Reference-based pricing (RBP) for medical expenses standardizes prices that insurers and patients pay hospitals. It came about as an alternative to the traditional healthcare facility reimbursement model, where hospitals determine prices. So, what is reference-based pricing in employee insurance?
RBP Curbs Healthcare Cost Volatility
Traditionally, hospital list prices for medical services and goods drove the insurance pricing systems. Hence, in the US, health care facilities determined costs.
As a result, medical prices for employees, retirees, teachers, university employees, and municipal employees in the US exceed those of other developed nations. In addition, the system results in wild variations in the cost of hospitalization and other services. This, of course, complicates budgeting and price negotiation for insurers, employers, and policyholders.
Also, nationwide, private insurance companies pay double what Medicare pays for the same services. In Montana, for example, “hospitals charged private insurance two-to-four times beyond what Medicare pays.”
Challenging the Traditional Hospital Reimbursement Model
The RBS model challenges the traditional "charge less" discount of the hospital reimbursement model. The old system made the US healthcare system the most expensive in the world for several reasons:
Hospitals charge rates they choose.
Healthcare facilities do not disclose prices.
Clinics may change prices at any time.
Networks and carriers negotiate discounts arbitrarily.
The Rise of RBP
In response to this, special projects coordinator, Marilyn Bartlett, of the Office of the Montana State Auditor, developed reference-based pricing for her state. And, she designed it to use Medicare as a reference point.
With RBP, unlike traditional hospital reimbursement models, insurers tell providers how much they're willing to pay for services. So, by basing allowable payouts on Medicare price standards, it sets the bar.
RBP has advantages for employers, employees, and healthcare facilities. As it spreads across the country, you should know what is reference-based pricing in employee insurance.
Employers Like RBP Transparency
To employers, RBP means greater transparency. Everyone ... hospitals, insurers, employers, and employees ... have cost information upfront. Hospitals have less leverage to hide prices and unexpectedly jack up service costs.
By using multiples of Medicare reference prices, RBP forces healthcare facilities to moderate costs. And, it helps employers predict what insurance will and will not pay.
Finally, it moderates fluctuation over time caused by individual hospitals raising rates. That means manageable predictability for employers.
Employees Like RBP
RBP benefits employees too. For example, because it standardizes the price paid by insurers, they know that every hospital will receive the same amount.
That can keep balance bills more uniform from facility to facility and month to month. Employees love predictability and consistent, and sometimes lower balance bills.
How do Healthcare Providers See RBP?
The State of Montana found that hospitals charging prices near Medicare prices readily onboarded RBP implementation. However, facilities with much higher pricing initially opposed the new model.
Eventually, though, administrators of pricey hospitals realized that their non-competitive and non-transparent pricing could not compete. So, the state's RBP organizers provided convincing third party data to coax them.
As a result, even expensive facilities came aboard the program. So, they found ways to adapt to maintain sustainable programs.
What is Reference-Based Pricing in Employee Insurance?
Now you know a little bit about RBP. And, it's easy to see why employers, employees, and healthcare facilities have jumped on board. If you have other questions about the model an experienced insurance broker can tell you more. Contact us today.