Reference-Based Pricing: A Unique Self-Insured Option for Employers

From ChamberChoice and Smart Business Pittsburgh

It’s no secret that health care pricing varies widely and has a direct impact to the bottom line for employers of all types and sizes.

As health care costs continue to increase, employers have sought innovative and creative strategies to lower expenses. One strategy, which has gained momentum, is referenced-based pricing (RBP). The RBP approach typically doesn’t involve a
traditional insurance company or provider network negotiating covered services for the health plan. Instead, RBP sets limits on the amount a plan will pay for certain medical services.

Smart Business spoke to Michael Galardini, director of sales at JRG Advisors, to break down how RBP works and whether it might be right for you. 

How does RBP work with health plans?

RBP sets limits on the amount a health plan pays for procedures or services performed in hospitals and free-standing surgical centers without the use of a PPO network. For physician charges, a national PPO platform is utilized. The limits are based on a percentage above the amount that Medicare pays, which is based on the cost that each facility files with the U.S. Department of Health and Human Services.

The limits are selected by employers in consultation with their benefits advisor, to provide a reasonable and fair profit to the provider. A good RBP model considers both Medicare reimbursement and the actual cost to deliver the service; and adds a fair profit margin for the provider.

If the employee is balance billed for the difference, the RBP provider assigns legal counsel to the employee, at no cost, including defending the RBP payment in court.

Employers often partner with a third party administrator (TPA) to establish the best limits for a given medical procedure. The TPA helps conduct market research and negotiate the most appropriate deals with providers. Finding a reliable TPA, which works well with your company and the RBP provider, is crucial for negotiating the best price for your employees.

What are the advantages of using RBP?

Because there is no assigned network for hospitals and surgical centers, covered individuals may seek treatment at any facility they desire. RBP generally provides anywhere from 60 percent to 70 percent savings from billed medical charges. Typical PPOs only provide 40 percent to 50 percent from billed charges.

Hospital billed charges are taken from a charge master that each hospital maintains. The charge master is a list of the retail price of services that the facility charges for patients without insurance, or network discounts. The charge master changes from time to time, however, generally the charges are about 800 percent to 1,000 percent above the amount that Medicare pays the facility. Even after PPO discounts are applied, employer health plans are paying 400 percent to 500 percent above the amount that Medicare pays.

Are there any drawbacks to RBP?

Given the complexity of RBP, employers and employees need to carefully consider a number of things and be properly educated on how RBP will work for their employees. It is vital to work with a trusted partner that is reliable and experienced in the RBP process.

Furthermore, not using an experienced partner (and its legal advocacy) could potentially leave you and your employees vulnerable to providers attempting to balance bills. While the potential for payment disputes between employers, participants and health care providers always exists over RBP, there has been little RBP litigation to date. Litigation is always a potential threat to both the employer and employees, but disagreements over these issues are typically resolved by negotiation.

RBP can be an innovative strategy for lowering health care costs. As the market continues to evolve, employers are seeking cost reductions. The RBP option is unique in its ability to potentially reduce costs and create informed consumers. Is your business ready to investigate this innovative approach?

Insurance Department Approves Workers’ Comp Filings That Reflect Protz Fix, Previous Data Error

From PA Chamber of Business & Industry

The state Insurance Department recently announced its approval of “loss cost” filings that may result in workers’ compensation savings to Pennsylvania employers, effective Jan. 1, 2019.  The first of these filings from the PA Compensation Rating Bureau reflects the enactment of Act 111 of 2018, in which the legislature responded to the state Supreme Court’s decision in the Protz case with a legislative fix that reinstated the Impairment Rating Evaluation process to the state’s WC system.  An important cost-saving measure, IREs were previously used for more than 20 years as a fair and effective way for state-designated physicians to determine a patient’s level of impairment and whether wage benefits should be limited or paid indefinitely. The Court’s decision last year to throw out the IRE process led the PCRB to file a mid-year loss cost increase, which was estimated to increase workers’ comp costs by hundreds of millions of dollars. The PA Chamber led the successful charge in advocating for the legislative fix to this ruling, which resulted in Act 111 and this subsequent loss cost decrease. 

The second loss cost change approved by the Insurance Department was reflective of a data error uncovered in Nov. 2017 that was incorporated into rates set in April of this year.  In announcing the second change, Insurance Commissioner Jessica Altman said, “it is possible some businesses paid higher rates than they should have … therefore, I am urging all workers comp insurers to determine as quickly as possible whether this is the case for any businesses they insure, and to reimburse any businesses which have overpaid as a result of the November 2017 filing.”

