News Alerts

Check Your Health Insurance at the Reference Library

If you’re a participant in an employer sponsored health plan, you may begin to see “reference pricing” as a component of your health insurance coverage. Does this mean that policyholders consult reference materials to learn about coverage? Not exactly, but the concept of reference pricing, which was given the green light by the Obama administration, could change the way health care services are procured, and ultimately paid for.

Here’s how reference pricing works: insurers or employers survey what providers are charging for a particular treatment and then set a cap on that service, known as a “reference price”. This price will designate the maximum amount they will pay for this service as a means to encourage employees to choose more reasonably priced providers or treatments. Employees can still go to a hospital or provider that charges more, however they will pay the difference in cost.<

>As part of the Affordable Care Act (ACA) implementation, the administration essentially gave its approval for large or self-insured employers to use reference pricing in their health benefit design. In addition to using reference pricing for surgeries and other treatments, employers can use reference pricing for drugs plans. Generic drugs can be used to set the reference price, and if policyholders choose a brand name drug, they will be responsible for paying the difference. That said, the generic must be approved by a physician as medically appropriate.

Reference pricing can save money for employers where there are significant variations in high-cost services, and employees are provided with the information so that they can compare providers. It doesn’t work, though, if the employee doesn’t have the time or the ability to do a comparison of services. The concept of reference pricing works best where there are a number of nearby medical providers and information is available to employees. Also, many employees still believe that higher prices mean higher quality services although most studies have found this not to necessarily be the case.

It can be complex to set up a reference pricing design, so a majority of those employees who have employer sponsored health care won’t see this change immediately. However, according to a recent Mercer benefits survey, 22 percent of large employers are considering adding reference pricing to manage health care costs

For additional information, contact EAB HealthWorks.