What is Level Funding?
Through the evolution of health care, providers have determined their own prices. The result is a broad range of price variances from one provider to another! The price of a procedure (big or small) will vary simply depending on where the procedure is taking place and who is performing it.
It’s no secret the high cost of health care has many employers feeling limited in their options and ability to provide quality benefits at an affordable cost. Several options exist beyond simply shifting costs to employees. One such option is reference-based pricing (RBP). RBP helps address the cost of care while also addressing employer concerns regarding the affordability of health care benefits.
What is reference-based pricing?
Reference-based pricing is a health plan strategy where the employer sets a ceiling on the amount it will cover for a procedure rather than having the provider determine the cost. Providers are then asked to accept the RBP payment, or provide justification as to why their fees exceed reasonable and customary charges.
To achieve optimal results for both the employer and member, integrating RBP in health coverage requires specialized administrative capabilities best served by third party administrator (TPA) organizations.
Health plan coverage rarely covers the full amount of any procedure. Cost is typically covered by a combination of funding such as co-pays, deductibles, plan coverage, Medicare or Medicaid.
Here’s how reference-based pricing works
- Health care providers charge drastically different prices for the same procedure.
- Each geographic market has an established “reasonable and customary” price for that procedure.
- TPAs use reasonable and customary (ie. reference-based) pricing to negotiate with providers to ensure that their employer and member clients are not over-charged.
Example of cost variance: MRI
For example, the cost variance of an MRI might range between $800 and $4,000 or more. However, the quality of the procedure and care provided is basically the same. RBP eliminates the variance with a set amount and ensures a win/win/win scenario:
- The patient receives quality care at a more affordable cost.
- The provider receives fair payment for their services.
- The premiums begin to stabilize for the employer and employees.
Are there advantages of level funding?
The objective is simple – address healthcare costs for individual employees and employers. The benefits of RBP however have a far reaching, ripple effect throughout the healthcare community. The intent is to provide an effective tool to help stabilize the cost of healthcare.
Information & Insights
Clients receive claim information on a regular basis indicating how claim funds are being spent. TPA shares valuable insights with data while identifying plan updates and employee education opportunities.
Budget Friendly
Monthly payments mean budget control with no fluctuation due to claim payments.
Low Risk
Plans are customized to meet specific financial goals while the addition of stop-loss coverage reduces risk throughout the policy year.
Flexibility
No ‘off the shelf’ plans with level funding, each plan is customized to meet specific client needs.
Frequently Asked Questions
Q: What kinds of companies are best suited for level funding?
A: Level funding works best for companies that are:
- Interested in the cost saving attributes of self-funding but don’t want the risk of unpredictable, big hit claim costs.
- Engaged and active in promoting and maintaining a culture of health and wellness.
- Small to mid-sized with 50 or more employees.
Q: How exactly does reimbursement work?
A: If, at the end of the policy year, the total dollars spent on claims is less than the total monthly premiums paid, clients receive a refund check for the overage or apply the amount in renewing their policy. If the opposite is true, stop-loss coverage kicks in and protects clients from having to pay the balance difference.
Want to Learn More?
Additional SmartSheet topics are available on the Educational Resources page.