertise as cost containment specialists in order to cut costs without cutting functionality. Please contact us today to set up a consultation for your business. You can also read some of our case studies here.