"...if employers don’t clearly explain the choices, workers could unwittingly be on the hook for thousands of dollars, with no upper limit."
On it's face, reference pricing seems like a good way for employers to control healthcare costs.
According to benefits firm Mercer about 10 percent of large employers, including CalPERS and Safeway, already use some form of reference pricing, and an additional 22 percent are considering it.
One of the best known examples of reference pricing is the experiment that began in California in 2011, when the giant California Public Employees’ Retirement System (CalPERS) capped what it would pay for hip or knee replacements at $30,000. CalPERS took that step after finding that hospital prices for the same surgery could vary from about $15,000 to more than $100,000, with no discernible difference in quality. Workers can still go to a
hospital that charges more than $30,000, but they pay the difference in cost.
Now that the Obama administration has given a green light to reference pricing, more employers are considering capping what they are willing to pay for certain medical treatments, such as joint replacements and drugs, potentially shifting more costs to workers.
In theory, economists and policy experts say the move could slow health care spending by prompting consumers to choose less expensive providers or treatments, hopefully leading providers to lower their charges.
Consumer advocates warn that it could instead make health insurance more complicated than it already is and worry that the reality may be consumers get stuck paying thousands more in out-of-pocket costs.
“This could be a booby trap for consumers,” said Carmen Balber, executive director of the advocacy group Consumer Watchdog in California.
In a May 2 document, labeled "Frequently Asked Questions about Affordable Care Act Implementation," the administration essentially gave its blessing to large or self-insured employers to use reference pricing in designing health plan benefits. It
also said that employers offering drug coverage can use generic drugs to set reference prices. If a worker chooses a brand-name drug instead, the worker would pay the difference. The administration said the generic version of the drug must be medically appropriate, as determined by the individual’s doctor.
Paul Fronstin at the Employee Benefit Research Institute said the administration’s green light is likely to encourage some employers to move forward who had been concerned that reference pricing might violate the health law. Many see it as a potential cost-reduction tool, alongside strategies such as raising employee deductibles. “The interest is there,” Fronstin said.
Some additional restrictions would apply to coverage sold to individuals and small businesses through the federal and state online marketplaces. Experts say they aren’t aware of such plans currently using reference pricing.
Your Employees are Not Protected By The Health Law's Annual Cap on Consumer Costs
The health law caps what your employees can be required to pay annually toward in-network care through deductibles or other cost sharing to $6,350 for an individual, or $12,700 for a family. But costs incurred by workers who choose providers that charge more than the reference price will not count toward that limit, according to the FAQ.
Essentially employees who spend more than the reference price are considered to be going “out of network” for their care.
"Essentially employees who spend more than the reference price are considered to be going 'out of network' for their
Consumer groups fear that if employers don’t clearly explain the choices, workers could unwittingly be on the hook for thousands of dollars, with no upper limit.
Economists and policy experts point out why these costs cannot be included, saying reference pricing can’t work if enrollees aren’t held accountable for choosing more expensive providers. If the costs were counted towards enrollees’ annual cap, insurers would be on the hook to pay the difference and providers would have no incentive to lower prices.
When Reference Pricing Works
An analysis of the California effort found that CalPERS saved an estimated $5.5 million in 2011 and 2012 from the joint replacement surgery
program, with more than 85 percent of the savings coming from hospitals lowering their prices to meet the cap. Whether savings from reference pricing are passed onto consumers in the form of stable or lowered premiums remains to be seen.
When Reference Pricing Won't Work
Most studies have found that higher prices do not necessarily mean higher quality care, but consumer groups are concerned that insurers and employers need to rank quality, as well as cost of different providers. That might be difficult since there may be little information comparing the quality of one provider with another for many procedures, such as
CalPERS gathered data on joint replacement when it set up its reference price system, finding no differences among high- and low-priced facilities when considering measures such as infection and readmission rates.
ACA Feedback Deadline: August 1
The administration has asked for comments on reference pricing by Aug. 1, including suggestions for standards to ensure “meaningful access to medically appropriate, quality care.”
Sabrina Corlette, project director at the Health Policy Institute at Georgetown University, said the government needs to provide clearer guidelines for employers and insurers about how to explain the choices under reference pricing, which she
says “put a fairly large burden on the consumer to understand.”
Source: Appleby, Julie "7 Things You Should Know About The Next Big Benefit Change" - Kaiser Health News, http://www.kaiserhealthnews.org/Stories/2014/May/28/What-You-Should-Know-About-Reference-Pricing.aspx MAY 28, 2014
Rylan Klaseen & Associates
Rylan Klaseen & Associates
Serving Southern California: