by Annette Kreuz, USI
A different pricing model is surfacing in our cash-focused environment.
It’s not for everyone, but on the rollercoaster of 2020, whether you’re a freedom fighter at heart, or you just had to lay off 200 people and can’t bear the very high cost of health insurance, (i.e. ‘desperate times…’) there is another way of doing health insurance that can be ACA compliant, provide exceptional benefits to your employees (or bare-bones, if that’s the way you work), and on our 100 or so local cases that currently do it, it yields about 30% lower costs. Most of what we brokers do is find ways to avoid changing carriers by negotiating better, but sometimes, its time for a change.
At its foundation, this pricing model flips the script by defining a reference price list for all services and procedures (a skilled partner does this for you) that are fixed and lower than ‘discount or negotiated rates’. It is called ‘Reference Based Pricing’.
You may be wondering why providers would accept a lower price. It’s a good question. 2-word answer: Accounts Receivable. Providers don’t like the long delays and uncertainty that comes with traditional pricing practices. (They thought they were going to be doctors, not mathematician-collections experts, after all.) These plans are founded on fast & predictable payment, which has created now well-developed networks of high-performance medical professionals ready to play-ball at your new predictable and fair price points.
It’s really different from the traditional discount / negotiated-rate based pricing model, which has been frustrating because we smart negotiators know that 50% off $100 is not the same as 50% off $90,000. The origin story of that system is the topic for another paper, but I want to share the principle of this new pricing model so you can think about whether you’d like to explore it further.
Here’s an example: Take the Medicare price and multiply it by 1.4, or 1.2, or 1.6… You get the idea – your vendor-partner has already identified doctors and facilities that will accept these prices and will communicate them to your employees in much the same way we communicate about in-network providers. When services are procured, that’s the price that the health plan will pay. In the 2% of cases where there’s a disagreement, your vendor partner has an army of people ready to negotiate, usually resolving it, or leaning on pre-planned process for dealing with the higher price.
That’s the model.
So let’s review:
- Why are prices lower? Because you can set them lower, often the average price for a service across the country is much lower than various individual prices that nobody ever sees. Its kind of like the CarMax or TJMaxx of insurance, no high list price. List Price = irrelevant. Just tell me what I owe.
- Why do providers accept it? Because they get paid more reliably and faster than with most traditional carriers.
New question – Why isn’t everybody doing it?
Because change is hard and tradition is strong – So strong that many opposition narratives have been created. Commissions and fees are at risk for brokers. I’m not saying this is the only way forward – there is a right time to go with tradition. Complexity brings time commitment and brain commitment not to be underestimated.
It’s not a PPO. It’s a little different. Maybe a lot different… Although at the end of the day your employees still go to the doctor, pay using a card, and rely on the company to help them understand and navigate the plan.
If you’re on the fence, consider this: recent studies have shown that employees feel satisfied with their plan depending on how much they understand it. In contrast, satisfaction does not correlate with the richness of the benefits themselves…. and when you think about it further, it’s not that they understand their health plans now either, right? Not everybody can be an insurance expert like me… And you, of course (now).
Annette Kreuz has 15 years of vendor & business strategy experience and an MBA from HEC-Paris. She currently practices Employee Benefits Strategy Consulting for groups 80 to 5000 employees with market leading broker/consultancy, USI. We are www.changingtheindustry.com and while a lot of what Annette does is making traditional models work better, sometimes someone wants to push the edges. Annette enjoys complex problems that need a dose of negotiation, projection, accountability, and enthusiasm.
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