Cost Caps on Medical Procedures Approved

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Federal officials recently approved “reference pricing,” a new cost-control mechanism that allows insurers to put a dollar limit on the amount that health plans pay for some expensive medical procedures, such as knee and hip replacements. The decision affects most employer-based plans as well as plans purchased through the Affordable Care Act’s exchanges. Plans must use a “reasonable method” to ensure “adequate access to quality providers.” 

The following illustrates how reference pricing works:

Assume that a health plan sets a hard cap of $30,000 — known as the “reference price” — on what it will pay for hospital charges associated with a knee replacement surgery. The plan offers the insured a choice of hospitals within its provider network. If the insured chooses a hospital that charges $40,000 for the knee replacement, the insured could owe $10,000 to the hospital, in addition to the insured’s usual cost-sharing for the $30,000 covered by the plan. 

The extra $10,000 is treated as an out-of-network expense and does not count toward the plan’s annual limit on out-of-pocket costs. This is important because, under the Affordable Care Act, most plans have to pick up the entire cost of care after the patient reaches the annual out-of-pocket limit (currently $6,350 for single coverage and $12,700 for a family plan). Prior to the federal officials’ ruling, it was unclear whether reference pricing violated this provision.

CalPERS, the California agency that manages health and retirement benefits for public employees, began using reference pricing in 2011 with regard to knee and hip replacements by steering patients to hospitals that were approved for quality and charged $30,000 or less. CalPERS’ health benefits director said the program has been a success and that patients are able to choose from about fifty hospitals. 

However, reference pricing may be suitable only for a specific subset of medical care: frequently-performed procedures where the prices charged vary widely but the quality of results do not. This could include MRIs and other imaging tests, cataract surgeries, and colonoscopies.

 

 

Topics:  Affordable Care Act, Fee Caps, Healthcare, Healthcare Reform, Medical Expenses

Published In: Health Updates, Insurance Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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