Here’s why you should reduce expenses
I have said this many times: After payroll, employee benefits are the highest expense most businesses have. Reducing this cost can be a monument challenge for most business owners as is finding a broker who will patiently educate them about all of the benefit and funding options available.
The pandemic has made most employers even more cost conscious about the benefit programs they offer. A few years ago, with Aetna leading the way in New Jersey, self-funding became very popular. It allowed employers with at least five employees to significantly reduce costs and, if claims were less than projected, the employer shared in the surplus.
Self-insured plans have evolved since then. Of course, starting with large employers and slowly trickling down to the smaller ones. Now, the minimum size to self-insure in NJ is 2 employees. A newer trend, first noted around 2019, is the use of a based pricing (RBP) model of self-insured plans which started with large employers and has trickled down to small employers.
RBP creates greater price transparency and helps employers reduce costs. Reimbursement levels are linked to Medicare reimbursement rates, which are lower than insurers can achieve because of the government’s buying power and access to hospital data. RBP plans cap the amount the plan will pay using Medicare pricing as a reference point. This often reduces employers’ health care claims spending by 20 percent to 30 percent, which can be found in the article, Employers Cut Health Plan Costs with Reference-Based Pricing, published in May of 2019.
Unlike traditional preferred provider organization (PPO) coverage, an RBP approach typically has no in- and out-of-network payment tiers. However, there are networks available if you know where to find them. This is important as you will see as we continue.
While all employers are in search of cost-saving options, RBP isn’t right for every business. It’s important to weigh the pros and cons to determine if an RBP option is right for your business. RBP could be used as an additional option in a mix of plan choices, or it could be applied to certain medical services and procedures.
Pros and Cons
The most obvious risk of employing an RBP strategy is that, while the insurer is applying a payment policy based on a percentage of what Medicare is paying, there is no obligation on the physician or hospital or any other to accept this as payment in full for their service without a network. This can result in balance billing to the employee. Not something any employer wants to happen, since unhappy employees are not productive employees. Balance billing accounts for less than 5% of claims transactions, according to an article published in Benefits Pro last year. Most plans will negotiate on behalf of the employee and resolve this balance billing issue without the employee having to pay any additional costs. However, in some extreme cases employers have been sued.
Unlike plans that do not utilize networks, a plan that uses an RBP network will not have this problem because the doctors have agreed to the reimbursement level prior to performing any services and there is no balance billing. In order to use this approach, an unbundled u(TPA) is used, and a network is rented. This results in lower costs because TPA’s typically charge lower fees than carriers.
Most private carriers pay up to 300% of Medicare (the average is 241%) while RBP plans usually pay between 125% and 175% of Medicare, which is shown in a Bukaty Companies article. That alone results in a significant reduction in claims and leads to lower premiums.
Shifting from your current health plan to an RBP plan is not as simple as changing carriers. It requires forethought and planning, and, most importantly, educating your employees. Employee expectations must be managed, and ongoing plan communications is essential. Communications must be ongoing along with monitoring and tweaking the plan to make sure it is performing as expected.
Employers willing to explore RBP need to work with a broker who is knowledgeable about RBP design (depending on the size of your company, you can implement it for certain procedures or for all claims), as well as unbundled self -insurance so they can understand all the options available to them not just the pre-packaged ones.
Patti Goldfarb has specialized in employee benefits since 1983. She is currently working with a RBP network of 500,000 physicians nationally. She can be reached at (201) 255-6239 or firstname.lastname@example.org. See www.ebagroup.net for more.