How A Reference-Based Pricing Model Differs from Traditional Healthcare

In today’s unpredictable economy, saving money is more important than ever. Employers understand that providing quality healthcare for their employees is key for recruitment, retention, and productivity. When employers struggle to retain employees due to rising healthcare costs, that loss of labor makes it difficult to generate revenue.

This can create a vicious cycle: as healthcare expenditures continue to increase, companies  assessing benefits often prioritize cost reduction. While such measures seem necessary, cutting healthcare spending lowers the quality of benefits employers can offer employees, which are also a major incentive for recruitment and retention. 

Luckily, there are alternatives to traditional healthcare models that can simultaneously save money and increase the accessibility and quality of healthcare. Learning how reference-based pricing models differ from traditional healthcare could introduce tremendous savings while also keeping your employees happy and healthy.

“Traditional” Isn’t Always Better

Considering the common internet adage that claims “tradition is just peer pressure from dead people,” it seems contradictory that so many employers should choose to maintain an older healthcare model that coincides with skyrocketing costs. The most common of healthcare coverage models is a fee-for-service plan, in which employer and employee divide the cost of healthcare with an 80/20 split leaving the employer to pay the larger portion. Traditional models also include deductibles and co-payments that employees must pay after services have been rendered. 

This means that the costs of employee healthcare claims determine the amount an employer pays for healthcare benefits. In addition, both employer and employee are responsible for a fixed monthly fee. This type of coverage tends to come with inflated, opaque billing practices that perform services first and bill for them later. 

Pricing on such bills is often arbitrary, as providers can set their own prices. The number and frequency of billing errors cause significant overpayment by employers and employees. These contributing factors of traditional healthcare models often result in prices upwards of 259% more than what Medicare pays for the same services.

A Reference-Based Pricing Model Offers a Better Alternative

In contrast to traditional healthcare models like fee-for-service, a reference-based pricing model is a cost containment strategy that uses established benchmarks for services to negotiate more reasonable prices for services. 

For example, if it costs a hospital $1,500 for an MRI and they charge Medicare $2,000 for the procedure, the price Medicare pays can serve as the benchmark for price negotiation. It’s important to understand that the amount hospitals charge differs from the amounts billed.

Traditional healthcare reimbursement models rely on a contractual process that includes precious little transparency. When combined with fixed monthly payments, co-payments, and deductibles, the opacity of such contracts suggests insurance companies could easily negotiate discounts from already-inflated charges. By shuffling charges, discounts, and bills, they profit from every service. 

Conversely, because reference-based pricing prioritizes cost containment, the billed price is not final. Knowledge of aggregate prices paid for comparable services shifts the power dynamic and brings greater balance to healthcare solutions. Because employees pay less for services, their lower claims translate into employer savings. 

6 Degrees Health Empowers Cost Savings

6 Degrees Health is not an insurance company. Instead, we strive to work with brokers and third-party administrators (TPAs) to provide alternative cost containment solutions that bring integrity, transparency, and savings to healthcare coverage. Our data-driven approach allows us to help companies provide clarity and accessibility for employee healthcare and lower healthcare spend by up to 40%.

With our proprietary data technology, we use the knowledge of average payments for services to leverage more reasonable patient prices. Instead of settling for inflated healthcare prices, our reference-based pricing model helps employers and employees realize the true benefits of healthcare. 

As a cost-containment company, 6 Degrees Health helps employers navigate healthcare protocols to pay what is fair. Speak to a representative today to find out how our reference-based pricing model can help you realize the true benefits of healthcare.