By Sabrina Corlette and Karen Davenport
State worker well being plans (SEHPs) have wrapped up their open enrollment durations for plan yr 2025. Many state staff bought some unhealthy information about hefty premium hikes within the course of. Like different employer well being plans throughout the industrial insurance coverage market, SEHPs are going through vital will increase in well being care prices. These will increase power states to decide on between drawing extra closely on tax income to cowl these prices and shifting extra prices to state staff and their households.
SEHPs can pursue a wide range of avenues to constrain price development, and one technique—sometimes called “provider-based reference pricing”—has been gaining traction. A latest examine estimates that using this sort of reference pricing would have saved as much as $7.1 billion throughout all SEHPs in 2022. This yr, Washington State’s Workplace of the Insurance coverage Commissioner beneficial provider-based reference pricing for that state’s SEHP, following related—and profitable—latest initiatives in Oregon and Montana.
In our surveys of SEHPs’ price containment efforts, we discovered that 9 state plans use some type of provider-based reference pricing to ascertain reimbursement charges for well being care suppliers. On this article, we deal with the teachings realized from the SEHPs in Oklahoma and South Carolina, each of which have lengthy used government-set charge schedules to pay taking part suppliers.
Defining Phrases: What Is Supplier-Based mostly Reference Pricing?
In relation to medical health insurance, there are totally different types of “reference pricing.” One type is a profit design technique to steer policyholders to lower-price in-network companies. The state worker well being plan of California (CalPERS) is well-known for pioneering this technique. The plan surveys costs for particular elective companies inside geographic areas and determines a cap or “reference worth” as the utmost it is going to pay for that service. Plan enrollees who select to obtain companies from a supplier that expenses a better worth than the reference worth should pay the distinction. This type of profit design-based reference pricing just isn’t the main focus of this put up.
Quite, we zoom in right here on provider-based reference pricing: The plan pays taking part suppliers a non-negotiable, established charge that is the same as or a share of a reference charge, reminiscent of the worth Medicare pays for a similar service. This strategy is sort of totally different from plans’ frequent methodology for establishing supplier reimbursement ranges, which is to barter a reduction off the supplier’s record costs. There’s broad consensus within the financial literature that these record costs are dictated extra by a supplier’s market energy than by the price or high quality of these companies.
A plan can implement provider-based reference pricing by figuring out an higher restrict or cap on the charges the well being plan can pay for specified well being care companies. That is the strategy of Oregon’s SEHP, which caps in-network hospital charges at 200 p.c of the Medicare charge. It may also be carried out by way of a government-set charge schedule for supplier companies, as is the strategy of SEHPs of Oklahoma and South Carolina.
Reviewing The Proof: Price Financial savings From Supplier-Based mostly Reference Pricing
Of the 9 SEHPs in our survey which have provider-based reference pricing, solely two have benefited from public-facing analyses of their price impression. A latest peer-reviewed examine of the Oregon SEHP’s reference pricing program for hospital companies discovered that it saved the plan $107.5 million within the first 27 months of this system. Equally, an unbiased examine on Montana’s reference pricing program concluded that this initiative saved the SEHP practically $48 million from state fiscal yr (SFY) 2017 by SFY 2019, following its 2016 implementation. Nevertheless, in 2022, the state moved to regulate this system to permit Blue Cross Blue Protect of Montana, the newly contracted plan administrator, to exceed the reference pricing cap in sure circumstances (though what these circumstances may be has not been publicized). It’s not clear whether or not that transfer will have an effect on future spending development. This yr, Washington State’s insurance coverage division has projected that if the state’s SEHP carried out a reference worth of 160 p.c of the Medicare charge for supplier companies, it could scale back medical spending between 3 p.c and 19 p.c.
Highlight On South Carolina and Oklahoma And Concerns For Different States
South Carolina and Oklahoma reported in our 2022 survey of SEHPs that they set the costs for the suppliers with whom they contract. Each states report that their costs fall between Medicare’s charge schedule and the prevailing industrial charge. Though there have been no exterior evaluations of using provider-based reference pricing in these states, each SEHPs report that the technique has generated vital financial savings for the plan, its members, and state taxpayers.
