2013
When I began working in employee benefits in 1961, employees had the choice of one health insurance plan. That plan paid for a limited number of days in the hospital, a fixed dollar amount for all x-rays, chemotherapy and lab work and reimbursed doctors of all types for inpatient care based on a fee schedule. The fee schedule was published and available to employees. If the doctor agreed to accept the fee allowed, the patient had no further responsibility, if not, the employee paid the balance. There was no deductible. There was no coverage for prescription drugs or outpatient physician office visits, etc. Quite simple don’t you think? It has it all, cost control and limited liability for the employer and the employee knew upfront what his costs would be, could avoid additional billing and was highly motivated to seek out the lowest cost care available.
Below is a new idea from the October 28, 2013 issue of the Wall Street Journal. You see the “traditional benefit design” is not what we know today, it is what was in place from the 1940s until we were enlighten by additional major medical coverage and reasonable and customary fee payments in the late 1960s and early 1970s. From that point on we set the stage for unmanageable increases in health care costs by automatically increasing provider payments each year while removing concern for costs from the patient.
What we are attempting to do today is reverse our mistakes made over the last five decades, mistakes brought about in part by patients desire to avoid spending their money on health care. All this is why some of us who have been around awhile are skeptical of all the new ideas, including many of those contained in the Affordable Care Act, but good luck in any case.
Now the impossibility theorem is being tested. A small number of large employers have developed “reference pricing” for at least some of the services covered by their health-insurance programs, a major shift from traditional benefit designs. Some insurers are incorporating it into their product designs. Under reference pricing, the employer or insurer sets a maximum contribution it will make toward the payment for a test or treatment. The employee or enrollee can select any hospital or clinic but must pay the difference between the contribution limit and the actual price.
Reference pricing serves as a reverse deductible. Rather than the patient paying up to a defined limit and then the insurer covering the remainder, the insurer pays up to a defined limit and the patient pays the remainder. This has the remarkable feature of exposing the patient to the variation in prices for treatments that are above deductible thresholds. And the patient’s contribution isn’t limited by an annual out-of-pocket maximum.
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