Key Considerations When Suggesting A Health Benefit Plan With Reference-Based Pricing

You likely are familiar with reference-based pricing which, for smaller-sized employer groups, has quickly emerged as a promising and increasingly respected cost containment option that allows a health benefit plan to offer flexibility in provider choice at an affordable price.

According to the Agency for Healthcare Research and Quality, the average annual family premium for a small employer health plan (under 100 lives) is around $17,700,1 so it’s no surprise that smaller-sized groups are looking for cost-effective solutions to meet their health benefit plan needs. Enter reference-based pricing.

Reference-based pricing is a payment methodology of paying providers for covered treatments and services using a “reasonable fee” based on a reference point. A Medicare fee schedule is a commonly used reference point. For example, a benefit plan chooses 150 percent of Medicare fees to calculate amounts payable for covered charges under the plan. In addition, while reference-based pricing may be a valuable option for your clients, there are some key considerations you should first take into account.

Reference-Based Pricing in Health Benefit Plans Is on the Rise
Reference-based pricing gained attention after Montana shifted its state employee healthcare plan to a reference-based pricing system in 2016 in an effort to combat rapidly rising health care costs. Since then, reference-based pricing has saved the state more than $13.6 million.2

Montana’s success hasn’t gone unnoticed. Oregon has recently decided to employ similar healthcare plans for their state employees, and other states throughout the country are debating reference-based pricing in their health benefit plans.3

The buzz generated by these state-level changes has sparked a new dialogue that extends far beyond state governments. Brokers and business leaders are seeking information about reference-based pricing with unprecedented energy.

The Secret to Securing Provider Acceptance
Reference-based pricing does not include discounts secured through traditional PPO networks. The majority of doctors and hospitals will accept reimbursement at a multiple of Medicare,4 which, as previously mentioned, is a commonly used reference point. There are a few things to keep in mind to help alleviate potential provider rejection. It’s important to find a reliable third-party administrator (TPA) who can advocate for your client’s health benefit plan. If providers are reluctant to accept reference-based pricing reimbursement, TPAs can help providers understand this reimbursement mechanism in order to encourage acceptance of payment from a plan using reference-based pricing.

Additionally, seek out a health benefit plan design that has a higher level of reimbursement to increase likelihood of attaining provider acceptance. And, give thought to steering clear of plan designs that pay a fixed amount and nothing more, leaving the financial responsibility for provider balance bills with the employee.

Pay Attention to Balance Bill Protection
In case you haven’t heard the term before, “balance bill” refers to a form of cost distribution. If reference-based pricing does not fully reimburse the cost of treatment, that cost may be shifted directly to the patient in the form of a “balance bill.” Because healthcare can be so expensive, employers who sponsor a health benefit plan using reference-based pricing should seek a plan design that provides balance bill protection to mitigate financial risks to their employees. Some carriers/TPAs offer plan designs with balance bill protection, and will contract with a third-party vendor to negotiate with providers when costs exceed the established reasonable fee, reducing the patients’ financial obligation.

Be cautious of plan designs that bundle balance bill protection with reference-based pricing under a qualified high deductible health plan (QHDHP) used with a health savings account (HSA). Such plan designs can negatively impact employers and employees alike. For example, payments under a high deductible health plan can disqualify a health saving account from favorable tax treatment if the plan pays additional amounts toward a balance bill under the balance bill protection before the patient has satisfied the deductible. This can increase employees’ tax liability by exposing them to excise taxes while simultaneously disqualifying them from tax deductions on contributions made to the HSA during the period the employee was not covered under a QHDHP. Employers face similar risks under this structure—for example, they must be cautious when contributing to an employee’s HSA. If the employer makes contributions to the employee’s HSA while the employee was not covered under a QHDHP, the employer (your client) may be subject to penalties under tax withholding laws.

Reference-Based Pricing Can Help Meet Increasing Demand for Affordable Coverage
Consider recommending a health benefit plan design that uses reference-based pricing to your clients, but keep in mind the differences among offerings from carriers/TPAs. Talk with your clients about their unique circumstances and work with them to determine how reference-based pricing could best meet their needs. Not only can this approach save your clients money, it also can provide them with the freedom of provider choice that other affordable plans lack.


  1. Table II.D.1. Agency for Healthcare Research and Quality, Center for Financing, Access and Cost Trends. 2017 Medical Expenditure Panel Survey-Insurance Component.
  2. Montana’s experiment in reference-based pricing has saved $13.6M so far. Shelby Livingston. Modern Healthcare. 3.2.19.
  3. More states turning to ‘Medicare-based contracting’ for employee health care. Julie Appleby, Kaiser Health News. 3.22.19.
  4. Provided by ClearHealth Strategies. Varies by geography and percent of Medicare reimbursement. Subject to change.
Trustmark Small Business Benefits | 847-283-3448 | | Website

Dale Kumpula, district sales manager with Trustmark Small Business Benefits® in Lake Forest, IL, has more than 21 years of group health insurance experience, including the small, mid- and large-size group markets.