Reference-based pricing is a methodology that prices a claim or bill for medical services starting at a benchmark or reference price. Using this methodology, a payer will set a price range or cap prices for each health care service instead of negotiating the prices with providers, using a reference point like Medicare pricing for their payment.
Montana’s state employee health plan uses a Medicare-based reference point to pay hospitals and other medical facilities. The reference-based pricing agreements set the price range paid by the health plan to 220% to 225% for inpatient services and 230% to 250% for outpatient services. Recent developments signal Montana may be adjusting its current model after a new contract was awarded allowing for reference-based pricing to meet pricing goals, but also by negotiating deals with individual health care providers using a mix of reimbursement models. An independent study of publicly available data estimated the Montana state employee plan saved $47.8 million from state fiscal years 2017 to 2019 using reference-based pricing.
Oregon passed legislation capping hospital payments for enrollees in the state employee health plans to 200% of Medicare for in-network care, and 185% of Medicare for out-of-network care. In 2019, Oregon released data regarding the fiscal and economic impact of their state employee health plan legislation showing the bill saved approximately $81 million dollars between the Public Employees’ Benefit Board and Oregon Educators Benefit Board.
Cost Growth Benchmarks
Cost growth benchmarks or spending growth targets peg annual health cost growth to a specific target, often between 2.4% to 3.8% per capita. State agencies or other authorities collect aggregate spending data from payers to identify cost growth trends and drivers of health spending. States can implement various strategies—such as public reporting or financial penalties—to ensure payers and providers are meeting cost growth benchmarks. In total, eight states have established cost growth benchmarks, either via legislation or executive order.
Massachusetts became the first state to establish a health care cost growth benchmark in 2012. Massachusetts sets its benchmark based on expected state economic growth, aiming to ensure overall health cost growth does not exceed the growth of the state economy. The Massachusetts Health Policy Commission, which operates the cost-growth benchmark, has the authority to require performance improvement plans for entities with “excessive spending growth.” Evidence suggests the program has reduced cost-growth rates. Massachusetts had the second-lowest rate of growth in standardized per person spending from 2013 to 2019. Additionally, while the state’s health spending is still high relative to the national average, its rank in per-person spending fell from third-highest in 2014 to seventh in 2019.
Premium Rate Review
Premium rate review enables an approval authority to assess whether premium rate increases are “unreasonable” or “excessive” by looking at factors like benefits in relation to premiums, previous premium rates, a carrier’s reserves and more. Some states have also established requirements for provider-insurer contracting, particularly relating to price increases, to improve premium affordability. Most states use some form of rate review. CMS estimated that rate review reduced total premiums for Americans in the individual and small group markets by $1.5 billion in 2015.
Rhode Island uses “affordability standards” when assessing premium rates, including minimizing price increases for inpatient and outpatient services in provider-insurer contracts to no more than annual inflation plus 1%. The affordability standards look at other cost containment strategies, such as primary care investment and alternative payment model adoption.
Iowa requires insurance carriers to immediately notify policyholders of any application for rate increase that exceeds the average annual health spending growth rate in the most recent national health expenditure projection published by CMS. Notices for application for rate increase to policyholders shall specify the rate increase proposed that is applicable for each policyholder and must include the ranking and quantification of those factors that are responsible for the proposed rate increase. Carriers’ notices are required to specify the proposed rate increase for each policyholder as well as the computation of factors causing the rate increase. Iowa’s rate review process also requires a public hearing and approval, disapproval or modification of proposed rates by the insurance commission.
Health care prices and spending continues to be at the forefront of policymakers’ minds. With new legislation introduced annually, NCSL continues to monitor this ever-changing policy landscape.
NCSL acknowledges the Arnold Ventures for their support of this resource.
Please note that NCSL takes no position on state legislation or laws mentioned in linked material, nor does NCSL endorse any third-party publications; resources are cited for informational purposes only.