The PA Chamber had sent a letter to Commissioner Altman on Dec. 7 urging the Department to adopt this provision.

Are You an Applicable Large Employer?

From ChamberChoice

An employer who employed an average of at least 50 full-time employees per month during the prior calendar year is an applicable large employer (ALE) for Affordable Care Act (ACA) purposes. ALE status must be determined each year, and ALEs are subject to the ACA employer shared responsibility and information reporting provisions for offers of minimum essential coverage to employees. There are many items to consider in determining whether an employer is an ALE. The first question an employer must consider is how are full-time employees defined under the ACA? Full-time employees include an employee who works 30 hours or more per week or employees working 130 or more hours in a calendar month.

Employers must also include full-time equivalent employees in the count of full-time employees. Full-time equivalent employees are not full-time employees; instead, the number of full-time equivalent employees is determined by combining the number of hours of service for all part-time and variable hours employees working 120 hours or less during the month and dividing that total by 120. This number only counts towards the total number of full-time employees for that month for determining if the employer is an ALE – it will not change an employee from part-time to full-time status for purposes of whether an offer of coverage must be made.

Employers who exceed 50 full-time employees (including full-time equivalent employees) are not considered ALEs where the employer employs seasonal workers if certain conditions apply. First, the employer’s total workforce must only exceed 50 full-time employees for 120 or fewer days during the year. Second, the employees who exceed 50 full-time employees during those 120 or fewer days must be seasonal workers. Seasonal workers are generally defined as employees who work on a temporary or seasonal basis, such as retail employees who work during the holiday season or summer staff at a swimming pool.

Companies with common ownership may be part of a controlled group which requires employers to aggregate the total number of employees across the group in order to determine whether included companies are ALEs. The employees of every company within a controlled group determine whether any company within the controlled group is an ALE. Also, for a calendar year in which an employer is an ALE, the regulations applicable to ALEs apply to each company within the controlled group regardless of whether the individual company has 50 or more full-time employees or full-time equivalent employees.

The final item to consider is the definition of a common law employee. Common law employees are generally defined as workers whose work schedule is controlled by the employer (rather than the worker or another employer). Employers should closely review the job duties and expectations for workers from temporary staffing agencies and who are classified as independent contractors because their employment status can be easily confused, and they may be considered common law employees who count towards an employer’s full-time employee or full-time equivalent employee number. Failure to correctly account for these employees can result in a false conclusion as to whether an employer is an ALE.

Compliance is a critical component of any successful benefits plan. Contact our Compliance Team by email or at 888-279-5150 for help with ACA and ERISA requirements that may impact your business.

This article gives a basic overview of recent regulation as in effect on the date this notice was created. Please be aware that the determination of the requirements and the application of these rules to each employee welfare plan may differ for a number of variables. Nothing in this notice should be construed as legal advice.

What’s Driving Stock Volatility and What to Expect Next

From North Branch Group/Thrivent Financial

Mark Simenstad, CFA
Chief Investment Strategist, Thrivent Asset Management

David Francis, CFA
Vice President, Investment Equities, Thrivent Asset Management

Darren Bagwell, CFA
Chief Equity Strategist, Thrivent Asset Management

Steve Lowe, CFA
Head of Fixed-Income, Thrivent Asset Management

In the past year, the S&P 500 has gone through two corrections of 10% or more from peak to trough. This roller coaster market has left the S&P 500 with a modest loss of approximately 1.3% for 2018 through Dec. 10 (The S&P 500 Index is a market-cap-weighted index that represents the average performance of a group of 500 large-capitalization stocks). 

And, like a roller coaster, it has left many investors with a great sense of unease, if not outright nausea.

Although there are many reasons for broad stock market moves, the following factors are the most important issues that we believe have been driving this volatile market. We also lay out our current views on the prospects of the market:

1. The Federal Reserve (Fed) has been systematically raising short term interest rates and has discontinued its large bond buying program after a period of increasing money supply and low rates following the financial crisis.

The result has been reduced liquidity throughout the capital markets. It has also led to meaningfully higher short-term bond yields, which now provides a more competitive return alternative to stocks. Our view is that this policy has been prudent thus far, and that the Fed may now be close to a level that they believe should be appropriate for an economic and inflationary environment that is approaching more normal levels.

2. Closely tied to Fed policy has been the relentless narrowing of the spread between long and shorter maturity bonds. This “flattening” of the yield curve, as short-term rates and long-terms rates begin to converge, has led to widespread concerns of outright “inversion”—a historical precursor to recession. 

