Countering Soaring Healthcare Costs through Reference Based Pricing
By Paul Martinez | Published May 28, 2024
The Challenge: A construction company found itself grappling with an imposing 18% health insurance renewal, marking the third consecutive year of double-digit increases. Faced with the escalating costs, the company recognized the urgent need for strategic action to mitigate the financial strain. Their goal was clear: to curtail healthcare expenditures by 15% while retaining their health insurance plan.
The Solution: Newfront Senior Vice President Paul Martinez recommended a strategic move to counter soaring healthcare costs by transitioning the construction company from a conventional BUCA (Blue Cross Blue Shield, UnitedHealthcare, Cigna, Aetna) health insurance plan to a more innovative Reference Based Pricing (RBP) model. Unlike the BUCA plan, which reimbursed healthcare providers at rates exceeding 250% of Medicare, the RBP plan offered reimbursement at a more reasonable range of 140-175% of Medicare rates. This shift effectively slashed claims costs and drastically reduced premium expenses for the company.
The Results: The resultant savings were substantial - $1.75M, enabling the company to offer a remarkable benefit: a FREE health plan to its employees, a feat previously deemed unattainable. This transformation not only alleviated financial burdens on the company but also employees by providing them with a valuable and cost-effective healthcare option. Additionally, their first-year renewal under RBP called for a 10% decrease.
Paul Martinez
Senior Vice President
Paul focuses on helping companies scale from startup mode to global/public organizations, advising them on their risk, plan design, and compliance for their employee benefit programs at each growth stage. He transitioned into the total rewards space in 2010 after managing a Wells Fargo Financial office in Portland, Oregon. He uses his financial background to provide actuarial-based consultations and create forward-thinking solutions for companies to break the status quo on annual health insurance increases.
