Employers who pay directly for employee health benefits are increasingly locking in prices to Medicare to control uncontrollable costs, but in some cases hospital systems can charge plan participants the difference. Sometimes they are repulsive.
The use of so-called reference-based pricing gained national attention in 2012 when the California Public Employees’ Retirement System adopted the practice, but more small and medium-sized businesses are turning to it, too. say health insurance brokers and benefits advisors.
Reference-based pricing is one innovation that employers are using to reduce the high prices that hospitals charge commercial health plans, which are typically significantly higher than what Medicare pays. But it remains to be seen whether enough hospitals will be able to get employers to accept reduced payments.
“The appeal of reference-based pricing is very clear and obvious,” said Drew Leatherberry, founder and president of health insurance broker Avergent LLC. “It would save a lot of money,” he said, noting that many employers would be able to reduce their employees’ annual deductibles and other out-of-pocket costs.
“They’re sold on the idea that if Medicare can pay X times, why should we pay twice, three, four, 10 times more for the same service?” he added.
Self-insured employers using reference-based pricing typically pay the Medicare rate plus an additional percentage of the member’s claim (such as 140% of the Medicare price).
They often do not use health insurance companies and typically do not have a network of health care providers. They may contract directly with some hospitals and outpatient surgery centers and direct members to those facilities in exchange for reduced copayments and other out-of-pocket costs. This practice typically applies to hospital prices, but could also be used for physician billing, especially as more physician practices are acquired by hospitals.
Proponents argue that the practice saves employers money on claims and provides greater transparency into the prices they are paying. For doctors and hospitals, it means faster payments and less administrative burden from having to go through the billing system.
Larger employers can often handle reference-based pricing more easily than smaller employers. Densely populated areas often have a wider range of providers available, making it easier to find a provider that accepts referral-based payments.
Criticized as “problematic”
But Molly Smith, group vice president for public policy at the American Hospital Association, said the reference-based pricing approach is “problematic” for hospitals, health systems and patients.
“Many patients in these plans don’t understand exactly what their insurance limits are or the fact that they don’t have a full network of providers,” she said. To tell.
Smith said people with reference-based plans that don’t have network coverage are also not protected by the anti-surprise law. The law prohibits health care providers from charging patients out-of-pocket fees that are higher than the rates at in-network facilities covered by health insurance.
“Some particularly innovative compensation models may be subject to reference-based pricing,” Smith said.
“But for them to work, they really require co-development and agreement across payers and providers,” she said. “The big problem with the models we’ve seen so far is that they’ve been completely unilateral and imposed on patients and their health care providers.”
employer savings
When TreeTop Inc., a Serra, Washington-based food manufacturer, switched to a reference-based pricing plan in April 2020, it paid about $12 million a year in medical bills for about 2,000 people, up from $1,400 a year earlier. It is said to have decreased from $1,000,000. Scott Washburn, the company’s vice president of human resources.
TreeTop previously self-insured with health plan networks, but “didn’t have any influence” on how doctors and hospital systems chose to charge for their services, Washburn said. Ta.
Washburn said the company has switched to reference-based pricing without changing employee benefits, allowing employees to use the provider of their choice. The company also reduced employee premiums by 5% and kept annual deductibles and other out-of-pocket costs at the same level as before, he said.
Washburn said the company’s benefits consultant, 6 Degrees Health, calculates claim payment rates and negotiates claims when plan members receive a claim from a provider.
He said balance charges from providers account for less than 2% of the bill.
Oregon maximum fee
Oregon enacted legislation in 2017 that adopted a reference-based pricing policy for approximately 300,000 state and school system employees and their families, which went into effect in 2019 and 2020. That represents about 15% of the state’s commercially insured population, Margaret Smith-Isa said. Program Development Specialist in the Oregon Health Authority’s Health Policy and Analysis Division.
Smith-Isa said the state caps payments at 200% of what Medicare pays for network hospitals and 185% of Medicare rates for non-network hospitals, and hospital providers contracted under the arrangement. It is said that billing the balance is prohibited. The policy applies to the state’s 24 large hospitals, but smaller rural hospitals are exempt.
The state saved $112 million in 2021, the most recent year available from savings data provided by the Oregon Health Authority. Oregon’s health spending for state and school employee organizations was approximately $1.7 billion in 2021 and approximately $1.9 billion in 2023.
“This was certainly seen as a way to support the move towards sustainable costs,” Smith-Isa said, adding that it had no impact on members’ access to health benefits.
Annual increases for Medicare are typically lower than increases for commercial plans, but there may be limitations in the available data, Smith-Isa said.
“What we found is that while Medicare is a good benchmark overall, there are certain types of services that Medicare pays less for, and if so, how do we benchmark them?” That means they need special attention,” including obstetric services and pediatric services.
Small and medium-sized enterprises
But some small businesses have more trouble dealing with hospitals that refuse to pay based on Medicare rates.
Team Seal Companies, which owns Subway restaurants, convenience stores and tire service centers and covers 335 employees, has eliminated the reference-based rate plan it had in place from 2018 to 2021.
Candace Mellonk, director of association services for Team Seal, based in Stevens Point, Wis., said there is “too much backlash against employees,” including providers charging employees the difference between rates and plan payments. There were a lot of them,” he said.
The company is currently using Avergent’s lineup of lower-cost providers, eliminating out-of-pocket costs for employees who take advantage of these options, he said.
Team Seal spent about $1.4 million on health care in 2023, about 19% less than it would have spent without reference-based pricing, she said. The premiums charged to employees have been lowered, allowing the company to offer the plan with no annual deductible, Melonk said.
Some companies and health plans have filed antitrust lawsuits against health systems that do not accept reference-based pricing. One such case is pending in the United States District Court for the Eastern District of Wisconsin. Advocate Aurora Health Inc.
Team Seal is another antitrust co-plaintiff class action lawsuit It accused health system Aspirus of unfairly restricting the market for inpatient and outpatient care in north-central Wisconsin.
According to an October 2023 ruling in the U.S. District Court for the Western District of Wisconsin, Aspirus sought to persuade competitors to allow certain claims in the lawsuit to proceed and reject indicative pricing.
Aspirus did not respond to requests for comment. In its motion to dismiss the case, the group argued that the complaint’s pricing theory is “impossible.”