These financial savings don’t seem to have affected enrollee entry to care, as directors in each states describe networks with broad supplier participation. Because of each plans’ massive memberships, they’re able to use their market energy to persuade hospitals and physicians to take part. Moreover, officers noticed that as a result of they cowl schoolteachers and different public servants, suppliers of their state have been typically sympathetic concerning the want for decrease charges. Certainly, in Oklahoma, officers reported that 99.3 p.c of hospitals and 80.0 p.c of physicians take part within the SEHPs’ community. South Carolina’s plan has 100% hospital participation and greater than 99 p.c of physicians (though they don’t immediately contract with behavioral well being suppliers). South Carolina officers famous that suppliers like working with the SEHP as a result of it’s a “immediate payer” and offers beneficiant protection.
South Carolina and Oklahoma officers have additionally discovered that reference pricing is comparatively simple to manage. As one administrator put it, “When a brand new hospital opens, we attain out and supply our charge schedules. As a result of we don’t have a negotiation course of, there actually isn’t something to barter.” One other noticed that using a charge schedule makes it very simple to for the plan to calibrate its spending over time and to assist hold price development in test.
Plan enrollees additionally profit from these SEHPs’ success in constraining supplier worth development, as these states have much less have to shift prices to staff by increased premiums and deductibles. State staff in North Carolina, Montana, and Oregon have been vocal proponents of reference pricing proposals.
Potential Challenges
Regardless of the advantages, SEHPs looking for to undertake reference pricing can face a number of challenges. First, quite a lot of states have diluted their market energy by separating totally different teams of state staff into totally different plans. For instance, many states have separate plans for presidency staff and faculty staff. Others have separate plans for state and municipal staff. These states might have to consolidate these plans into one, or work in tandem on buying methods, to successfully counter the inevitable resistance from hospitals and different suppliers.
Second, even in states the place the SEHP is consolidated and the biggest employer within the state, SEHPs might face challenges getting hospitals to conform to the reference worth. Montana’s effort encountered stiff resistance from hospitals and required a public relations strain marketing campaign to persuade holdout hospitals to signal community contracts. The proposal from North Carolina’s SEHP to ascertain reference pricing foundered when hospital lobbyists satisfied legislators to reject it. Nevertheless, latest information that the SEHP is going through a lack of greater than $106 million has prompted some advocates to revive requires a reference pricing program.
Third, the third-party directors (TPAs) that many states use to design and administer their supplier networks and course of claims might oppose or hinder a transfer to reference pricing, notably because it successfully reduces the TPA’s position in community design. The Montana SEHP, for instance, needed to sever its relationship with its long-standing TPA to maneuver ahead with its reference pricing program. SEHP officers responding to our survey report experiencing foot-dragging and resistance from TPAs over different cost-control methods they’ve tried to implement; they could encounter related reactions to a reference pricing initiative, requiring a shift to extra agile and prepared companions for this effort.
Lastly, a trade-off that SEHP directors might have to think about is whether or not, or to what extent, a reference pricing program and its reliance on a fee-for-service reimbursement chassis inhibits using different or progressive fee fashions. Such fashions can promote inhabitants well being administration, high quality enchancment, and whole-person care. Reference pricing mustn’t preclude such efforts, however plan directors should think about how the 2 sorts of fee strategies can coexist.
Trying Forward
The price of employer-based insurance coverage is rising at an unsustainable tempo, and SEHPs are usually not immune from price pressures. The first driver of those price will increase is excessive and rising supplier reimbursement charges. The shortcoming to maintain these charges down is forcing troublesome selections for employers, resulting in increased deductibles and price sharing and an epidemic of underinsurance. Certainly, 23 p.c of individuals with year-round medical health insurance are thought of underinsured; 66 p.c of those people are coated by an employer-based plan.
For SEHPs, provider-based reference pricing is usually a viable technique to constrain price development, keep the worth of protection for staff, and generate financial savings for taxpayers. The success of reference pricing in states as various as Montana, Oklahoma, Oregon, and South Carolina means that it may be replicated in a variety of states. Moreover, a state-led reference pricing program holds the potential to be leveraged by private-sector employer purchasers, who’re equally determined for a method to hold prices in test and keep reasonably priced protection for staff and their households.
Creator’s Observe: The authors’ time drafting this put up was supported by a grant from Arnold Ventures.
Sabrina Corlette and Karen Davenport “State Highlight: The Use Of Supplier-Based mostly Reference Pricing In Oklahoma And South Carolina,” January 28, 2025, https://www.healthaffairs.org/content material/forefront/state-spotlight-use-provider-based-reference-pricing-oklahoma-and-south-carolina. Copyright © 2025 Well being Affairs by Undertaking HOPE – The Individuals-to-Individuals Well being Basis, Inc.
