By Michael Bielawski
The Green Mountain Care Board, Vermont’s health insurance regulator, says substantial health insurance savings were available in recent years that went unrealized. The announcement comes as Vermont health insurance premium rates are set to climb by 20% next year.
The December 16 report analyzed commercial medical claims covering inpatient and outpatient services from 2018 to 2023. The findings “indicate significant opportunity for cost savings” through a cost-setting device called ‘reference-based’ pricing.
Vermont hospital payments for VSEA and VEHI members ultimately averaged 289% of Medicare rates during the study duration.
The report states, “Vermont hospital payments for VSEA [Vermont State Employees Association] and VEHI [Vermont Education Health Initiative] members averaged 289% of Medicare rates during the study period. Adjusting these payments to 200% of Medicare could have saved the VSEA/VEHI health plans approximately $400 million during the study period, with $79 million of savings estimated in 2022.”
Reference-Based pricing
“Reference-based pricing” occurs when hospitals adjust their rates using Medicare reimbursement rates as a reference point. At least five other states are said to use the model: Colorado, Montana, North Carolina, Washington, and Oregon.
“We are talking about millions of dollars that can be saved by moving to this system,” said Don Tinney, president of the Vermont National Education Association to NBC.
The report suggests that ultimately such a move would alleviate the tax burden.
“Reference-based pricing could reduce the financial pressures on VEHI and VSEA by lowering prices paid on services, thereby reducing the need to increase taxes or reduce benefits to ensure the future solvency of the funds,” it states.
Reducing Medicaid reimbursement obviously would impact hospitals’ and health care providers’ bottom lines. The report also cautions the new savings should not mean providers should charge more.
“Important implementation considerations include Vermonters’ ability to absorb further property and other tax increases to pay for healthcare, the financial health of the plans, and the impact of rising healthcare costs on school and State budgets,” it states.
Positive track record
According to Faster Capital, a Dubai-based economic news media outlet, reference pricing generally means “a strategic pricing technique that businesses use to set prices that attract customers while maximizing profit margins. It involves setting a price point based on a reference point, such as the price of a competitor’s product or the average market price.”
According to the progressive think-tank The Century Foundation, a move to this system is not all benefits.
“While reference pricing has the capacity to meaningfully lower health spending, it can also result in significant gaps in health insurance networks via provider nonparticipation if states do not implement the reform carefully,” they state.
In other words, health insurers might look at individual state’s too-stingy reference pricing and just opt out. However, Century Foundation reports that the strategy has worked well in California.