The post below is a guest blog from Dax Hill who serves as Principal, Health & Welfare Consultant for CAI’s employee benefits partner Hill, Chesson & Woody.
Did you know Medicare reimbursement rates for healthcare are typically lower than reimbursement rates paid by insurance companies? Some employers are taking notice and indexing their employer reimbursement rates to the Medicare rates in hopes of trying to control their medical claims spent.
This arrangement is typically called “Reference Based Contracting” or a “Cost Plus” program.
There are many flavors of these types of programs, but here’s how these funding arrangements generally work….
- An employer self-funds their medical insurance plan utilizing a Third Party Administrator (TPA)
- The TPA partners with a network of doctors to provide discounts on medical services for “professional” charges. The medical reimbursement rates are based on the negotiated charges agreed upon by the network and doctors….this is similar to most of the current arrangements.
- For “facility” charges, though, things get interesting. Instead of using the typical insurance carrier’s negotiated rates, reimbursements are based on Medicare reimbursement rates. For example, the TPA agrees to reimburse the medical facility at 120% of the Medicare allowed amount. Medicare reimbursement rates are generally much lower than the typical insurance carrier negotiated rates. These lower reimbursements (indexed to Medicare) can lead to claims savings to both the employer and employee.
All of this sounds good so far – who doesn’t want to pay a lower price? There must be some catch, right? The main concern for these programs is this: what happens if the hospital or medical facility push back and do not accept the employer/TPA reimbursement rates? The amounts over the employer’s allowed price gets transferred to the employee.
For example, let’s say an employee receives a $5,000 medical procedure and the employer’s allowed amount is $1,000. In this scenario, the hospital may decide to “balance bill” the employee for the $4,000 difference. It is important for the employee to appeal this balance bill. Most TPAs that focus in this market partner with legal counsel that represent the employee at no additional cost to the employee. The attorney handles the appeal for the employee. The attorney will send the medical facility a letter stating the reimbursement is adhering to the employers ERISA plan document and the employee should not be balanced bill. The attorney explains that the employer and employee are paying above what’s normally acceptable (since most of the facility’s patients are covered by Medicare).
At some point, hospitals and facilities will become more aggressive in trying to 1) collect the balance bill from the employee 2) refuse to provide healthcare to individuals that are enrolled on these types of insurance plans or 3) negotiate on the allowed amount. In the meantime, these plans are getting attention of employers as they try to best manage their healthcare cost.
Take a look at the pros and cons of Reference Based Pricing and the key considerations employers should look at prior to implementing these plans in this white paper.