Health Care 2020: Connecting the Dots

Part 3: Reference-Based Pricing

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Saving money while adding health care freedom

 Does this sound like the kind of health insurance you’d like to own?

  • Provider networks are eliminated. You choose any medical professional you prefer.
  • Your insurance premiums are lower, so you have more money for other needs, wants, and desires.
  • Annual premium increases will be minimal.
  • You know the price of care before receiving it.
  • You can choose based on quality as well as price.
  • You are free to build a strong relationship with your doctor and other medical professionals.
  • You are in charge, not the insurance company, doctors, or hospitals.
  • Medical professionals will have to compete to provide your health care. Even the medical providers can find out what everyone else is charging.
  • And this type of insurance won’t collapse the health care system as “Medicare for All” would do.


This may seem like a new way to pay for care, but it’s actually what almost every insured person did prior to HMOs and managed care medical delivery. The insurance company never told you what doctors to use – you chose the doctors you liked and trusted. The insurance company paid the bills based on a set amount. This allowed premiums to remain stable and affordable.


The “new” way to pay is called Reference-Based Pricing – a self-managed health insurance policy.

How can you determine how much you will pay in premium? One option is to buy an insurance policy that pays the same as Medicare. This would reduce your premiums by 40-50% or more, depending on where you live. 


Or you might choose to buy a policy that pays 200% of Medicare’s allowed amount, which is a 100% tax (see Hidden Health Care Tax). At this level, your premiums would be much like they are today.


You choose the different tax amounts you are willing to pay over Medicare – 110%, 120%, 130%, etc. The more tax you elect, the greater your premium. Annual premium increases will be linked to Medicare’s annual increases. These are historically below two percent a year, making reference-based insurance premiums stable and keeping them affordable.


The doctor visit with the new insurance plan
Today, you go to the provider your health plan has chosen for you. You sign an agreement that you will pay whatever you are charged with no idea of how much the charge will be.


With reference-based insurance, the provider will give you a disclosure showing how much they charge related to Medicare. If the provider charges you the Medicare rate, no disclosure is necessary – but if more, that percent will be disclosed to you. If you agree with the additional charges above Medicare, you will sign an agreement showing your insurance company that you understand how much the provider charges above Medicare. 



When the provider submits a claim to the insurance company, the disclosure will be included with the bill. This proves to the insurance company that you have agreed to the provider’s charged amount over Medicare (the Hidden Tax). If the provider doesn’t send the signed disclosure, the insurance company will reimburse at the Medicare rate. You would not be responsible for any amount over the Medicare rate. 


Here are three examples.

  1. You purchase a reference-based priced insurance plan that pays up to 140% of what Medicare allows. Your doctor discloses that he charges 130%. You sign the disclosure and proceed. The clinic bills the insurance company and sends the signed disclosure with the full 130% billed amount. The insurance company processes the claim at the full 130% billed amount and pays the doctor.
  2. Your policy pays at 140% of Medicare, but your doctor discloses that he bills at 150%. You know your insurance policy will only pay up to 140% and you accept the fact that you will pay the additional 10% of the billed charge. 
  3. Your policy pays at 140% of Medicare, but your doctor discloses that he bills at 200%. You decide if you want to pay the additional 100% tax or go to a different doctor – or you negotiate with the doctor. Keep in mind that all this is done before you receive care, so there are no surprise billings. 



Accident Reimbursement Rider
An individual would be able to buy a rider to the insurance plan that pays a higher reimbursement amount in the case of an accident that results in incapacitation. These are the instances where the individual needs immediate care and there is no time or ability to sign a Medicare-disclosure. Such a rider might pay up to 200% of Medicare, or some other amount chosen by the policy-owner, but the key feature is that money is available for care when a person is physically or mentally unable to sign a Medicare-plus disclosure. 


What about employer group insurance?
Employers will have the same options as they do today, to choose from several different medical plans to offer to employees. Employers may choose to pay a flat amount, allowing the employee to choose his or her own medical plan with different payroll deductions. For certain, there would be more affordable options for employers and employees, and premium increases will be a fraction of what they are today.


  • Modest legislation is needed for the new reference-based health insurance
    Require medical professionals and facilities to have a patient sign the provider’s disclosure – we call it a Medicare-Plus Disclosure – to indicate the rate charged above Medicare’s allowance. No disclosure would be required if the charge was the same or less than Medicare.
  • Limit payments to medical professionals and facilities if they fail to obtain a signed Medicare-Plus disclosure.
  • Limit medical professionals and facilities to charging no more than 200% above the Medicare allowance if a patient is incapacitated and unable to physically or mentally sign a Medicare-Plus disclosure. 

Learn More

We've prepared a short PowerPoint presentation to further explain Reference-Based Pricing. Be sure to turn up your speakers. Click onto the button below.

PowerPoint: Reference-Based Pricing