A new health insurance approach called “reference pricing” may help control employers’ health costs, according to a new analysis by theResearch Institute (EBRI). When planning 2015 health benefits options, it’s worth discussing the pros and cons with your insurance advisor.
Under reference pricing, employer-provided insurance plans pay a fixed amount toward the cost of a specific health care service. This “defined contribution” pricing approach to health benefits requires workers to pay the difference between the “reference” price for the procedure and the actual cost charged by the doctor, hospital or other provider they chose.
“The goal of reference pricing is to create a more engaged health care consumer, to give them more choice of providers and make individuals more sensitive to the true costs of health care,” said EBRI’s Paul Fronstin.
EBRI examined claims data for more than 3 million individuals. It found that if reference pricing had been applied nationwide to employer-provided coverage for six common medical procedures, spending would have fallen about 1.6%—almost $10 billion.
Example: In EBRI’s study, reference pricing for knee and hip replacements was found to result in savings averaging $10,367 per procedure.
Savings from several common procedures added up. Colonoscopies, head CT scans and echocardiograms each accounted for between 15% and 20% of aggregate potential savings. Spinal MRIs accounted for about 10% of potential savings.
Advice: As you begin designing next year’s health benefits, ask your insurance broker or advisor whether reference pricing could help lower your health care costs.
Fronstin said employers need to address several issues before adopting reference pricing: “They need to consider how the reference price is determined and how providers may react. Also, communication to workers in a health plan is key to an effective implementation of reference pricing.”
The report, “Reference Pricing for Health Care Services: A New Twist on the Defined Contribution Concept in Employment-Based Health Benefits,” appeared in the April EBRI Issue Brief, available online at www.ebri.org.