Making the switch to reference-based pricing: A good broker is key to employee buy-in
One key to success with transitioning to RBP is to secure buy-in throughout the firm, from employees to the C-suite – and as workers understand the financial benefits, they often become the best salespeople for their co-workers.
As the year begins, businesses are making a list of ways to hold the line on costs in 2024.
“Yes, we need to cuts costs, but it’s also important to make sure employees have the benefits they deserve,” said Becky Randles, director of business development for health plan provider Imagine360. “I once heard it said, `why would it be called employee benefits if there really isn’t any benefit to it?’ It’s definitely about finding a balance between cost and actually providing a strong benefit plan for retention, growth and all of those things that are important.”
Randles participated in Warm Up to Savings: Employers’ Guide to Reducing Health-care Costs, a webinar sponsored by Imagine360. Jason Hamelin, director of financial planning and analysis for Werfen, agreed that it is important to carefully evaluate expenses.
“Budget time is always a time of year when we are scrutinizing costs and everything is put on the table,” he said. “It’s a great time to reassess priorities … the three-year strategic plan and how the cost of health insurance fits in.”
Financial executives have a fiduciary responsibility to spend the company’s money wisely.
“The CFO is called to put the interests of the organization above the interests of any executive within the company,” Hamelin said. “As professionals, we have the duty to say something if we see something. That means if we are aware of a less-expensive way to purchase something, we need to raise that for discussion and evaluation. That’s one of the primary roles of the CFO, and I can’t stress enough that you need a broker who acts in the company’s best interest.”
Transitioning to reference-based pricing has been a smart move for his company. Under this model, the employer, supported by a third-party administrator or other vendor, pays a set a price for each health-care service instead of negotiating prices with providers. When a provider bills for the service, the payer remits the set amount.
“We saved $1.9 million over the first five years of being on the plan, which represented close to a 35% savings for us,” he said. “The metric we tracked was annual cost per insured person. In some years, you may have big increases and in some years you may have big dips, but the long-term pattern is that downward trend. At the end of the day, it’s representing that 35% savings. It allowed us to keep the premium for employees flat for the entire time.”
One key to success is to secure buy-in throughout the organization, from employees to the C-suite.
“For us, it really started with HR,” he said. “We had a real champion who kicked off the discussion. It doesn’t always happen in the first discussion, and it can take a number of discussions to bring all of the stakeholders in the company to the table to be open about it. It can be a long process, especially when you have different points of view within the organization. A good broker who is smarter than you can act as a facilitator.”
After running the numbers, Hamelin concluded that reference-based pricing could be a win-win option for both the company and its employees.
“From a finance point of view, I heard what they were saying, but could they show me the financial impact?” he said. “What does the total price look like under these different scenarios so we can put pen to paper and see how this is going to impact us financially? Once we demonstrated that there wouldn’t be a loss in benefits being offered and that it would come in at a lower price for both the employee and the employer, it really became an easy decision for us.”
Even so, it helps to position it as an option to the current health plan, not a replacement.
“No one wants to be told at benefits time, `this is what you have to do,’” Randles said. “People like to have choices, and people care about costs. The bottom line is that when employees get that paycheck and see how much is coming out of it, they ask those tough questions, such as `how much am I going to pay and what’s my deductible?’ That’s what’s important to them.”
As employees understand the financial benefits, they often become the best salespeople for their coworkers.
“Not only is health care one of the biggest costs for the company, but it probably is also one of the biggest costs for a family,” Hamelin said. “One of the biggest learnings about reference-based pricing has been that people begin shopping for their health care. And why shouldn’t you shop for your health care just like you shop for everything else in your life?”
