Pros and Cons of Reference-Based Pricing

With health care costs continuing to rise, employers are seeking new options to lower expenses. One strategy that has recently emerged is Reference-Based Pricing (RBP). This pricing enables you to choose the best option for your health and budget, while illuminating potentially unnecessary costs.

How does Reference-Based Pricing Work?

RPB works by setting spending limits on certain procedures or services – meaning an individual would only be covered up to the established limit for these services and would have to pay the cost difference out of pocket. This method can help put an end to outrageous claim pricing seen in many PPO networks. Employers typically work with a third party, providing access to legal support in the event of a dispute. This third-party administrator helps create price transparency to combat high hospital markups and ensures that employees pay only provider cost plus a reasonable margin.

The Pros of Reference-Based Pricing

Employers using RBP have the potential for two main benefits. These benefits include lower total health care expenses and higher employee engagement in healthcare decisions.

Lower Health Care Expenses:

By setting a limit on certain procedures, employers are empowering employees to take charge of their health care decisions.

Employee Engagement and Literacy:

It is estimated that low health literacy costs the United States $106 billion to $238 billion annually. By promoting employee engagement in health care decision making, you are helping educate employees and lower overall costs.

Potential Cons of Reference-Based Pricing

Complex without a third-party vendor:

Not using a vendor and its legal team could leave you vulnerable to providers attempting to balance bill regularly, resulting in an increase of health care costs.

Vendor Reliability:

It is important to work with a vendor who is reliable and experienced in the RBP process. A good vendor will ensure a smooth transition into this model and provide you with the tools and support you need to educate your employees effectively and make the plans affordable.


If you have any questions regarding reference-based pricing, or need help selecting a vendor that works for you, please reach out to us at Faison Group.