Making Reference-Based Pricing Work

Whether you refer to it as Reference-Based Pricing (RBP), Medicare Reference, Cost Plus or something else, the important thing is to understand what it is and why it’s being used to lower health plan costs.

​Level-funded health plans with reference-based pricing provide high quality coverage at a lower cost by using Medicare fee schedules as a base. Then they negotiate with hospitals and physicians to determine an acceptable percentage margin over and above Medicare. Margins often fall within a range of 25% to 65%. 

The absence of PPO networks takes many of the “unknowns” out of play. Rather than operating at the mercy of networks that traditionally save their largest discounts for the largest health plans, reference-based pricing takes the mystery out of network discounts by fixing fees for covered services.

In addition to lower out-of-pocket expenses, members also gain the flexibility they need to search for a physician that meets their needs rather than settling for a smaller network in order to save on out-of-pocket expenses.

Fears Addressed
Many employers fear reference-based pricing because of balance billing, which can occur when the established fee does not pay a provider’s bill in full and the provider chooses to bill the unpaid balance to the member directly

Fortunately, third-party administrators like Allied National often take steps to resolve balance bill issues. For instance, Allied created the Elite Experience team to protect Freedom Plan members against balance billing. The Elite Experience team is empowered to enforce the terms of the reimbursement agreement

​While reference-based pricing may not be appropriate for all employer groups, the ability to control future health care costs certainly makes it worth exploring.

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​Allied National​
​Founded in 1970, Allied is one of the nation's oldest and most experienced third-party administrators. As the small group benefit experts, Allied works with small business employers to provide unique and affordable group health benefits.