Reference-based pricing for employer health plans

It is not a medical plan by itself, and it is not a funding method. It is one way a self-funded plan, and in some cases a level-funded plan, can price claims. The employees are still in the employer's group health plan, with a summary of benefits, an appeals process, and the same ERISA duties that attach to any self-funded plan.

What it is

In a contracted PPO or similar network, the plan and the provider have agreed on an allowed amount. In a reference-based design, the plan publishes or incorporates a reimbursement method: for example, a stated multiple of a Medicare schedule, or a rate drawn from a claims database, for specified services. When a claim is received, the plan pays that reference-based amount for a covered service, and the administrator works with the member and the provider on the balance, if any, under the plan's advocacy or negotiation process.

Plans differ in how widely they use the method. Some apply it to a defined list of services and use a contracted network for the rest. Some use it more broadly. The plan document, not the industry nickname, is what matters.

The No Surprises Act still applies to the group health plan. CMS states that emergency services must be covered without prior authorization even when the facility or provider is out of network, that cost sharing for those emergency services cannot exceed the in-network amount, and that the enrollee cannot be balance-billed for the rest. Certain non-emergency services at in-network facilities are also protected. A reference-based payment method does not turn those protections off. Claims and appeals still have to follow the ERISA claims-procedure rules that apply to the plan.

There is no single federal "RBP plan" definition and no official savings percentage. We will describe the actual payment method, the reference schedule the vendor uses, and the member-support process, and we will not invent a typical multiple or a typical reduction in cost.

Who it fits

Reference-based pricing is often a fit for mid-size and large employers that are already in, or moving toward, a self-funded plan and want a defined method for pricing claims, with a clear process for helping employees when a provider bills a different amount. It can also appear in conversations about how a self-funded plan works alongside stop-loss or a captive.

It is not the usual starting point for a fully insured small-group policy, which is priced and paid under the carrier's network contracts. Those groups still belong on a proposal; they simply use a different claims-payment method.

How it works for employers

If RBP is on the table, we will review the plan document, the reference schedule, which services it applies to, how in-network or contracted care is treated (if the plan also has a network), how employees are supported when a bill needs to be negotiated, and how stop-loss treats these claims. Employee communications have to explain the payment method in plain language before the effective date. We will put that design next to a contracted-network self-funded option, and next to a fully insured option where one still fits, on the same proposal.

How it compares

A contracted network uses negotiated allowed amounts. Reference-based pricing uses a published schedule as the plan's payment method. Some plans use both, for different services. A fully insured group policy uses the carrier's contracts. Each is a legitimate way to pay claims inside the structure that supports it. We will not describe reference-based pricing as cheaper than a PPO, and we will not describe a PPO as weaker because it uses contracts.