Our view is that although the yield curve has, in fact, flattened at the very short end of the curve, we don’t believe this is a classic inversion, where short-term rates are higher than long-term rates. In addition, although it is true that inversions often precede serious market and economic weakness, the length of time from the flattening/inversion of the yield curve and a bear market can vary greatly from one instance to another.

3. There are a multitude of disconcerting geopolitical events, particularly U.S.-China trade frictions and Brexit, which have injected a high degree of uncertainty and anxiety into the markets. Our view is that the outcome and ultimate impact of these developments are very hard to determine. Consequently, this uncertainty will continue to manifest itself in higher levels of volatility and more subdued market valuation (lower price-earnings ratios globally) (Price-earnings ratio refers to a stock valuation method in which the stock price of a company is divided by its annual earnings). 

4. Corporate earnings have been exceptionally strong due to solid economic fundamentals and the recent corporate tax cuts. However, the market has been concerned that we have seen the peak in earnings, with revenue growth poised to decline as the economy moderates, as well as profit margins that may decline as employment and logistics costs escalate, and as the positive impact from lower tax rates fades.

Our view is that although the positive impact from lower tax rates will fade, earnings will still be quite healthy by historical standards if operating margins prove resilient. Also, we see little evidence that the economy will downshift materially such that corporate revenues will stop growing.

5. The high and growing level of global debt and other liabilities, including pension and health benefit obligations, are beginning to weigh on longer term investor perceptions. Historically low interest rates have significantly mitigated the near-term cost of servicing these liabilities. 

Our view is that high debt levels are indeed an issue of concern, particularly if interest rates were to rise further. Partially offsetting this concern is the fact that consumer debt has not increased to excessive levels since the last recession, and thus should not be a contributing catalyst for potential problems. However, elevated corporate and government debt will weigh on global economies and markets as interest rates increase.

As discussed above, there are many risks that will continue to weigh on market returns, with high and rising debt levels being the most problematic risk from a longer-term standpoint. Given the diminished level of liquidity in the market, volatility will remain high, and further equity market declines are certainly possible. 

However, we believe a healthy domestic economy, sustained relatively strong corporate earnings, low interest rates, and relatively moderate valuations may counteract the rising tide of late cycle risks. We continue to believe that long term returns will be muted as compared to the very strong returns over the past number of years. 

Finally, in periods such as this, it is important for investors to again assess their real risk temperament relative to the time frame of their investment objectives and to ensure that their overall portfolios remain properly balanced and diversified across asset classes.


All information and representations herein are as of Dec. 10, 2018, unless otherwise noted.

Past performance is no indication of future results.

The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management associates. Actual investment decisions made by Thrivent Asset Management will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product.

Thrivent Asset Management, a registered investment advisor, is the asset manager for Thrivent Mutual Funds. Thrivent Distributors, LLC is the principal underwriter for Thrivent Mutual Funds. Thrivent Distributors, LLC is a registered broker-dealer and member of FINRA and SIPC.

New Year, New Session: PA Chamber Ready to Fight for Our Members in 2019

From PA Chamber of Business & Industry

Happy Holidays!  With December now nearly over, the PA Chamber is geared up to start 2019 with an aggressive pro-growth agenda.   As we work to ensure that the legislature is aware of our members’ major advocacy goals before lawmakers are sworn in on New Year’s Day, we’re taking stock of what we’ve achieved on behalf of our broad-based membership during the session that just wrapped up.

Among the strongest achievements was a legislative fix to a state Supreme Court case that is bringing clarity and cost-savings to employers within the workers’ compensation system; and a bonus depreciation bill that helped resolve a major competitiveness hurdle for employers.   You can read about the highs and lows of the past two years in our comprehensive 2017-18 End of Session Report.

With an eye toward 2019, our legislative agenda for the New Year is heavy on tax reform. Armed with facts in the Tax Foundation’s recent report on the Commonwealth’s business climate, the PA Chamber is making the case to lawmakers this coming session that Pennsylvania needs to implement tax reforms that will mirror reforms at the federal level.  Chief among these goals is the reduction of our state’s Corporate Net Income Tax, which at 9.99 percent is among the highest effective rates in the nation and presents one of the largest hurdles for attracting new investment and creating jobs. 

In a recent op-ed in Lancaster Online, PA Chamber President Gene Barr emphasizes the need for this and other long-overdue tax reforms while reflecting on Amazon’s recent decision to bring 50,000 new jobs and $5 billion in new investment to two areas outside of Pennsylvania.  While the Keystone State has a lot going for it in terms of cost of living, geography, vast resources and other key assets, our tax structure has consistently led companies to invest and grow elsewhere – and that’s a trend we’re committed to stop in its tracks.     

End of Session Report

2019 Legislative Agenda