Rising healthcare costs and a growing need for transparent budgeting have led many employers to evaluate alternatives to their current healthcare model with an employee benefits consultant. Many use traditional PPOs, despite year-over-year price increases and limited provider flexibility. Reference-based pricing (RBP) models represent an alternative approach to funding claims, paying providers based on a transparent benchmark rather than negotiated network discounts.
A PPO plan uses contracted networks with pre-negotiated rates, typically reducing member exposure to surprise bills but limiting in-network incentives and pricing visibility.
Though RBP can provide clarity and cost savings, it is not superior to PPOs in every situation, underscoring the need for a balanced view of employee benefits and the potential challenges of switching to a revised healthcare model.
In This Article: Learn about the core differences between PPO and reference-based pricing models through the potential risks and rewards of transitioning away from traditional healthcare. Our goal is to help employers gain a balanced view of RBP models, enabling their organizations to transition successfully when viable or to make better use of their existing systems.
Benefit #1: Predictable Cost Savings
Reference-based pricing models calculate reimbursements based on benchmarks, such as fair market value for services or Medicare rates. This results in more predictable pricing when benchmarks are well-set and supported by advocacy.
Risk #1: Provider Compatibility
Some providers may not accept RBP payment calculations and engage in “balance billing,” which means they try to bill patients for the cost difference. This can lead to employee anxiety surrounding the billing process.
Benefit #2: Transparent Pricing
Unlike PPO plans, where rates are often kept confidential between insurance carriers and providers, RBP plans provide line-by-line claim information for employers to examine. Transparent pricing leads to greater accountability between employers and providers and to more transparent pricing flows for the business.
Risk #2: Higher Administrative Involvement
The transition from a PPO to an RBP often increases administrative involvement as organizations combine financial, insurance, and employee communication teams to implement the shift.
Benefit #3: Open-access Providers
While PPOs restrict care to in-network providers, employees using an RBP plan may access any provider willing to accept the plan’s benchmark, which can expand options in some markets. This can expand viable care options in limited markets and improve care quality by replacing network contracts with value-based care.
Risk #3: Provider Resistance
Not all providers will accept the RBP pricing model. Some may deny care if the number of non-contract patients reaches a certain level since PPOs are often more financially advantageous to providers over the long term.
Benefit #4: Employer Empowerment
Employers can gain control over their healthcare pricing methods and plan rules by switching from PPOs to RBP models. They can customize their plans around their organization’s needs, including their long-term pricing goals and demographics.
Risk #4: Potential Litigation
RBP plans can lead to potential litigation if care is denied or if balance billing makes employees feel regularly overcharged for care. While provider contracts protect employers using PPOs, RBP plans can leave them vulnerable to pricing disputes.
Benefit #5: Data-driven Strategy
When developing long-term pricing strategies, RBP plans help employers build a more value-based, data-driven model to combat rising healthcare costs. Using this model, employers can create a healthcare environment with greater transparency and fairness while aligning their long-term goals with their organization’s needs.
Risk #5: Different Regulatory Oversight
While RBP plans are less restrictive, they also place greater pressure on employers to make sure their employees’ benefits comply with billing regulations. This includes maintaining documentation and disclosures, and hiring an employee benefits consultant to help minimize legal exposure during and after the transition to an RBP model.
These risks and rewards can impact every organization differently, which is why a local employee benefits consulting firm is your organization’s best resource for learning how each plan type could benefit your situation.
Comparison Summary: RBP plans offer greater employer oversight and cost transparency in exchange for a broader risk surface. PPOs generally offer lower member friction and less balance-billing exposure, but trade that for less pricing transparency and weaker employer leverage.
Speak with a Client-first Employee Benefits Consultant
Switching from traditional PPOs to RBP models is a complicated process with several potential obstacles, including provider resistance and even legal liabilities. When properly migrated to reference-based pricing plans, organizations can maintain a more transparent, scalable, and predictable benefits strategy to combat the rising healthcare costs of traditional models.
However, RBP plans are not always an ideal alternative to PPOs in every market, which is why an experienced employee benefits consultant can help employers make informed decisions about their healthcare by weighing the potential financial benefits and logistical risks. At New City Insurance, our work goes beyond selling employee benefits plans. We examine how changes in benefits affect essential performance factors, such as employee retention and productivity, to design integrated, compliant, and data-driven plans that turn healthcare obligations into competitive advantages.
Where RBP tends to work well:
• Markets with competitive provider options
• Employers comfortable with self-funding or strong TPA support
• Workforces open to education and active navigation
Where RBP may struggle:
• Hospital-dominant or rural markets with limited choice
• Workforces that strongly prefer fixed copays and minimal billing involvement
• Employers without internal bandwidth or an advocacy partner
Contact our team today to learn how RBP plans can provide increased visibility and cost savings over traditional PPO models, depending on market conditions, employee resistance, provider adoption, and more.