Hello, everyone, Andy Yost here from the Hummel Group, Benefits Risk Adviser. And today, I'm going to go over the basics of reference based pricing. In this video, I'll provide a quick overview of a hot topic in the health insurance industry, and that is reference based pricing or sometimes referred to as RBP.

Traditional health insurance plans are based around contracts between insurance companies and providers, doctors, hospitals, things like that. These contracts are the foundation for carrier networks. Essentially, an insurance company approaches a provider and requests for their members to receive discounts off of the provider's services.

For example, if the retail cost of an MRI at your local provider is three thousand dollars, a carrier contract may state that their members get a forty percent discount off of this rate.

While that discount may be great for the member, The discounts are based off a retail cost that some may say tends to be a bit inflated. That's where reference based pricing offers an attractive alternative. Reference based pricing kind of flips that model. It utilizes an already established benchmark for healthcare services and pays a percentage based on this reference point.

The most common reference point comes from CMS or the Center for Medicaid and Medicare Services. CMS requires providers to report costs for services, and then Medicare or Medicaid pays based off of this rate.

To continue the illustration of the MRI, under Medicare, the same provider that charged a retail cost of three thousand dollars may have that same service listed with CMS at nine hundred. On a reference based pricing plan, the plan would pay a percentage above the CMS amount.

Reference based pricing plans, therefore, boast that they have no network or provider networks similar to Medicare.

One thing that members and employers must be mindful of on a reference based pricing plan is what is known as balanced billing. This is where the provider bills the member directly for whatever the plan didn't cover based on the retail cost.

To continue the illustration of the MRI, if a reference based pricing plan covers one thousand dollars for that service that a provider has a retail cost of a three thousand dollars for, the provider will say Hey, thank you very much for that one thousand dollars. But member, I'm now going to send you a bill for two thousand dollars that the plan didn't cover.

Most plan providers that utilize reference based pricing have a provision in place to protect a member from a balanced billing situation, but It is still a great risk and might not be the best plan to implement for you or your employees.