Next Big Benefit Change: 7 Things You Should Know
By Julie Appleby
Fri, May 23 2014
After getting a green light from the Obama administration earlier this month, more employers may begin to cap what they pay for certain medical treatments, such as joint replacements and drugs, potentially shifting more costs to workers.
Done right, economists and policy experts say the move to “reference pricing,” as the approach is known, could slow health care spending by prompting consumers to choose less expensive providers or treatments— and leading providers to lower their charges. Still, consumer advocates warn that the approach is likely to make health insurance even more complex, and could expose unwitting consumers to thousands of dollars in out-of-pocket costs.
“This could be a booby trap for consumers,” said Carmen Balber, executive director of the advocacy group Consumer Watchdog in California.
Because reference pricing can be complex to set up, experts say the majority of Americans who get their insurance through their jobs won’t see an immediate change. The approval does not immediately affect consumers who buy their own insurance through online marketplaces.
1) HOW DOES REFERENCE PRICING WORK?
Insurers or employers survey what providers are charging for a specific treatment, and then set a cap — or “reference price” – to mark the maximum amount they will pay for that service as a way to encourage consumers to choose more reasonably priced providers or treatments. One of the best known examples of this is the experiment that began in California in 2011, when the giant California Public Employees’ Retirement System (CalPERS) capped what it would pay for hip or knee replacements at $30,000. CalPERS took that step after finding that hospital prices for the same surgery could vary from about $15,000 to more than $100,000, with no discernible difference in quality. Workers can still go to a hospital that charges more than $30,000, but they pay the difference in cost. Some smaller employers have also done reference pricing for procedures ranging from colonoscopies to lab and imaging tests.
2) WHAT DID THE ADMINISTRATION AGREE TO?
In a May 2 document, labeled Frequently Asked Questions about Affordable Care Act Implementation, the administration essentially gave its blessing to large or self-insured employers to use reference pricing in designing health plan benefits. It also said that employers offering drug coverage can use generic drugs to set reference prices. If a worker chooses a brand-name drug instead, the worker would pay the difference. The administration said the generic version of the drug must be medically appropriate, as determined by the individual’s doctor.