Reference-based pricing is emerging as a way for self-insured employers to control substantial costs associated with the three highest cost items in an employee health plan, hospitalization, out-patient surgery and advanced imaging.  How do the savings happen?

There are typically large discrepancies between what providers list as their charges for care and what is finally paid by the insurance carrier and designated as “savings”.

However, even after the promised discount, the paid amount is often significantly greater than what Medicare pays. Medicare payments are based upon the actual cost for medical services submitted by the health care providers on their own services.   Some for-profit health systems charge up to 10 times what Medicare pays.

In a reference-based pricing model, the employer sets a maximum amount that they’ll pay for a claim. While there are variations,   most reference priced vendors reimburse claims based on what Medicare pays plus a specific percentage, such as +30%.  Plan sponsors cut costs by capping what the plan covers for certain medical procedures where fees can vary by 3 to 4 times from the lowest fees.  Example: joint replacement surgery.

Reference-based pricing is established in a self-insured program and includes: