I need a hip replacement and when I asked my insurer about coverage, I was told that my plan uses reference pricing. What is that?

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Reference pricing is when an insurer or health plan will pay a set amount (a “reference price”) toward a particular procedure. The consumer can go to a provider who has negotiated a price with the insurer that is equal to or less than the set amount the plan will pay and have the whole service covered. If a consumer goes to a provider that charges more than the reference price, he or she must pay the difference between the reference price and the price charged. It’s up to the insurer to decide whether or not the difference a consumer pays between the reference price and the price of their own care can count toward the plan’s annual limit on out-of-pocket cost sharing.

Although guidance on this topic is limited, federal policy allows both insured and self-insured large employer plans to use reference pricing, as long as the insurer has a reasonable method to provide adequate access to quality providers. Insurers must have an easily accessible process for exceptions to reference pricing when there is no provider accepting the reference price available or when the quality of service could be compromised by using a provider charging the reference price. For example, an exception may be granted if your hip replacement cannot be obtained within a reasonable wait time or travel distance or your medical condition is such that a specialist who does not take reference pricing is needed to ensure a safe operation. Additionally, your insurer must automatically provide you with a list of services that are subject to reference pricing, and information about the exceptions process without charge. Also, upon request, your insurer must provide you with the following information:

  • List of providers accepting reference prices for each service
  • List of providers that will only accept a negotiated price above the reference price for each service
  • Information on the insurer's process to ensure that there is an adequate number of providers accepting reference prices that meet reasonable quality standards

There is no federal guidance at this time on how reference pricing may apply to non-grandfathered plans in the individual and small-group market, but there may be federal guidance in the future, particularly as it relates to essential health benefits. (CMS, FAQs about ACA Implementation Part 21, Oct. 10, 2014; CMS, FAQs About ACA Implementation Part 31, Mental Health Parity Implementation, and Women’s Health and Cancer Rights Act Implementation, Apr. 20, 2016.)

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