Managing healthcare costs in today’s volatile environment is more critical than ever. Employers face rising trend rates and unpredictable expenses that make budgeting and cost control challenging.
Variability refers to the uncertainty and fluctuation in the cost that employers pay for healthcare services. Variance in prices for individual procedures or healthcare services is a primary component, but other sources of variability, including “variable fees” assessed outside the standard claim payment process, are also critical.
What's the role of reference-based pricing in managing variability?
Reference-based pricing (RBP) aims to address cost variability by establishing fixed pricing for selected procedures. In practice, the health plan pays providers a set percentage of a defined reference price (for example, 140% of Medicare rates), instead of applying a negotiated discount to the provider’s billed charges. This approach aims to increase cost transparency and reduce costs. It also requires careful management to address provider acceptance and potential balance billing issues for members.
RBP has been around for over ten years. It’s now gaining renewed momentum as employers seek more transparent, predictable and sustainable ways to manage healthcare costs. The recent surge in RBP interest is fueled by several forces.
- Transparency rules: The Transparency in Coverage Rule has made billed charges, negotiated rates and cash prices more visible, empowering plans, health systems and employers to benchmark and negotiate more effectively.
- Escalating cost pressures: Annual trend rates approaching 8–9% are driving employers to seek disruptive change to bend the cost curve.
- Market maturity: The vendor ecosystem supporting RBP (third-party administrators, analytics, advocacy) has matured, making implementation possible for a wider range of employers. The marketplace now offers end-to-end health plans built around an RBP framework.
- Evolution of predictive analytics: Vendors can now use predictive analytics to engage with more members before they seek care and direct them to providers known to accept RBP. Imagine360, among others, combines direct contracts with RBP arrangements to navigate members to preferred providers. These components help to reduce noise and balance billing within RBP solutions. Sidecar Health is a new alternative solution. It takes some elements of RBP and lets members “shop” for care using cash prices against a reference-based reimbursement.
Health plan RBP considerations
RBP is a fundamental shift from how a traditional employer-sponsored or commercial health plan reimburses healthcare services. Any group plan considering RBP should evaluate the financial, provider and member experience impacts. While RBP offers transparency and potential savings, there are some important considerations.
- Reference-based price reimbursement level: Consider a balance between cost savings and provider acceptance when setting reimbursement levels. 140–150% of Medicare is a typical range.
- Balance billing risk: Providers may charge employees for the difference between the reference-based price and their charges. This can create member dissatisfaction and potential legal disputes. Although some RBP plans claim that balance billing is rare, it can be more common for large bills.
- Provider acceptance: Not all providers accept RBP payments, which can result in denied care or limited access.
- Fees assessed for repricing claims: Some administrators may charge fees for repricing claims at the reference price, eroding savings.
- Member services and support: Including negotiation, provider interfacing, legal support, technology support and other advocacy services.
- Operational complexity: HR teams may see a significant increase in workload during implementation, especially around member education and dispute resolution.
- Compliance: You should seek the opinion of your counsel to ensure that the plan complies with all appropriate laws and regulations. These include Affordable Care Act limits on cost sharing for essential benefits and access to certain services.
The penetration of RBP health plans remains low due to these concerns. Five percent of employers said that they offered RBP plans in our 2025 Best Practices in Healthcare Survey. Another 8% said they were planning or considering offering such a plan in the future.
What should you do?
Managing healthcare costs in a high-cost, volatile environment is more important than ever. Addressing variability should be a key part of managing your healthcare costs. No single solution, including RBP, will address all sources of variability.
- Proceed with caution when considering RBP: Consider the impact on employees and compliance considerations.
- Focus on other sources of variability: Variable fees represent a significant, often overlooked part of your healthcare expenses. These fees, which can constitute up to 50% of total administrative costs, are charged outside the claim payment and administrative service fee structures. Carriers typically assess these fees for services like out-of-network claim negotiations and payment integrity programs. Because variable fees are often billed through the claims wire and not consistently reported to you, understanding and managing them is essential for effective cost control.
You should demand transparency regarding variable fees and require caps on variable fees to reduce costs and manage variability.
