Reference-Based Pricing For Self-Insured Plans In 2023 | Risk vs. Reward

Healthcare costs are increasing across the board in 2023, and that includes self-insured healthcare plans.

At Excess Risk Solutions, we’re aware of these persistent cost increases. 

We’re helping our TPA, broker, and self-insured employer partners mitigate the risks associated with rising healthcare costs with stop-loss insurance coverage. Get in touch with our team today at 813.565.9055 if you’re looking for a strategic risk management partner.

Healthcare costs are definitely on the rise, primarily due to inflation. As we pointed out in a previous post, 

Inflation is the silent killer in any economy. An inflated monetary system causes costs to rise on just about everything, and healthcare costs are increasing with the rising tides of inflation.

As a result, numerous cost-saving tactics and strategies are being suggested to self-insured employers, including referenced-based pricing models (RBPMs), aka medicare reference-based pricing. 

This post will discuss reference-based pricing models in 2023 and their impact on self-insured plans. Here’s what you’ll learn:

• How does referenced-based pricing reduce risk?
• What are the pros of RBPMs for self-insured plans?
• What are the cons of medicare reference-based pricing models?
• Where can you go for more information on risk reduction strategies?    

So can a reference-based pricing model benefit self-insured plan administrators and beneficiaries? The short answer is a definite yes.

But before we dive in, let’s step back with a great definition of reference-based pricing from The National Academy for State Health Policy:  

Some state health purchasers are using reimbursement rates paid by Medicare as a reference-point to inform their programs’ hospital payments. Through these Reference-Based Pricing to Medicare (RBP) initiatives, state purchasers are seeking to set their reimbursements to more accurately reflect the cost of providing services, rather than negotiating from the much higher hospital chargemaster rates. To date, each state program is establishing its payment as a multiple of the Medicare rate, so the provider will continue to receive a rate higher than that paid by Medicare. 

That’s an excellent high-level definition, and now we’ll drill down a little deeper.

How does referenced-based pricing reduce risk?

Healthcare plan beneficiaries, TPAs, plan brokers, providers, and administrators agree on one thing—they all want predictable, fair prices on healthcare services. Predictability means less risk, and that’s always a good thing.  

Theoretically, RBPMs get us closer to the goal, but “fair prices” can mean different things to different people in the healthcare consumer-provider supply chain. 

So how can we reach a point where costs are reasonable and predictable? Let’s look at the pros and cons of medicare reference-based pricing. 

What are the pros of RBPMs for self-insured plans?

These models can provide significant savings and predictability to plan beneficiaries, providers, and third-party administrators. 

Here’s how.

RBPMs use Medicare pricing as a baseline, with a pricing multiplier applied. An example multiplier could be 1.25 to 2 times the medicare price for the healthcare service accessed by a beneficiary.

Here’s a simple hypothetical example of the process.

A TPA receives a bill from a radiology service provider for a beneficiary/patient who had a CT scan and was billed $500 by the provider. The TPA, usually through a specialty partner of theirs, reprices the claim based on the CMS price for the service and the medicare price multiplier. 

So the payer ends up paying the established medicare price for the service in the geographical area, say $250, times the negotiated multiplier of 1.2. This results in a final reimbursement of $300 to the service provider.

RBPMs are extremely flexible. For example, payers can choose to use them for out-of-network claims, hospital or physician claims, claims for medicare-covered services, specialized high-cost services only (for example ESRD), or a combination of some or all of the above. 

The bottom line is that self-insured employers with ERISA healthcare plans can potentially reduce their claims costs significantly with reference-based pricing plans. 

Pre-negotiated medicare rates and multipliers can also increase out-of-network care options, which provides additional flexibility to the beneficiaries.

This was one very high-level description and example, but you get the idea. 

What are the cons of Medicare reference-based pricing models?

As always situations and regulations are constantly evolving in healthcare. Some of the initial pushback on RBPMs from hospitals and other providers was that these models didn’t take the quality of service into account, and that much of the cost liability was passed on to the patient for out-of-network (OON) and emergency claims in the form of surprise bills.

Many RBPMs also initially excluded prescription drugs.

These initial scenarios have changed, and are continuing to change, however.

The No Surprises Act now protects medical consumers from many unauthorized emergency and OON claims. The Inflation Reduction Act will also protect medical consumers by requiring the federal government to negotiate prices with big pharma on certain high-cost specialty drugs starting in 2026.   

RBPMs are also beginning to emerge at the state level as a means for self-funded plans to manage prescription drug costs across the board.

So what’s the bottom line on RBPMs in the self-insured ecosystem of employers, beneficiaries, TPAs, and brokers?

Where to go for more information on risk reduction strategies for self-insured employers.    

That’s the easy part, you’re already here. The team at Excess Risk Solutions is here to help answer your questions and build risk management solutions for your unique requirements.

Our solutions allow you to transfer your highest risks to a specialized insurer with a stop-loss insurance policy. With a predictable premium cost as the transfer medium, you’ll be able to manage high-cost claims that are looming on the horizon.

Excess Risk Solutions is dedicated to helping our self-insured employers and their broker, consultant, and TPA partners mitigate financial risks. 

Our services include providing evaluation, analytics and reporting for:

• Aggregate Claims
• Lag (aka IBNR) Claims
• Network Savings
• Large/Pended Claims
• Stop Loss Notifications
• Pharmacy Utilization

We work directly with Third-Party Administrators, Health Plan Brokers, Consultants, and Self-Funded Employers to craft the most efficacious risk mitigation strategy based on the group’s unique requirements. 

And an optimized stop-loss insurance policy framework is the foundation of your self-funded risk management infrastructure.

Interested in hearing more?

Call us at 813-565-9055 or get in touch with our team online today!