There is a card in Joost Sajet’s wallet that looks like any other health insurance card—plan name, policyholder, group number, a hotline number for providers—but what Sajet presents to his doctors is not normal insurance.
That’s because Sajet is fed up with normal insurance.
“It would be different for me really if we paid a lot of money and the service was great,” says Sajet, the general manager of Chemo International, a Canadian-owned chemical exporter with about 35 employees in Miami. “You pay a ton of money and the service is horrible … at the end they still want to see if they can put you in the poorhouse.”
As health insurance costs continue to rise, employers like Sajet are trying to find ways to control costs while still offering benefits. According to the Kaiser Family Foundation, 42 percent of Floridians get their health insurance through work—that’s more than from any other source.
So Chemo International is trying something radical with its health plan: reference pricing. Sajet and his employees are covered by a more transparent, less expensive model of health insurance—one with higher stakes and unusual backstops against those risks.
What Makes Reference Pricing Different
Traditional health insurance companies negotiate rates with hospital systems and doctors. They sell to employers a range of plans that are more or less expensive, depending largely on the network of providers and how they’ve worked out those deals.
But those deals between insurers and providers are secret. It’s next to impossible to know ahead of time how competitive one insurer’s negotiated rates are compared to another’s. Even if an employer is self-insured—meaning the company carries the risk of paying employee health claims itself, and contracts with a traditional insurer to manage employee claims and networks—the employer is not allowed to see those negotiated rates.
“I don't know of any business that works that way, except for this one,” says Sajet.
With reference pricing, the costs are transparent and there isn’t really a network. The payment for any given procedure is 30 percent more than what Medicare would pay.
For example: In South Florida, Medicare pays providers about $230 for a screening colonoscopy, so Sajet’s plan would pay about $300.
The same price for the same procedure, no matter the hospital or doctor.
“Medicare is just a really easy metric to work off of,” says Gran LeCompte, who sells insurance with Sabal Benefits in Fort Lauderdale and helped Sajet find a reference-based plan.
Because Medicare is a federal program, what it pays is public information. And unlike with private insurance, Medicare rates are standardized within a market. LeCompte says Medicare tends to pay less than private insurance, so reference plans refer to the Medicare rate and pad it a little more to entice doctors to accept it.
“They figure if they can pay in Medicare and add 30 percent to it, that should be a healthy profit for the hospital, as well as cover the costs and the doctors and everything else,” says LeCompte.
When Sajet first came to him asking about reference pricing a couple of years ago, LeCompte hadn’t heard of that model before. It took two years to even find a plan that could cover a small self-insured company in Florida like Chemo International. And when the company did finally make the switch, what it was doing was so new, clinics and hospitals hadn’t heard of it either.
“You go to a hospital and the first answer is always, ‘No, we don't take it.’ So we had to educate the employees to be like, “I understand you don't know what it is, but that doesn't mean you don't take it,’” says LeCompte, who spent a lot of time that first year making phone calls to providers to explain how it worked.
Chemo International’s employees are now trained to ask billing departments and office managers to call the hotline number on the back of the card. From there, the plan and the provider figure out how much the provider gets paid. And if it’s not an emergency, the provider can take it or leave it.
“In the first year, everybody who initially said, ‘No,’ ended up taking it,” says LeCompte.
More Work For Patients
This kind of health coverage requires more work on the patient end, too. Whenever he needs to see his doctor, Sajet budgets extra time for the inevitable phone calls.
“I'm going to be at least, 20 minutes, three times afterwards, trying to figure out the billing,” says Sajet.
But, he says, “When the chips are down it does work.”
Several employees at Chemo International have received major treatments and procedures since transitioning to the reference-pricing plan.
“So far the places I’ve been to, they’ve been able to accept it,” says employee Jose Sanchez. He started treatment for a bladder tumor in February, but not without obstacles; he’s been getting bills above what the plan has paid.
“What I’m worried about is this thing is not paid, that it’s going to be sent to the credit bureau,” says Sanchez, who’s been waiting to hear how the plan and his providers will settle the payments.
This is one of the big criticisms of reference pricing: Patients are exposed to more financial risk. Even if it’s not an emergency, it’s hard for sick patients to know exactly what they’ll need ahead of time, complicating the search for a doctor who will take the reference price.
“So if the provider accepts that price but says, ‘That’s what we’ll take from the insurer, but we want more from the consumer,’ you’re leaving the consumer at risk for higher payments, and sometimes uncertain payments,” says Dr. Karoline Mortensen, associate professor in the Department of Health Sector Management and Policy at the University of Miami’s School of Business Administration.
And, says Gary Claxton, a vice president with the Kaiser Family Foundation who studies employer-sponsored benefits, patients are particularly vulnerable in an emergency.
“Because there’s no network, or there’s no contracts with the providers to assure that they will accept the payments that the insurer makes as payments-in-full, the consumer could be subject to really many thousands of dollars that they’re not expecting,” says Claxton.
Chemo International carries stop-loss insurance that covers the company in the event of excessively expensive bills. And the reference plan for the company includes a service that will negotiate bills afterwards. But as in Sanchez’s case, that can take a while and be an anxious period for the patient.
The plan also offers legal services as part of the benefits package.
Worst-case scenario, says LaCompte, “the nuclear end stop is lawyers that work for the plan will just say, ‘Fine. We'll see you in court, and we're going to uncover all of these grossly out-of-whack costs. And we're going to make it all public record.”
“Nobody wants that to get out,” says LeCompte. “So they usually end up reaching a settlement.”
Along with offering transparency, reference pricing can save companies a lot of money.
“You can often see a reduction in spending year over year by 20 to 30 percent. It's not uncommon to see those kind of impacts,” says Steve Kelly, CEO of ELAP Services, which sells reference-based health care plans across the country and covers a half-dozen businesses in Florida (not Chemo International).
As traditional health insurance gets more expensive, Kelly sees a growth market among employers who are tired of figuring out where to shift those costs. When employers have to spend more money on benefits packages, that’s money not going into an employee’s paycheck.
“It's essentially a pay cut,” says Kelly. “That's why, between these significant discounts and the fact that it's getting harder and harder to push costs down to employees, we’re seeing more employers see this as a viable option.”
At Chemo International, Sajet says he saved his company about $150,000 the first year it made the switch. But that’s not his only reason for leaping into this unusual plan.
“We still are a Canadian owned company and in the Canadian way of doing things, health care is a right,” says Sajet, explaining that in the absence of universal health care, his company has offered insurance to all employees and their families since beginning operations in the U.S. in 1992. “Even though we weren't obliged to pay for people's health care, we thought that it was necessary that we would. A healthy employee is always a more productive employee.”
Even if it involves more phone calls and paperwork, affording that coverage for all of his employees and their families, says Sajet, is worth it.